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By Washington Trust / July 27, 2021

Now that graduation season has passed, many young professionals are wondering how to take control of their finances and start building their wealth. Recently, Jennifer Lippin, Vice President, Portfolio Manager, Washington Trust Wealth Management, shared some wealth-building strategies for this year’s crop of recent college grads.

New college graduates carry a much heavier student loan debt than their parents; their life milestones (a home, a wedding, retirement) cost much more; and, they often don’t have the same built-in savings cushions (COLAs, traditional pension plans).

  • College tuition has more than doubled since the 1980s.
    • Total student loan debt as of 2020 was $1.56 Trillion in the US, 3x more than in 2010.
    • Of the 44.7 million with student loan debts, 2.8 million students owe upwards of $100,000.
  • New college graduates buying their first home today will pay significantly more than their parents who bought their first home in the 1980s.
    • In May 2021, median home prices across the U.S. rose to a record $374,400, a steep 18.1% increase from a year ago. In Rhode Island as of June 2021, the median home price is even higher at $385,000, a rise of 19.4% year over year.
    • On average, current graduates will need to save approximately 6.5 years’ worth of their total annual pay to afford a down payment on a home.
  • The old adage was $1 million in savings was the retirement goal.
    • Even that may not be sufficient.
    • $1,000,000 in 40 years has the same spending power as around $302,000 today.

As a result, wealth accumulation should be a focus as early as possible to allow for the compounding “time value of money”.

How can new graduates build wealth? Here are a few easy steps…

  • Put Together a Financial Plan Understand your income and expenses. Identify your short-term and long-term goals to manage finances, so you can attain them. Knowledge is power!
  • Create and Follow a Realistic Budget – Only 50% of Americans under age 22 use a budget. Young adults on their own for the first time may cringe at the idea that they must limit their spending, but your budget can become a way to ensure that money is spent on the priorities that are defined in your Financial Plan. Following a budget helps build a healthy credit history, leads to stronger credit scores, aids with approval (and better interest rates) for car and home loans, and, ideally, translates into wealth accumulation over time. There are many free resources out there, including apps and online tools, to assist with creating a budget.
  • Start Saving for Retirement Now – Expenses, such as student loan payments or saving for a down payment on a house, can make it hard to prioritize saving for a retirement that is decades away. However, putting off saving for the future is one of the biggest mistakes you can make, because of the power of tax-free growth and compounding. Think of saving for retirement as paying yourself first. Take advantage of opportunities offered through your employer: many employers will match 401(k) contributions, which is essentially free money. Plus, if you have access to a Roth 401(k) plan, this can be an impactful investment over time. Regular 401(k) contributions are pre-tax, but are taxed at the ordinary income rate (whatever that rate may be) when distributions are made in the future. Your Roth 401(k) contributions are made after-tax, but earnings grow tax-free and retirement distributions can be taken out and used in retirement tax-free! This can be a crucial benefit in the future, including tax-diversifying your overall retirement savings.

By Washington Trust / July 19, 2021

The Economic Recovery Remains Strong

The economic recovery that began this past spring has remained on track through the early weeks of the summer driven by a successful vaccination effort and an accelerating re-opening of the U.S. economy.

At this writing, nearly half of the U.S. population has been vaccinated and new COVID-19 cases are at the lowest levels since the early days of the pandemic. While the recent vaccination rate has been a bit slower than anticipated earlier in the year, still close to a million people per day are getting vaccinated and by now the most vulnerable populations are largely covered. There remain some concerns regarding new strains of the virus and the relatively low vaccination rates overseas, but for now the COVID-19 pandemic appears at least to be manageable.

The success of the vaccination effort has instilled confidence in the public and people appear increasingly comfortable re-engaging in the economy. Pent-up demand fueled in part by fiscal stimulus money has helped boost spending across multiple sectors. For example, retail and auto sales are spiking to well above pre-pandemic levels. New and existing home sales are the best in over a decade with home prices up double digits from this time last year. And durable goods orders that include items such as appliances and computers have reached all-time highs.

Source: Oxford Economics1

The U.S. National Recovery Tracker examines six dimensions relative to their pre-COVID-19 state. Each index is calculated as the equal-weighted average of multiple high-frequency indicators. For example, the “Health” dimension is a function of ICU utilization rates, new COVID-19 cases per million residents, and the weekly average positive COVID-19 tests.
All dimensions are indexed to 100 in the week ended 1/31/2020. The chart shows rising positive indicators this summer across all dimensions including health, demand, employment, production, mobility and financial with several returning to pre-COVID-19 levels.

Employment has picked up although job growth remains somewhat sluggish for this stage of recovery. The lag may be due to a variety of factors keeping people from returning to work including residual COVID-19 fears, extended unemployment support, or the search for better jobs. However, job openings are spiking. They now number over 9 million, the highest on record, up from about 7 million openings pre-COVID-19. Driven by opportunity and need, we expect people to continue to return to the workforce helping the economy to maintain positive momentum.

In summary, the strength of the recovery appears strong, supporting our expectation of a robust 6.5% to 7.0% GDP growth for the full year of 2021. This would be the highest growth rate since the mid-eighties.

Source: BEA, FactSet

The Expanding Role of the Government and Inflation Fears

Over the longer term, economic vitality may be buttressed by additional rounds of government spending. Negotiations are ongoing in Washington on a massive infrastructure bill and bipartisan agreement has been reached on approximately $1 trillion in new allocations to roads, bridges, transit, broadband, water, and electric vehicles. President Biden and the Democrats are proposing even more generous outlays with some plans at price tags as high as $6 trillion. These broader plans would tack on targeted spending in areas such as childcare, education, climate change, health care, and housing.

Although massive in size, the proposed infrastructure spending will likely extend over several years and, therefore, pack less of a one-time punch for economic growth than recent stimulus measures. Nevertheless, these plans could stabilize longer-term growth and dramatically increase government influence over several areas of the U.S. economy, not to mention having an impact on tax policy and interest rates.

When the economy heats up and government spending rises, inflation often becomes a concern. Indeed, the Federal Reserve’s (Fed) current 2021 estimate of inflation is now 3.4%, up a full percentage point from its estimate just three months ago2. While the Fed believes this recent spike is transitory and its projections for 2022 and 2023 remain close to its target of 2%, estimates can change fast, presenting a risk to financial markets, as well as to consumers’ purchasing power.

The State of the Financial Markets

For fixed income investors, short-term yields remain close to historic lows. The two-year Treasury Note now stands at just 0.25%. Short-term rates are influenced by and anchored to the Federal Reserve policy and the current rate reflects the Fed’s 2021 target range of 0%-0.25%. Looking forward, the Fed expects to begin to shift its rate policy in 2022 in response to improved labor conditions and inflation levels. We will closely monitor the Fed’s actions to keep on top of any movements upward at these shorter maturities and to assess the impact of these changes on investors and the economy.

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Source: FactSet 3

Long-term yields are up after sinking to record lows last year at the onset of the pandemic. The current ten-year Treasury yield is 1.45%, up significantly from its nadir of 0.52% in March 2020. We expect longer-term yields to continue to move higher in 2021 and possibly into 2022 driven by both inflation and a Fed withdrawal of its bond purchasing programs commonly referred to as quantitative easing.

Currently, the Consumer Price Index (CPI), the key measure of inflation, is around 3.8%4. This makes the ten-year “real” yield of Treasuries well in the negative. We would not expect such negative real yields to persist for an extended period, especially with the current upward pressure on inflation.

Our view of the stock market is one of cautious optimism. On the back of a strong economy, we expect 2021 S&P 500 earnings per share to be a healthy 15% to 20% higher than 2019 pre-COVID-19 levels and we envision that this positive momentum will continue through 2022. Low interest rates and a lack of attractive investment alternatives are also expected to provide some near-term support for stock prices.

However, we have some concerns regarding the near-term ability of stocks to continue to produce the robust gains recently posted. Potential changes in corporate tax policy may negatively impact 2022 earnings and stock market valuations may be negatively affected by rising inflation.

We recommend maintaining current exposures to U.S. equities to take advantage of the continuing strong economic recovery and material earnings advances through the end of the year. We, however, need to remain sensitive to the potential devaluation in stocks that may result from rising inflation. Inflation also remains the dominant concern in the fixed income market and we prefer a lower duration, defensive bond portfolio to suit our expectations of rising rates.

The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Investing entails risk, including the possible loss of principal. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions.

Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Past performance does not guarantee future results and the opinions presented cannot be viewed as an indicator of future performance. The S&P 500 Index is an unmanaged index and is widely regarded as the standard for measuring large-cap U.S. stock-market performance. In addition, the S&P 500 Index cannot be invested in directly and does not reflect any fees, expenses or sales charges. Further, such index includes 400 industrial firms, 40 financial stocks, 40 utilities and 20 transportation stocks. The information we provide does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with your Portfolio Manager, Financial Counselor, Relationship Manager, attorney or tax professional regarding your specific investment, legal or tax situation.

Sources:
1 - Oxford Economics
2 - Federal Reserve
3 - BEA, FactSet
4 - U.S. Bureau of Labor Statistics (BLS)


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By Washington Trust / July 19, 2021

The success and happiness of our children are top priorities for most parents. But are we doing everything we can to build a solid financial foundation for the next generation? In a study conducted by FINRA Investor Education Foundation, participants were asked “five questions regarding economics and finance encountered in everyday life,” including compounding interest, inflation, basic investment principles, and the impact the term of a mortgage can have on payments over the life of the loan.

In 2009, 42% of respondents were able to answer four or more questions correctly; however, in 2018 this number fell to 34%. The biggest decline in financial literacy took place in younger age groups, particularly among millennials.

Source: FINRA Investor Education Foundation1

The good news is that there are steps families can take to help their children become more financially literate and responsible, and we are always here to help.

Share your Story, Values, and Goals from the Start

Many families are reluctant to talk about money. Reasons may include their parents have never discussed financial matters with them, a belief that it isn’t their children’s business, or a fear that the next generation will take the money for granted and be unmotivated to succeed. Conversely, children often feel that their parents don’t trust them enough to have “the money talk.” But helping the next generation understand the origins of your wealth, what it means to you, and what you wish to achieve with it will help them feel that they are part of the story. Having an honest and open conversation grounded in trust, may also avoid difficult, if not forced, conversations later. If your lifelong wish is to donate your assets to a cherished cause, don’t avoid telling your children until it is too late. If you plan to leave a legacy to your family, but have specific thoughts about who gets what, giving everyone a clear picture can help set expectations and prevent future conflict. Your Wealth Management Team is available to help you frame and/or facilitate a collaborative and productive family meeting. Please reach out to any member of your Team to start the conversation.

Build Financial Knowledge at a Young Age

It’s never too early to start “teaching” your children the financial basics. For younger children, some first steps might be:

Budgeting: A weekly allowance is a great way to help children of all ages understand the value of money and budgeting tradeoffs. For younger children, consider an allowance that they can spend on toys. Explain that if they want to buy a larger toy, saving their allowance for a few weeks is a way to reach their goal.

Saving: Opening savings accounts for your children will help them understand the value of accumulating assets. Set aside a small percentage of their allowance and any cash gifts they might receive for special occasions. Regularly review progress to show how their savings have grown. Discuss their future goals for their funds and what it will take to get there. Note: Try to reserve judgment on whether you believe these are “good” goals or not. One of the ways we learn is through mistakes, and a good time to make them is when the stakes are low!

Giving: A concern that often arises with clients is the fear that their children will feel a sense of entitlement. A great way to combat this is to communicate the importance of being part of a community and helping others who may not be as fortunate. Tactics include encouraging young children to set aside part of their allowance for giving, involvement in a community-oriented youth organization, helping you in your volunteer activities if feasible, and participating as a family in community events for children.

Financial Responsibility should grow along with your Children

As your children reach young adulthood and beyond, the “lessons” of financial literacy and responsibility should continue.

Financial education: As your children get older, you can move beyond basic deposit and savings accounts to more sophisticated concepts, such as debit and credit cards, loans, interest rates, mortgages, and different types of investments. As your children become mature adults, include them in family planning discussions and sessions, so they are in the loop should the unexpected happen. You can also take advantage of financial literacy classes now offered in many schools. Custodial accounts where a parent is the custodian of a child’s brokerage account (up until 21 years of age in most states), is a great way to take investing to “the next level”. Please feel free to reach out to us to talk about how we can partner with you in this important lesson in life skills. Also, introducing children to your Financial Team demonstrates the value and benefits of having an established team of trusted advisors.

Earning a living: Whether it is a part-time job when younger or a full-time career as an adult, having a job helps individuals of all ages learn about financial and personal responsibility, budgeting, and accountability. It also helps give purpose and structure to one’s life, helping one to learn that it is not all about money.

The benefits of financial advice: For even the most knowledgeable adult, embarking on an independent financial life can be stressful. That first mortgage application (and every other one after that!) can be overwhelming. This is a good time to introduce your children to your advisor, who can help them navigate their finances and identify the right solutions for their needs.

In summary, instilling financial literacy and responsibility in the next generation from an early age can help set them up for financial success, alignment with generational family values and personal fulfillment. Our Trusted Advisors can provide the advice and guidance you and your children need to achieve your personal and family goals.

The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Investing entails risk, including the possible loss of principal. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions.

Sources:
1 - FINRA Investor Education Foundation (FINRA)


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By Washington Trust / April 21, 2021

Economic & Financial Market Outlook - Spring 2021

With the arrival of Spring, the U.S. economy appears to be well on the way to a full recovery. Economic growth, a very respectable 4.3% in Q4 2020i, is poised to accelerate sharply in the coming quarters on the back of rising consumer spending boosted by stimulus payments. We estimate quarterly GDP growth on an annualized basis could reach the low double digits by mid-year, while full year 2021 growth could well exceed 7%, the strongest growth since the early 1980s.

The U.S. economy is benefiting from several tailwinds. After an uncertain start, the COVID-19 Vaccination Program is moving forward rapidly and will allow reopening to continue apace. At the current daily vaccination rate of approximately 3.3 million doses per day, Bloomberg estimates 75% of the U.S. population will be vaccinated by the end of July.

Relative to its peers, the U.S. responded very aggressively to the pandemic from an economic policy standpoint. $5 trillionii in fiscal stimulus has been approved, and more is on the drawing board. Consumers have amassed nearly $2 trillioniii in savings over the past year, and it is a safe assumption that they are prepared to spend a large portion of those savings as their lives return to normal. And, the surge in stock and home prices has added another $8 trillioniv to household net-worth further buttressing consumers’ spending confidence.>/p>

Monetary policy has also been expansionary to an extent not before seen with the Fed. slashing rates, backstopping credit markets, and buying longer-term debt. In both actions and words, the Fed has made it clear that restoring lost jobs and limiting economic scarring are its primary objectives rather than preemptively containing higher inflation.

Globally, the U.S. and China will be the twin pillars of growth this year as their economic outlooks improve. Other geographies are faring less well. As Europe struggles to vaccinate its population, GDP estimates are edging lower. Emerging economies are also in a difficult spot as the pandemic rages and rising U.S. interest rates constrain their ability to respond financially.

All things considered, 2021 is likely to be a banner year for the U.S. economy barring unforeseen developments with the virus. Looking to 2022 and beyond, the question remains whether the decisive response of U.S. policy makers to the pandemic will generate unwelcome consequences such as high inflation and/or if a precarious amount of new debt could inhibit longer-term growth.

This year’s rosy economic scenario has resulted in a mixed bag in the financial markets. The prospect for equity investors is relatively strong with rising valuations supported by robust earnings. In contrast, bond investors are facing headwinds as nagging inflation concerns dampen optimism.

The bad news first. Economic optimism, accompanied by rising inflationary expectations, is driving bond yields higher and, consequently, prices lower. In fact, it was the worst quarter for the Treasury market in 40 yearsv as selling continued unabated in March. For the quarter, the Barclays Bloomberg Aggregate Index (Agg) and Intermediate Gov’t/Credit Bond Index lost 3.4% and 1.9%, respectively. Only high-yield has bucked the trend with a 0.8% gain in Q1vi making it the single major fixed income sector in the black year-to-date. Municipal bonds were another relatively bright spot. Returns slipped only fractionally in the quarter, buoyed in March by the passage of the American Rescue Plan which promises substantial aid to local governments.

Although long-term bond yields have moved higher, short- and medium-term yields remain low and anchored to U.S. Fed policy, which Chairman Powell has clearly articulated will remain accommodative for at least the next few years. Bargains remain few and far between in the fixed income markets. With the yield curve steepening, investors may want to move out on the curve in the 8-10-year range but temper interest rate risk by purchasing bonds with higher coupons, so-called “cushion bonds.” We continue to employ multi-sector funds that manage duration as well. The increased issuance of taxable municipal bonds offers opportunities to pick up some additional yield while maintaining a strong credit profile. However, as noted in recent months, an above average allocation to cash may still be the wisest course.

Equity markets continue to enjoy strong returns. The S&P 500 Index increased 6.2%, including dividends, in the first quarter of 2021, following a total return of 18.4% in 2020. Although concerns regarding stretched valuations have increased, they have been largely eclipsed by optimistic narratives related to COVID-19 vaccines, the economy and corporate earnings growth in 2021. This bullish consensus is further supported by accommodative U.S. Federal Reserve policy and aggressive fiscal stimulus spending.

Benefitting from a reopening economy and fiscal stimulus, we see the potential for S&P 500 Index earnings per share to far surpass pre-COVID-19 levels by the end of 2021. This positive earnings momentum may carry over into 2022; however, potential increases in corporate tax rates and regulation could act as an offset.

The S&P 500’s price/earnings valuation of 22.7x, based on the mid-point of our 2021 earnings estimate ($175), is significantly above the historical average of about 16.0x. Yet, with the U.S. Fed’s extremely accommodative stance, low interest rates and limited inflation pressures, we would expect to see stocks trade at higher-than-average P/E multiples and view a 16x-21x P/E multiple range as reasonable. Nevertheless, current valuation levels are elevated and may not fully incorporate underlying risks or provide room for additional upside.

While mindful of valuation, we recommend maintaining current exposures to U.S. equities to take advantage of favorable economic and earnings potential through the end of the year. We are less sanguine regarding international equities, particularly in European markets given the continent’s COVID-19 struggles and a less robust earnings outlook. Emerging markets, however, are starting to look attractive on both an earnings growth and valuation basis. Regardless of geography, the improved economic environment and rise in interest rates is likely to continue to support recent trends in market leadership that favors value over growth stocks.

Sources:
I BEA, FACTSET
ii Business Insider
iii Moody’s Analytics
iv Federal Reserve Flow of Funds
v Barron’s ICE Index
vi Morningstar Direct

The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Investing entails risk, including the possible loss of principal. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions.

Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Past performance does not guarantee future results and the opinions presented cannot be viewed as an indicator of future performance. The S&P 500 Index is an unmanaged index and is widely regarded as the standard for measuring large-cap U.S. stock-market performance. In addition, the S&P 500 Index cannot be invested in directly and does not reflect any fees, expenses or sales charges. Further, such index includes 400 industrial firms, 40 financial stocks, 40 utilities and 20 transportation stocks. The information we provide does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with your Portfolio Manager, Financial Counselor, Relationship Manager, attorney, or tax professional regarding your specific investment, legal or tax situation. 2021-21 (04/21/21)


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By Washington Trust / April 21, 2021

Spring Cleaning

Everywhere there are signs of Spring, from buds appearing overnight on trees to birds chirping. Spring is when we clean, straighten, and organize our houses. And it’s also a great time for some financial spring cleaning to make sure your financial situation is in order and your information safe and secure from theft or fraud. This is especially relevant as we re-enter a more “normal” environment and begin to venture out to stores, dine out, and travel. Fortunately, some basic steps can help you get organized and safeguard your finances.

Tips to help you get your financial (and other) information organized and up to date:

The taxman is coming – the Federal deadline for filing, and for Massachusetts, Connecticut, and Rhode Island state taxes, was extended to May 17, 2021. All tax forms and payments must be made by the deadline. If you are filing for an extension, this is also due by May 17, although any payments must still be made by then. In addition, if you make estimated tax payments, the Q1 deadline was not extended, so check with your Accountant to make sure you met the April 15th deadline. You also have until May 17th to make contributions to individual retirement plans and health savings accounts, so if you have not made a contribution, it’s not too late.

Keep your information current and handy – it’s always a good idea to create a centralized repository of family financial, medical, legal, trust and estate information in case you, a family member, or an advisor needs to access it quickly. You should also check whether account information, healthcare, wills, or other documents need updating. Some items to think about gathering include bank and investment account statements, any medical directives, powers of attorney and living will information, mortgage and loan statements, trust documents, and emergency contact information.

Revisit your situation – the past year may have brought major changes to your life or caused you to rethink your priorities. If there have been shifts in your financial, business, or personal situation, this may affect your investment strategy. Perhaps your marital situation changed, your family has grown, or you are thinking of retiring early. Your relationship manager can help determine the impact this will have on your plan and adjust it to align with your goals.

And some tips to keep your financial information secure:

Make sure your passwords are strong – create unique passwords for your financial accounts and change them when prompted. A combination of cases, numbers, and special symbols make them much harder to steal. A secure password manager can help you keep track of your passwords. If possible, use two-factor authentication, through a hard or soft token. And don’t ever give anyone your passwords.

Use the internet safely – make sure your devices are up to date with the latest security updates and protection. Try to use websites that begin with https, which indicates it is a secure website (http is not). If you are out and about, you may be tempted to do a little online shopping but wait until you are home on your own secure network to prevent hackers on a public network from stealing your information and more.

Don’t fall for scams, online or off – not surprisingly, online fraud attempts increased significantly last year. According to TransUnion’s latest Global Consumer Pulse Study conducted in February and March of 2021, more than 33% of global consumers have been solicited with fraudulent digital schemes linked to COVID-19. These would-be thieves have become increasingly creative in their quest to steal your information, identity, and money. If you get an email, phone call, or text supposedly from your financial institution, a credit card company, the IRS, store, or other “official” source asking for personal information or for you to call back before creditors are called, do not respond. Companies do not ask for information that way. Respond by finding the company’s legitimate email or phone number on its website and contact the company to check the source and inform the company of possible fraud. In terms of the IRS, they only communicate with taxpayers via mail so you should never respond to a caller claiming they are from the IRS.

In summary, while we may soon put the worst of COVID-19 behind us, this Spring is a great time to make sure your finances are secure and that you have planned for what may come next. At Washington Trust Wealth Management, our team is here to help you with any assistance you need in your financial spring cleaning efforts. Please reach out with any questions you may have.


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By Washington Trust / February 10, 2021

Caregivers and loved ones of individuals on the spectrum often find it difficult to plan for their future. Many function as de facto DIY caregiver, and have to be hyper-focused on the immediate present, dealing with day-to-day issues and trying to avoid or handle crises and flare-ups. It also can be difficult to predict what might be necessary for the future, since the impact of ASD can change over time, and the range of needs and challenges vary widely.

With all that in mind:

  • Why would folks on the spectrum require/benefit from special planning? 
  • How can special needs trusts meet that need?

This webinar features Kimberly I. McCarthy, Esq., Senior Vice President, Chief Tax & Benefits Officer, Head of Client Services, Washington Trust Wealth Management, Lauren K. Drury, J.D., Vice President, Chief Wealth Management Fiduciary Officer, Washington Trust Wealth Management, Anna Johnson, Head of School at The Wolf School and Lisa M. Cukier, Esq. Partner, Burns & Levinson.

Watch the video now: https://washtrust.wistia.com/medias/pq2wud5a7w.


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By Washington Trust / January 20, 2021

Economic & Financial Market Outlook - Winter 2021

2020 is now, thankfully, history. While the human toll from COVID-19 has been staggering, the economic damage has not been as great as initially feared. The Federal Reserve now forecasts that full year 2020 GDP will have declined by 2.4% from 2019 , less than the drop in 2008 during the Great Recession. The initial estimate at the start of the pandemic was for a decrease closer to 5%. Of course, to keep things in perspective, a deeper slump was only averted by an increase in Federal government spending of approximately 40% accompanied by the Federal Reserve adding trillions into the financial system.

2020 GDP gyrated wildly from quarter to quarter. GDP plummeted at an annualized 31% rate in Q2 on the shutdown, only to roar back at a 34% pace in Q3 . As for Q4, growth has obviously slowed. The resurgence of COVID-19 cases put a damper on activity. Additionally, a follow-on relief package did not materialize until year-end after many support programs had already expired. A wide range of estimates exist for Q4 GDP. The well-regarded GDP tracker, produced by the Atlanta Fed, pegs Q4 GDP at a still blistering 9%, but most estimates are considerably lower, coalescing at 4.5% , which is impressive all the same given the headwinds.

The outlook for 2021 is encouraging. The Federal Reserve upgraded its projection to 4.2% in December from 4.0% in September. Q1 GDP will continue to be hampered by the burgeoning rate of COVID-19 infections, but the additional $900 billion in additional COVID-19 relief should ensure that GDP remains in the plus column with the consensus at 2.5% . Widespread vaccination over the course of the first half of 2021 should result in a reacceleration of growth. The incoming Biden Administration is likely to seek additional stimulus, as well.

A continuation of easy monetary policy for 2021, however, seems a near certainty. We have noted previously that the Federal Reserve’s top priority is restoring lost jobs. While the recovery in the labor market has been impressive, unemployment sat at 6.7% in December versus 3.5% pre-COVID-19 . Fed projections place the long-term rate of unemployment at 4.1%, while the 2021 year-end rate is forecasted at 5.0% . There is still considerable room before concern mounts at the Fed over inflation from labor shortages. Financial conditions are thus likely to remain supportive of growth throughout the year.

The composition of growth in 2021 is less clear. Residential construction proved to be a boon in 2020, as were consumer durables, generally. Housing affordability is now somewhat stretched. There is some expectation that consumer spending could shift towards experiential services, such as travel and dining out, as opposed to the purchases of goods. Municipalities are also clamoring for additional Federal assistance. Without it, government layoffs at the local level could persist. The acceleration of trends including work from home, online commerce, and robotics may be irreversible. While all may help achieve greater productivity, their impact on the labor market and real estate sector remains to be seen.

Overall, the U.S. economy demonstrated considerable resilience in 2020. We expect it will cope well with these shifts in 2021. Given that a synchronized global recovery is likely after a rare outright decline in global GDP, our base case is that the U.S. should enjoy solid growth in the year ahead and return to a stable growth path.

2020 financial markets were a rare bright spot in a generally depressing year. The late Winter COVID-19 induced bear market was the shortest on record as governments and central banks responded forcefully to blunt the economic impact of the pandemic. In the U.S., Congress swiftly passed a $2.2 trillion relief package; the CARES Act, which provided assistance to businesses and individuals. Personal income was not just supported but boosted as $1,200 checks were sent to most taxpayers and generous unemployment benefits were instituted temporarily. The Federal Reserve cut the overnight rate to the zero-lower bound, reinstituted quantitative easing on a massive scale, and took unprecedented steps to shore up credit markets.

Investors responded enthusiastically, driving outsized returns in both stock and bond markets. For the year-ended December 31, 2020, the S&P 500 Index returned 18.4% while the Bloomberg Barclays Aggregate Index tacked on 7.5% . As the year progressed, an “everything rally” took shape, with the vast majority of asset classes including commodities and currencies participating.

While we are optimistic on prospects for a return to sustainable economic growth by the second half of 2021, the financial market outlook is somewhat murkier. As noted above, Federal Reserve actions were key in reassuring investors. The Fed engineered a decline in rates and bond yields to record lows which served to push investors further out on the risk spectrum. Equities and lower quality debt were snapped up as government securities no longer provided a meaningful return.

As a result, valuations for both stocks and bonds are extremely elevated. S&P 500 Index earnings decreased by 17% in 2020 to an estimated $135 per share. We forecast that earnings will snap back 22% in 2021 to $165 per share, roughly the same level as 2019 . However, the S&P 500 Index ended 2020 at a price of $3,756, 16% higher than at year-end 2019 and 50% above the level at December 31, 2018 which is perhaps a more relevant date for comparison since we are looking at forward not trailing earnings. The benchmark’s current price/earnings ratio on 2021 earnings is a lofty 22.6x versus a historical average of 16x forward earnings.

The intent of the above discussion is not to declare equities wildly overvalued but to emphasize the importance of interest rates in driving returns. During the same two-year period as stocks surged while earnings sagged, the yield on the 10-year Treasury note declined 66% from 2.69% at year-end 2018 to 0.92% on December 31, 2020 . In short, falling interest rates were the lever to push stocks higher on the expansion of the price/earnings multiple rather than the lever of earnings growth.

In fact, we continue to find stocks relatively attractive compared to bonds. For now, at least, the Federal Reserve appears to have investors’ backs. The overnight Federal Funds rate will remain anchored near zero for a period of years, not months. Our expectation is that the Fed will continue to aggressively inject liquidity into the system via purchases of longer-term Treasury and mortgage-backed securities at least for the duration of 2021 before dialing back. This activity will restrain bond yields despite potential blips in inflation as a result of supply bottlenecks due to the full reopening of the economy.

In order to pursue its full employment mandate, we suspect the Fed will attempt to maintain negative inflation-adjusted (or real) interest rates across the yield curve. For that reason, investors may wish to adopt a multi-asset class approach to generate income. Shares of companies that can grow both earnings and dividends may offer part of the solution.

Financial market returns along the lines of 2019 and 2020 are unlikely in 2021. Bond yields have already seen the bottom, which will inhibit fixed income returns. A very small subset of mega-cap tech stocks led the equity market for the past two years which could leave the major indexes vulnerable to correction. Therefore, diversification may be increasingly important. Irrespective of market returns, 2021 should a much better year and we wish our clients a prosperous and, more importantly, healthy New Year.

The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Investing entails risk, including the possible loss of principal. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions.

Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Past performance does not guarantee future results and the opinions presented cannot be viewed as an indicator of future performance. The S&P 500 Index is an unmanaged index and is widely regarded as the standard for measuring large-cap U.S. stock-market performance. In addition, the S&P 500 Index cannot be invested in directly and does not reflect any fees, expenses or sales charges. Further, such index includes 400 industrial firms, 40 financial stocks, 40 utilities and 20 transportation stocks. The information we provide does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with your Portfolio Manager, Financial Counselor, attorney or tax professional regarding your specific investment, legal or tax situation.

2021-02 (01/19/20)


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By Washington Trust / January 20, 2021

The Pandemic Isn’t Over, but Most COVID-19 Tax Relief Is – At Least For Now

Though vaccines have been approved and are being distributed, the pandemic seems far from over. Businesses remain closed or restricted, social distancing and stay-at-home mandates are still in place, and the numbers continue to rise into 2021.

Legislation signed into law on New Year’s Eve included some COVID-19 related provisions. But despite the fact that the pandemic is not over, most of the pandemic-related tax provisions that benefited our clients last year have ended. For example:

• RMDs must be taken in 2021; the waiver was for 2020 only.

o The new RMD rules – for individuals born on and after 7/1/1949 – are now in effect.
o Luckily, we treat 2020 as if it didn’t exist for RMD purposes in 2021.
o You do not have to “double up” on your distributions, and 2020 does not count against the 10-year distribution period.

• Income taxes must be paid on the regular schedule; the extensions were for 2020 only.

• COVID-19 related distributions cannot be taken from your retirement plan this year; the special rules were for 2020 only.

o However, you still can benefit from tax relief on those distributions. 
o The distributions are taxable, but you can split the tax into three installments.
o You do not have to pay the 10% additional tax.
o You can put some or all the money back into your retirement plan any time within the next three years.
o Please note: these provisions were optional, and only apply if the employer/sponsor adopted them for 2020.

The most recent legislation did include two new or extended non-COVID-19 tax benefits that could benefit our clients, however:

• Enhanced deductions for cash charitable contributions.

o In response to the pandemic, the limit on cash charitable contributions to a public charity was waived for individuals who itemize deductions. (The usual limit is 60% of Adjusted Gross Income (AGI).) The new legislation extends that waiver through 2021.
o In 2020, non-itemizers could claim a write-off of up to $300 (total, for single or married filing jointly) of cash gifts to public charities. For 2021, the tax break is extended and expanded to $600 for married filing jointly.

• Eliminate the 10% threshold for deducting medical expenses.
o The threshold for deducting medical expenses was scheduled to jump up to 10% of AGI for 2021 forward.
o The new legislation made the current threshold (7.5%) permanent.

Of course, the pandemic-related relief we saw last year – or new and different relief – could be passed after the inauguration of a new Administration. While the actual legislation for President Elect Biden’s “American Rescue Plan” has yet to be written, it appears that it will not include any noteworthy IRA or retirement plan provisions. We will be monitoring the situation closely and update you with developments as they occur. In the meantime, if you have questions, please feel free to reach out to your relationship manager.


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By Washington Trust / January 7, 2021

By: Peter R. Phillips, CFA, CAIA, Senior Vice President and Chief Investment Officer, Washington Trust Wealth Management

Democrats will control the White House, U.S. Senate and House of Representatives for at least the next two years following victories in Georgia’s Senate runoff elections. Although the Democratic majority is thin, a substantial portion of President-Elect Biden’s and the Democratic Party’s political agenda has the potential for implementation. We would not be surprised to see large-scale infrastructure, climate, healthcare, and COVID-19 related stimulus spending, along with regulatory and tax increases; however, management of the current COVID-19 crisis may also impose some limitations on just how much can be realistically accomplished in 2021. On balance, we expect a positive near-term impact to U.S. economic growth.

Additional stimulus and spending should support the economy and, in turn, corporate earnings (assuming some offset to potential tax increases) and stock prices. However, we remain cognizant of potential downside risks to the overall stock market’s valuation and stock prices. Aggressive government spending may result in an unexpected uptick in inflation, which could negatively impact stock valuation multiples. While overall stock prices may appear expensive, certain segments of the market may benefit from changes in Washington – and in some cases appear undervalued. For example, Industrial stocks exposed to infrastructure spending, Energy stocks exposed to clean energy, Healthcare stocks exposed to Medicare spending, and Consumer stocks exposed to stimulus spending may see renewed investor interest at the expense of large-cap Information Technology stocks, the stock market’s recent performance leaders that are susceptible to increased regulatory scrutiny.

Changes in Washington are also likely to impact interest rates. As mentioned, aggressive government spending may result in an unexpected uptick in inflation which would likely put upward pressure on long-term interest rates. Further, a sustained uptick in inflation could force the U.S. Federal Reserve to reverse its current monetary policy stance and begin a tightening cycle sooner than the market is expecting. Higher interest rates (yields) would negatively impact fixed income returns in the short-term, but eventually lead to more attractive fixed income investment opportunities.

In summary, an exhaustive analysis of the potential implications on the economy and financial markets resulting from Democratic control of the White House, U.S. Senate and House of Representatives is beyond the scope of this note; however, our expectation is that it is a net positive for economic growth in the near-term. Regardless of the politics in Washington, continued economic recovery and financial market stabilization will depend on the distribution and effectiveness of COVID-19 vaccines.

We encourage you to reach out to your investment team with any concerns or questions.

The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Investing entails risk, including the possible loss of principal. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions. Past performance does not guarantee future results and the opinions presented cannot be viewed as an indicator of future performance. The information we provide does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with your Portfolio Manager, Financial Counselor, attorney or tax professional regarding your specific investment, legal or tax situation.


By Washington Trust / December 10, 2020

Things to Consider Prior to the End of 2020

As seen on The Rhode Show

As we approach the end of the year, it's a great time to do a financial check-up and review your investment portfolio while there is still time to make adjustments, if needed. 

It is important that you have strategies in place to plan for your investments, retirement and tax impact to avoid any tax bill surprises, penalties or liabilities. Now is a great time to evaluate your own financial situation to see if there are adjustments you can make to improve your financial standing.

  • Harvest tax losses. If you have losing stock positions, consider selling them to offset gains and reduce taxable income (to the extent permissible). Or, on the flip side, if you have some losses due to trading earlier in 2020, it may be a good time to not only lock in some gains to offset those losses, but to use this opportunity to rebalance an entire portfolio from a risk perspective. 
  • Finalize charitable giving. This year may not be a good one for a qualified charitable distribution from your IRA (because Required Minimum Distributions, commonly called “RMDs,” are waived due to the CARES Act). However, you can prepay/bundle charitable gifts to exceed the tax deduction threshold. For 2020 only, the CARES Act allows itemizers to deduct contributions up to 100% of their Adjusted Gross Income, or “AGI.” Thus, for example, if your AGI is $100,000, you may deduct $100,000 in charitable contributions and wipe out your income tax liability entirely. 
  • Use up the annual gift exemption. The annual gift exemption is $15k per person, per year. The annual gift exclusion amount for 2021 stays the same at $15,000, according to the IRS announcement. What that means is that you can give away $15,000 every year to as many individuals—your kids, grandkids, their spouses—as you’d like with no federal gift tax consequences. A married couple can each make $15,000 gifts, doubling the impact to $30,000. 
  • Max out 401(k), 403(b), 457 plans and IRA contributions. Hitting the maximum annual deferral amount for 401(k), 403(b) and most 457 plans, which is $19,500, and is $6,000 for an IRA, allows you to take advantage of both tax deductions and employer matching contributions. For those over age 50, do not forget to include your additional catch-up contributions, worth $6,500 for a 401(k), 403(b) or most 457 plans, totaling $26,000 or $1,000 for an IRA, totaling $7,000 for the year. 
  • Consider a Roth conversion. This is when you convert your pre-tax income funded 401(k) account or Traditional IRA account to an after-tax ROTH IRA account, which requires a tax payment to the government (not allowed from the retirement account in question) at the time of the conversion. Both a traditional conversion, depending on your tax brackets and the account’s level of unrealized gains, and a “back door conversion” (if you don’t qualify for direct Roth IRA contributions) can be good planning options. Consult with your tax professional. 
  • Update your financial planning documents and double-check your beneficiaries. Ensure that your financial plans fit your current financial goals and circumstances. It is very important to update your financial planning documents and to double-check your beneficiaries every few years, or earlier if a major life event happens, such as: retirement, loss of a loved one, marriage, divorce, or new additions to the family. Documents would include your will, trusts, power of attorney, health care power of attorney, retirement accounts and insurance policies. It’s all too common to leave an ex-spouse, for example, listed as a beneficiary who then accidentally receives benefits.

 

This overview provides general information based on currently available data. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This information does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial advisor, attorney or tax professional regarding your specific investment, legal or tax situation as this is not intended as legal or tax advice.


The opinions expressed in this blog are those of the author and may not reflect those of Washington Trust Wealth Management. The information in this report has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any opinions expressed herein are subject to change at any time without notice. Any person relying upon this information shall be solely responsible for the consequences of such reliance. Performance is historical and does not guarantee future results.

Such information does not constitute legal or professional advice as all situations are unique and are based on individual facts and circumstances.

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