“We are thrilled to be ranked as one of the Top RIA Firms in the U.S. by Forbes again as we strive to be a resource for our community. To be in the top 100 of this elite group is an accomplishment that wouldn’t be possible without our team’s hard work and dedication to leading our clients to financial security,” said Founding Partner and Chief Growth Officer Michael Blehar.

To read more, click here.

See the full list of Top RIA Firms 2024.

See the methodology here.

Click Here To See More Information On What Makes Fort Pitt Capital Group Different. 

Rankings and recognitions by unaffiliated publications should not be construed by a client or prospective client as a guarantee that Fort Pitt Capital Group will provide a certain level of results in client accounts, nor should they be construed as current or past endorsements of Fort Pitt by clients. Fort Pitt does not participate in pay-to-play awards programs; however, rankings published by magazines and others are generally based exclusively on information prepared and/or submitted by the recognized advisor. Past results are not indicative of future results. Please click on each link above for more details on ranking factors, methodology, and overall recognitions received by Fort Pitt.

The post Fort Pitt 1 of 5 Local Money Managers Ranked on Forbes Top RIA Firms List appeared first on Fort Pitt Capital Group.

“We are thrilled to be ranked as one of the Top RIA Firms in the U.S. by Forbes. To be in the top 50 of this elite group is an achievement that wouldn’t be possible without our team’s hard work and unwavering commitment to leading our clients to financial security,” said Founding Partner and Chief Growth Officer Michael Blehar.

Firms on this exclusive list were selected based on their “decades of experience, not to mention proven track records of seeing clients through market turmoil and preserving their wealth.”

See the full list of America’s Top RIA Firms 2022.

See the methodology here.

Click Here To See More Information On What Makes Fort Pitt Capital Group Different. 

Rankings and recognitions by unaffiliated publications should not be construed by a client or prospective client as a guarantee that Fort Pitt Capital Group will provide a certain level of results in client accounts, nor should they be construed as current or past endorsements of Fort Pitt by clients. Fort Pitt does not participate in pay-to-play awards programs; however, rankings published by magazines and others are generally based exclusively on information prepared and/or submitted by the recognized advisor. Past results are not indicative of future results. Please click on each link above for more details on ranking factors, methodology, and overall recognitions received by Fort Pitt.

The post Fort Pitt Capital Group Ranked on Forbes Top RIA Firms List appeared first on Fort Pitt Capital Group.

There are many good reasons to look into investment as a woman. For one, women still make 12 percent less than men. Investing can be a great way to make up some of the difference and put extra money aside. Here are five tips for investing for women if you’re looking to get into it for the first time.

1. Educate Yourself

An excellent first step for any investor is to learn the basics. If you’re new to investing, look into blogs, books, and instructional videos to start the process of learning more. Research common investing terminology and the pros and cons of different investment types, like stocks, bonds, retirement funds, and mutual funds.

2. Set Financial Goals

You’ll want to note your current income and expenses to decide what you’re willing to set aside as an investment. Once you’ve done this, you can create an investment plan that will work for you based on your particular goals. Common objectives for investment include retirement, travel, and house buying.

3. Monitor Your Investments

Keep track of how much money you have invested and where it is located. Tracking your investments will allow you to check up on trends occurring in those particular markets. If anything changes, you can alter your investing strategy to adapt.

4. Learn to Take Risks

One of the differences between how women invest and how men invest is that women are more prone to risk aversion. Many women try to avoid investing in situations with high uncertainty. Young investors are often conservative with risk too. As you take risks, educate yourself to find which chances are likely to gain the best reward to avoid making emotional decisions.

5. Stick With It

Investing is a long process, and you probably won’t see results immediately. Instead, it’s essential to focus on the long term. Compound interest can dramatically increase your funds, but it takes time to build up, so trust the process.

Work With a Professional Investor

Another way to learn more about investing money as a woman is to seek professional help. Investing might seem overwhelming, especially if you’re getting into it for the first time, but an advisor can work with you to establish financial goals and create a plan that fits your individual situation.

If you’d like a professional advisor to assist you with establishing an investment strategy, Fort Pitt Capital Group can help. Learn more about our individual financial services and how we will create a unique plan to fit you.

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If your breast cancer diagnosis has led to financial instability, know that you’re not alone, and you can seek monetary assistance from nonprofit or government programs.

Nonprofit Assistance

Many individuals have founded nonprofit organizations to help people with cancer receive the resources they need during treatment. Some organizations that offer breast cancer financial assistance include:

• Breast Cancer Assistance Fund: This fund is set up to provide financial aid to women diagnosed with breast cancer.
• Komen Financial Assistance Program: The Susan G. Komen^® organization addresses breast cancer on many fronts, including a financial assistance program.
• The Pink Fund: This fund provides financial help for nonmedical cost-of-living expenses like lost income from job loss.
• Genevieve’s Helping Hands: This charity meets the unique financial needs of women with breast cancer under 40.

Government Support Programs

The government has also set up particular financial assistance programs to help those with medical conditions, including cancer. Here are a few programs that offer financial assistance for breast cancer patients:

• Supplemental Security Income (SSI): This program helps disabled individuals with little to no income. Women with breast cancer can qualify as disabled under the requirements of this program.
• Social Security Disability Insurance (SSDI): Any condition lasting more than one year can qualify as a disability under this program, and payments begin six months from the date of disability.
• Compassionate Allowance: This system works to expedite the claim process to three weeks for SSDI for conditions including metastatic breast cancer.

Other Financial Support Options

You can also find financial support from other areas. Here are some additional options for financial assistance for breast cancer:

• Fundraising: You can use an online platform like GoFundMe that allows you to tell your story and raise funds. You can also set up fundraisers in your community through personal fundraisers.
• Gift cards for expenses: Nonprofits like Tenaciously Teal and The Cancer Card Xchange give gift cards for bills like gas and groceries to people living with cancer.
• Medication assistance: Programs like Partnership for Prescription Assistance and Rx Outreach provide free or reduced-cost prescriptions to patients with breast cancer.

Get Help From a Financial Advisor

A breast cancer diagnosis can come with many anxieties, but your finances don’t need to be one of them. If you’re looking for financial help for breast cancer patients, you can use government and nonprofit services to lift your financial burden.

For additional help, you can seek out individual financial services from Fort Pitt Capital Group. We can help you by providing a personalized financial plan for your situation.

The post Breast Cancer and Financial Support appeared first on Fort Pitt Capital Group.

Click Here to Request a consultation about an ESOP for your Business

Section 1. ESOP Overview

By Doug Ellis

Important ESOP Numbers:

• There are roughly 6,500 ESOPs covering more than 14 million participants
  • Publix Super Markets
  • Black & Veatch
  • Jasper Engines & Transmissions
• 57% of ESOPs are in S corporations
• Industries of ESOP Sponsors
  • Manufacturing – 21%
  • Professional/Sci./Tech. – 21%
  • Construction – 15%
  • Finance/Insurance/Real Estate – 12%

Source: NCEO

Common Misconceptions about ESOPs:

• ESOP is primarily an employee benefit plan
• A selling shareholder must sell 100% of his/her stock
• Shareholders can get a higher price selling to a third party
• Sensitive information must be shared
• Selling stock to an ESOP results in a loss of control by the owner
• Can only be established for a C corporation
• ESOP participants are able to exercise voting rights
• ESOPs make sales to a third party difficult
• ESOP repurchase liability may harm the future of the Company
• Too costly to implement and administer

Contact us today to start a conversation about an ESOP for your business

Benefits of an ESOP

o   Selling Owners

• Provides ready market to sell shares at fair market value
• Effective means for exiting the Company for controlling shareholders
• Significant tax benefits to selling owners; potentially tax-free sale
• Allows selling shareholders to retain voting control

o   Company

• Effective means for succession ‒ continuity of management team
• An incentive for recruiting/retaining employees and a way to increase employee morale and productivity
• Reduction of corporate taxes and increase in cash flow
• Pre-tax dollars to finance repayment of debt
• Finance corporate acquisitions

o   Employees

• Employees acquire beneficial ownership in the Company without having to invest their own money
• Employees are able to acquire ESOP stock without paying current income tax on the stock
• Growth of employees’ interest not subject to tax until distribution
• Employees share in current and future economic rewards of Company ownership
• Builds loyalty and motivates performance

o   What is an ESOP process?

• Feasibility study
• Identify Trustees, Experts & Advisors
• Financing
• Appraisal
• Plan Design
• Legal Documents
• Closing
• IRS Determination Letter
• Plan Administration (Testing, Annual Valuation, Etc.)

o   How do ESOPs help leverage transactions?

• The company establishes an ESOP Trust (the Trustee can be an insider but should use an independent trustee for the Trust’s purchase of Company stock)
• Financing established – Bank and/or selling shareholders
• The company uses bank or seller financing (“External Loan”) to make a loan to the ESOP Trustee (“Internal Loan”)
• The trustee uses Internal Loan proceeds to purchase company stock from the shareholders or the company
• The company makes annual contributions or dividends to ESOP that ESOP uses to repay Internal Loan and allocate the corresponding number of shares to ESOP participants
• Company or ESOP repurchases shares from employees after termination

ESOP Overview – Leveraged Transaction

Section 2: ESOP Tax & Valuation Considerations

by Melissa Bizyak, CPA/ABV/CFF, CVA

ESOP trustees/fiduciaries should appoint valuation experts that:

• Are qualified,
• Are independent, and
• Meet requirements of both IRS and ERISA

ESOP Valuation Fundamentals

• What is “adequate consideration”?
• Valuator must consider factors that are specifically applicable to ESOPs
• ESOP Valuation Fundamentals
  • Analyze forecasts provided by the management of the sponsor company
  • Valuator should consider all approaches
  • Perform an analysis of the transaction to determine the sponsor company’s ability to service debt associated with a transaction
• Issue fairness opinion relative to:
  • Transaction price not greater than fair market value
  • Reasonableness of interest rates
  • Terms of the transaction are fair and reasonable to ESOP from a financial point of view

ESOP’s Tax Benefits to Shareholders

• Can sell any % of the Company to the ESOP for “adequate consideration”
• Will defer tax as long the ESOP owns at least 30% of the Company after the sale (IRC section 1042)
• Must invest the proceeds in qualified replacement property (can choose the amount to be taxed)
• Will receive greater investment income since no tax will be paid and more will be invested

ESOP’s Tax Benefits to Company

• Can take federal and PA corporate tax deductions for both the interest and principal payments on loans borrowed to fund the purchase of Company shares
• Annual contributions to the plan are tax-deductible
• Dividends paid in cash on shares held by an ESOP can be tax deductible by sponsoring corporation
• ESOPs can qualify as shareholders in an S corporation
• S corporation’s percentage of ownership held by ESOP is not subject to income tax at the federal level

Special Tax Incentives for S Corporation ESOPs

• Non-taxable income related to ESOP stock for S corporations
  • S corporation is a “pass-through” entity
  • ESOP, as a tax-exempt qualified retirement plan, has no Federal income tax liability – participants pay income tax on distributions
  • Thus, an S corporation that is 100%-owned by an ESOP pays no Federal income tax
  • Assets in ESOP increase free of income taxes until withdrawal

Comparison of the impact of exemption for taxes for an S corporation ESOP versus a C corporation ESOP (100% ESOP-owned)

Section 3: ESOP Legal Considerations

by Doug Ellis

As a qualified retirement plan, ESOP gives rise to numerous fiduciary and administrative obligations

• Annual valuation
• Annual recordkeeping and administration – Form 5500 filings, audit
• Participant diversification and put rights
• Repurchase obligations
• Communications training and education
• Evaluating offers to buy the company
• Legal compliance
• ESOP participation may be subject to certain eligibility requirements
• ESOP may require participants to meet certain service requirements to “vest” in his or her benefit or receive allocations of stock
• Participants may defer distribution of benefits if they leave the Company before reaching retirement age (get a “free ride”)
• The company can maintain the existing management structure but must be aware of different ESOP & corporate fiduciary roles
• Selling shareholders can continue to receive salary and/or phantom equity grants

Personal Financial Planning: Will an ESOP work for you?

By Chris Chaney

• Identify anticipated expenses
  • This is more difficult to estimate if there will be a change in lifestyle
• Rationalize expenses:
  • Identify expenses you will need to assume that were previously run through the business. Which will you assume going forward?  Which will you be able to eliminate?
  • Identify income that may be adjusted post-transition (e.g., rental income if you own the property, etc.)
  • Expenses resulting from a major purchase (second home, aircraft, etc.) or a change in lifestyle (travel)?

The goal is to define, as well as you can, your anticipated living expenses after you leave the business.

• Identify Your Assets and Income
• External (Non-portfolio) sources of cash flow:
  • Will you continue working?
  • Social Security benefits
  • Pension benefit(s)?
  • Rental income
    • IF retaining real estate: how reliable? How much?  How long?
  • Identify portfolio income need:
    • Net proceeds
    • Ideally, your annual cash flow is 2-3% of your overall portfolio value.
  • Determine the amount of assets needed to underwrite your NEED.
    
    • All businesses have cycles – yours, as well as publicly traded companies (stocks). Every company faces adverse circumstances – from occasional headwinds and challenging environments to unexpected competition, unforeseen issues, or disruptive developments.

It is important to build an “all-weather” portfolio OUTSIDE of your business.

• • A good place to start: Employer-sponsored retirement plan
  • Surplus: non-qualified investments.
  • Estimated NET ESOP proceeds.
  • Liquidity Event: Business Sale through an ESOP
    • If you meet all of the requirements, you MIGHT be able to consider a 1042 exchange.
    • If you do not, then the anticipated ESOP cash flow will need to be incorporated into your retirement plans.
  • Assess the tax impact
    • Work with your tax advisor to determine – and if possible, minimize – the potential tax impact of the sale.
    • A 1042 Exchange can help to defer or avoid capital gains taxes.
    • If outright distributions: determine your net proceeds and how much should be set aside to pay the tax bill.
    • Consider strategies to mitigate taxes:
    • Retirement plan contributions
    • Charitable giving – this kind of planning requires great care and must be tailored to your circumstances, concerns and goals.
  • Investment Strategy: Optimize Assets Based on Need, Goals
    • After-tax assets (least expensive to access from a tax perspective): most conservative.
      • Allocate 6-9 years of anticipated distributions to non-growth assets (bonds, cash, etc.).
      • Allocate the remainder to growth assets (stocks, etc.) to support future cash flow needs.
    • Tax-deferred assets (retirement accounts):
      • More expensive source of funds from a tax perspective
      • As a result, you may prefer to limit withdrawals . . .
      • . . . which means that assets are likely to stay in the account longer.
      • Investment implications: This fact pattern warrants a more growth-oriented approach.
    • Tax-deferred assets (retirement accounts) continued:
      • Note: You MUST take annual withdrawals beginning at age 72: Required Minimum Distributions
        • Consider Roth conversions prior to RBD (Required Beginning Date) and during relatively low tax exposure years.
        • Why a Roth IRA?
          • Roth IRAs that you own are not subject to RMDs.
          • Under certain conditions, withdrawals are tax-free.
        • Conversions can be limited to low marginal tax rates to maximize benefits, reduce retirement assets and potentially reduce tax issues once RMDs begin.
        • Charitable Gifts, like qualified Charitable Distributions (QCDs).
      • Tax-exempt assets (Roth):
        • The ideal investment account: no tax on gains, income, or distributions (if you comply with requirements)
        • As a result, this will likely be the last account you access for cash flow
        • Investment implications: your MOST growth-oriented strategy

Top 3 ESOP Considerations

• ESOPs provide many tax and economic benefits to companies, owners, and employees but come with certain downsides and administrative burdens
• The advisability of an ESOP for a corporate exit or financing strategy requires broad consideration of shareholder, corporate, and employee goals and objectives
• Significant tax savings may offset the cost and other burdens of implementing and administering an ESOP

Contact us today to see if an ESOP is right for your business.

Fort Pitt Capital Group, LLC is an investment advisor registered with the United States Securities and Exchange Commission (“SEC”).  For a detailed discussion of Fort Pitt and its services and fees, see the firm’s Form ADV Part 1 and 2A on file with the SEC at www.adviserinfo.sec.gov.  Registration with the SEC does not imply any particular level of skill or training. You may also visit our website at www.orchid-ibex-388317.hostingersite.com.

*Content is provided for educational purposes only. Opinions provided include endorsements of the products and services provided by Fort Pitt; however, are not indicative of any specific client experience or testimonial.

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There is more to executive pay than salaries, bonuses, and common benefits such as health insurance, retirement accounts, and vacation time. Deferred compensation and stock options are integral to the total compensation package.

With a wide array of incentive programs ranging from restricted stock to stock options and deferred compensation, how are you supposed to maximize your benefit? The first step is understanding your options.

What Are Restricted Stock Units?

Restricted stock units are some of the safest total compensation packages. With a restricted stock unit compensation package, you receive shares of your company. The safety of a restricted stock unit comes in its certainty, which you leverage control to gain. You’ll receive your shares on a vesting schedule that your former employer determines.

The vesting schedule under which you receive your shares often aligns with the amount of time you spent with your company, performance metrics, and other restrictions your former employer may impose. You’ll receive the shares incrementally over a given period. Once you receive your shares, you’ll have voting and dividend rights. The dividends report as wages on a W-2, and you’ll be taxed at the shares’ market value at the time of vesting.

What Are Stock Options?

While employee stock options are similar to restricted stock units, you maintain more control over these stocks when you receive and sell them. When your company gives you a stock option, you have the right to buy stock in the company at an agreed-upon rate and time window. Employee stock options are call options, meaning they assume the stock will rise over time. You’ll receive the most benefit if the stock’s value rises above expectation.

Employee stock option taxation occurs when you exercise and sell the option. They do not include dividends or voting rights.

What Is Deferred Compensation?

As the name suggests, deferred compensation is a package where the employer agrees to pay a portion of the employee’s compensation later. A retiring employee may receive different compensation as a part of a retirement plan or pension plan.

Deferred compensation plans like 401(k)s and 409(a)s involve matching systems where the employee and employer each contribute financially until retirement when the employee can access the money. In many cases, taxation occurs when the deferred income is paid out, which can be beneficial if you anticipate dropping to a lower tax bracket when you retire. 401 (k) plans are the exception — taxation occurs when you earn the income.

How to Maximize Benefits of Total Compensation Packages

If you are participating in a total compensation and benefits package, there are a few strategic elements to consider.

Create a Financial Roadmap

Before making a haphazard decision, create a financial roadmap. Detail your financial goals, viewing your finances holistically. Accounting for 401(k)s, IRAs, brokerage accounts, stock options, and deferred compensation allows you to quantify the impact of a singular decision on the aggregate portfolio.

For example, if you are participating in an Incentive Stock Option Program (ISO), there isn’t a taxable event at the exercise date; however, it is important to understand the exercise is calculated into the Alternative Minimum Tax (AMT). Additionally, if the stock acquired through the exercise is sold prematurely – within one year of the exercise date or two years from the grant – the favorable capital gains rate is lost and subsequently increased to earned income rates.

A more simplistic example occurs when an executive has stock options and a deferred compensation program. If the executive has the ability to spread liquidity events over separate calendar years, the potential to avoid reaching higher tax brackets exists. The real question is which do you liquidate first, the stock option or the deferred compensation? There isn’t a cookie-cutter answer; it varies per each executive’s unique situation. The executive must consider account values, the impact of taxation, and the potential risk versus reward.

Through a combination of deferred compensation and stock options, typically a large portion of a corporate executive’s net worth directly correlates to their company. This is not by accident; in fact, this is by design. While there is a fiduciary responsibility to the shareholders of a public company, tying an executive’s wealth to the corporation aligns the success of the business to its financial prosperity.

Create a Sustainable Investment Policy

An additional benefit of constructing an objective financial plan is the ability to create a suitable Investment Policy – a clearly defined investment approach based on income needs, time horizon, and risk tolerance. A key advantage of an Investment Policy is determining the appropriate diversification of assets. Strategically planning the liquidation of stock options throughout your tenure spreads taxation over multiple years reducing your exposure to a singular asset and the potential volatility.

Follow the Yellow Brick Road?

While devising a financial road map is important, it’s not as simple as following the yellow brick road. Flexibility is vital to your success. Readdress the plan as individual circumstances morph, tax laws change, and the financial markets fluctuate. An unexpected buyout offer not included in the financial plan warrants a discussion with your investment advisor to determine if the proposed package and current asset base are capable of sustaining the required income to maintain your current lifestyle.

Coordinate With Trusted Advisors

Be mindful of the one-stop-shop advisors claiming expertise in every facet of your financial journey. At this stage in your life, you have achieved the level of success where you are facing multiple, and often complex, financial challenges that necessitate specialists for investment management and tax advice.

With the current volatility in the market and ever-changing taxation landscape, it is impossible to remain an expert on both fronts. By segregating the investment advisor and tax advisor, you have effectively created a team of experts working on your behalf. Both provide professional insight from differing vantage points and add a layer of checks and balances.

The oversight of two experts ensures you are optimizing investment opportunities and tax advantages, which becomes extremely critical during retirement. Charging an independent investment advisor to produce income from your portfolio and coordinate with your tax advisor to take advantage of different account registrations to create the ideal blended tax rate in retirement is paramount.

Talk With a Financial Advisor

Whether you’re planning the last few years of your career or just began saving for retirement, a knowledgeable financial advisor can help you understand your options and execute a well-crafted retirement strategy. Fort Pitt Capital Group proudly offers Wealth Management and Financial Advisory services that help people reach their retirement goals.

We encourage you to browse our services for individuals or contact us online to discuss your situation.

The post How Can You Maximize Benefits of Total Compensation Package? appeared first on Fort Pitt Capital Group.

More significant economic trends also impact interest rates. The COVID-19 pandemic is a recent example. At the beginning of the pandemic, the Federal Reserve (Fed) cut its rates to zero. Interest rates fell to record lows. In 2022, the Fed announced it would start increasing rates in response to high inflation levels. As a result, rates began to creep upward.

Rising interest rates offer good news and not-so-good news for investors. Learn more about what you can expect when interest rates increase.

What Do Rising Interest Rates Mean?

Rising interest rates have a direct effect on your ability to access credit. However, higher interest rates also mean you’ll see a better return on your savings.

The Fed controls interest rates by controlling the funding rate, which banks charge each other. When the Fed raises its funding rate, it triggers a chain reaction. Banks increase the interest they charge on most types of loans. Potential borrowers become more hesitant to borrow money because of the higher cost. People buy less, reducing demand for products and potentially reducing inflation.

Banks often tighten credit standards when they increase rates, further reducing the number of loans they make.

Rising interest rates also make it more challenging for businesses to borrow money. Instead of getting a loan to purchase new equipment, a company might cut its production level. Reduced productivity means fewer goods on the market. It can also mean the business needs fewer employees.

What Happens When Interest Rates Rise

From employment to productivity levels, rising interest rates have far-reaching effects. Take a closer look at what higher rates mean for your ability to borrow, save, invest or spend money.

1. How Rising Interest Rates Affect Spending

Higher interest rates affect spending in a couple of ways. First, the cost of borrowing money goes up. Consumers will likely see higher interest rates on credit cards, auto loans, and personal loans.

People typically spend less when rates are high. Over time, reduced spending contributes to a significant drop in demand for goods. Companies often respond by lowering product prices, pushing inflation down.

2. How Rising Interest Rates Affect Saving

Rising rates tend to be good news for saving money. The interest rate savings accounts, money market accounts, and certificates of deposit (CD) earn go up when rates rise. As a result, savers get a greater return on the money they deposit into bank accounts or CDs.

Higher rates on CDs and savings accounts should encourage more people to save. One thing worth paying attention to is the actual rate an account or CD earns and how the rate compares to inflation. Savings rates have been so low recently that they aren’t keeping up with inflation even as they increase. That means you’ll get a better return now than before, but it still might not be enough to keep up with the cost of living increases.

3. How Rising Interest Rates Affect Inflation

When the Fed increases interest rates, it wants to push inflation down. Inflation usually averages about 3% annually. However, between March 2021 and 2022, prices rose 8.5%, nearly three times the average rate. The dramatic rise in inflation caused the Fed to boost rates.

The Fed has increased rates several times to manage inflation. In the early 1980s, inflation was a staggering 14%. The Fed boosted interest to 19%.

Its actions had both positive and negative effects. Raising the interest rates drew inflation to a halt. It also sent the economy into a deep recession.

4. How Rising Interest Rates Affect Stocks

The stock market typically sees an immediate reaction to higher interest rates. Usually, higher interest rates mean more volatility in the stock market.

Since borrowing costs more, businesses can have difficulty raising capital when rates are up. They also need to charge more on any bonds they issue, making it difficult to attract funding. Companies might reduce their growth projections or otherwise tighten their belts. Their actions can cause their stock price to dip, reducing overall market prices.

Higher interest rates can also make investors more likely to sell their stocks, which affects the market overall. The more people sell, the lower stock prices dip. Falling stock prices often cause people to panic-sell, pushing prices down even further.

5. How Rising Interest Rates Affect Bonds

Bonds are the lower-risk cousins of stocks. When investors turn away from investing in stocks, they focus on investing in bonds.

Interest rates affect bond prices and the return on bonds. Usually, the price of bonds falls when rates rise. The bond’s rate of return goes up, making them a more desirable asset for investors.

6. How Rising Interest Rates Affect Real Estate

Mortgage interest rates don’t follow the Fed’s funding rate. But that doesn’t mean rising interest doesn’t affect the rates on home loans or other real estate loans. Mortgages typically follow the 10-year Treasury Yield. The Treasury Yield has recently gone up, pushing mortgage interest rates higher.

After hovering at record lows in 2021, mortgage interest rates jumped by 2% in early 2022. The sudden rise in mortgage rates and an above-average increase in housing prices are likely to cause a market slowdown. It’s more expensive to borrow money for a new home, and many homebuyers feel priced out of the market. Fewer people are likely to buy when the cost is too high.

What Should You Do During a Period of Rising Interest Rates?

Any change in interest rates creates an opportunity to review your portfolio. It might also be worthwhile to refinance certain loans to lock in a rate before they increase substantially. The exact steps you take depend on where you are in life and your financial goals. A wealth manager can help you make the moves that are most likely to pay off in the long run.

Some possible steps to take include:

• Refinancing an adjustable-rate loan: Refinancing to a fixed-rate loan before rates climb can be a good option if you have an adjustable-rate mortgage.
• Creating a bond ladder: With a bond ladder, you purchase bonds that mature at different times, such as six-month and 12-month. As each bond matures, you can reinvest it in a new one that should have a higher interest rate.
• Reconsidering inflation hedges: You might consider cutting back on gold and other metals investments when rates are high since the higher rates usually push inflation down.

Learn More About Our Financial Advisory Services

The market is constantly changing, but the financial advice you receive should be constant and steady. Fort Pitt Capital Group offers financial advisory services that put your best interests first. As rates increase and you reconsider your portfolio, we can help you make the decisions that allow you to reach your goals. Contact us today to learn more.

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You’ve probably heard that a dollar doesn’t go very far these days. You might have also heard that a dollar today won’t be worth a dollar tomorrow. Both are due to inflation or an increase in prices.

Inflation isn’t necessarily bad — the Federal Reserve (Fed) considers a 2% annual inflation rate acceptable. But when inflation gets too high, it can seriously impact the cost of living, your quality of life, and the overall economy.

Take a closer look at the impact of inflation and what high inflation means for you and your money.

What Is Inflation?

The definition of inflation is an increase in prices over time. Another way to define inflation is as a loss of purchasing power. If you have $100, you can buy a $100 gadget, but that same $100 gadget will cost $102 next year if inflation is 2%. Your $100 won’t be enough to buy it.

Inflation isn’t even across the board. Some prices will increase more than others over the same period. The cost of fuel might increase by 10% over a year while the cost of flour goes up by 4%.

In the United States, two indexes measure inflation. The first is the Consumer Price Index (CPI) which tracks the cost of goods people living in urban areas buy. The second is the Personal Consumption Expenditures Index (PCE).

While the CPI only looks at urban consumers, the PCE tracks the purchases everyone makes. The PCE also measures the price of services people don’t always pay for out-of-pocket, such as medical care.

The CPI collects data from household surveys, and the PCE gets its data from suppliers and gross domestic product (GDP) reports. Both indices come out monthly. Often, the CPI shows a higher inflation rate than the PCE. When it sets its inflation objectives, the Fed relies on data from the PCE, not the CPI.

What Is the Inflation Rate?

The inflation rate changes monthly and yearly. It also varies based on the product category. The CPI and PCE often depict different inflation rates since they have varying methods for tracking prices.

While rates change based on the data collected, measuring inflation is similar. An agency that measures inflation begins by gathering price information. Typically, an agency collects data on the price of goods and services people consume most often.

They call the collection a basket. The basket doesn’t contain price data for every good or service. Usually, the basket has information on the things most households use, such as:

• Fuel
• Food
• Clothing
• Utilities
• Shelter

Once an agency has information on how much goods and services cost today, it can compare the current price to a previous month’s or year’s price data. The difference between the two is the inflation rate.

What Causes Inflation?

There isn’t a single cause of inflation. Instead, multiple factors come together to push prices up.

Supply and demand often contribute to inflation. When an item is in hot demand, but there isn’t much of it to go around its price jumps. Fuel is a good example. When oil production drops, the price of fuel tends to increase. People still need to drive places, but there isn’t enough gasoline. Gas prices rise as a result.

Supply chain issues also contribute to inflation. When retailers can’t get the goods they ordered quickly, but there’s significant consumer demand for those goods, the prices rise.

Other economic factors drive inflation up, as well. When interest rates are low, you can get a loan or credit card with a low rate. It’s less expensive to borrow money, making you more likely to spend. The more people are willing to shop and spend, the greater the demand for goods and the greater the price of those goods.

A few other factors that contribute to inflation include:

• A low unemployment rate
• High levels of consumer confidence
• High savings rate
• War

How Will Inflation Affect You?

Although inflation isn’t necessarily negative, it can impact your purchasing power. When inflation increases, you need more money to buy the same goods and services you did a month or year ago.

If your income increases with the rise in prices, you’ll see little effect from inflation. When incomes don’t rise parallel to the rise in prices, it can be more challenging to afford goods.

Inflation can also affect the value of your rate of return. If you have an investment that earns a fixed rate, such as 4%, and inflation rises above 4%, you have less purchasing power than if you had a 4% return and inflation was 2%.

Rising inflation can make your debt more affordable if you have a loan with a fixed interest rate. If your mortgage charges a 4% fixed interest rate, but inflation is 5%, your actual rate is -1%. You calculate the actual rate by subtracting the inflation rate from the mortgage interest rate.

While inflation can be good news if you already have debt, it also makes borrowing money more expensive. A common response to higher-than-ideal inflation rates is for the Fed to raise interest rates. The rates on credit cards and other types of consumer debt go up.

How Does Inflation Impact the Economy?

Inflation benefits the economy when it is at or below the acceptable rate of 2%. It encourages people to spend, which keeps the economy moving along. Inflation also helps to keep unemployment down.

When inflation increases too quickly, it can hurt the economy. The Fed’s response to rapid inflation is to raise interest rates. Rising interest rates aim to slow down demand, putting the brakes on inflation. In some cases, the drop in demand can go too far, leading to a recession.

High inflation rates can make the stock market more volatile, triggering large-scale sell-offs. When inflation is up, companies need greater returns to see a profit or break even. The return on investment drops when inflation increases, too. A stock with an average annual return of 4% is less valuable when inflation is 5% compared to 2%.

Contact Fort Pitt Capital Group for Financial Advice

Rising prices and higher-than-average inflation can mean it’s time to reevaluate your portfolio and adjust to stay on track for your goals. Fort Pitt Capital Group is a financial advisory services company that aims to create the greatest benefits for the customers we serve.

Contact us to speak with an advisor today.

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