DIGEST All Eyes on Inflation - THE BEST WAYS TO PROTECT YOURSELF - Baird
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DIGEST
NEWS AND PERSPECTIVE FOR
GROWING AND PRESERVING YOUR WEALTH
SUMMER 2021
All Eyes on
Inflation
THE BEST WAYS TO
PROTECT YOURSELF
Letter From Mike Schroeder
IN THIS ISSUE...
Wealth Management is all planting trees. This spring, we 1 COVER STORY
also helped to build a stronger THE RETURN OF
about preparing yourself for future for all of us by establishing INFLATION
the future, making plans the Baird Professorship in Finance,
today so that your tomorrow an endowed faculty position 4 HOW LIQUID
will be brighter. at the Wisconsin School of ARE YOU?
Business. Since 2015, we have
As the legendary Warren Buffett been collaborating with WSB to 6 SEEING THE
likes to say, “Someone is sitting develop a course of study that BIG PICTURE
in the shade today because prepares undergraduate business
someone planted a tree a long students for a career in the field of
7 PLANNING
time ago.” Wealth Management.
CALENDAR
In a way, Baird’s Private Wealth This new position reaffirms Baird’s
Management division is all about commitment to developing the 8 EFFICIENT
next generation of exceptional STRATEGIES FOR
advisors. We see it as an CHARITABLE
investment in the education of GIVING
future talent who will lead the
Wealth Management industry for
years to come.
It’s just another way we’re
keeping our eyes on the future,
for not just the next generation
but the one after that. Let us
know if we can help you plant a
tree for your family.
Want More?
Additional information
is available at
MIKE SCHROEDER bairddigest.com,
PRESIDENT or contact a Baird
PRIVATE WEALTH MANAGEMENT
Financial Advisor at
800-79-BAIRD.
COVER STORY
The Return
of Inflation
THE BEST WAYS TO
PROTECT YOURSELF
The emergence of the economy from As demand recovers and both foreign Energy-related commodities were
and domestic economies alike up about 30% in the first quarter of
the pandemic has been very good news continue to ease their restrictions, an the year, which will ultimately mean
for most aspects of our financial lives inflation increase – if not an inflation consumers will be paying higher
– economic growth was strong in the scare – seems to be arriving. prices at the pump. Agriculture related
commodities have also been trending
first quarter, the unemployment rate has Recent data has indicated that
higher, which may result in higher
trended lower, and retail sales surged in inflation is starting to creep higher.
food costs for the consumer.
In March, the U.S. Consumer Price
March. But there is one concern looming Index exceeded the Fed’s mandated WHAT HAPPENS NEXT
over the horizon: inflation expectations. 2% inflation target for the first time in One of the key ways that government
more than a year, when year-over-year has historically dealt with inflation
inflation reached 2.6%. Commodity is for the Federal Reserve to begin
prices across the board are up, raising interest rates. But remember,
which will tend to show up down the Fed has a twin mandate of
the line in higher consumer prices. countering inflation and pursuing
bairddigest.com 1
COVER STORY
THE RETURN OF INFLATION
Continued from page 1
full employment, and the jobs is likely to be a key period for
numbers are still a good deal countering inflation. With that in
lower than they were in the mind, it’s helpful to take a look at
pre-pandemic era. The Fed’s some of the strategies you can use
view seems to be that the U.S. to help protect yourself against
remains a long way from full the effects of inflation.
employment, so it is committed
REVISIT YOUR RETIREMENT PLANS
to allowing inflation to run hotter
Inflation means, of course, that
than its traditional 2% goal in
the things you plan to spend
order to pursue full and inclusive
your money on will cost more in
employment.
the future. Expenditures that can
Given this, and given that we be expected to eat up a sizable
expect these inflationary trends to portion of your cashflow, such
continue for at least the remainder as health care, can be subject to
of the year, the back half of 2021 tremendous inflationary pressures.
At the same time, some of your
investments, such as fixed-income
instruments, suffer if inflation
outpaces your expected return.
2 DIGEST | SUMMER 2021
That makes this an ideal time to rate loans. Your Baird Financial have less exposure to foreign
revisit your retirement strategy Advisor team can help with this. economies than large caps do, so
with your Baird Financial Advisor they’re less sensitive to trade wars.
LOOK TO INVESTMENTS THAT CAN
team. A robust, well-constructed COUNTER INFLATION Short-Term Corporate Bonds
retirement plan is designed to Traditionally, broad market stocks Short duration investment-grade
withstand changes like a bout have been a hedge against rising corporate bonds provide a
of inflation but it never hurts to inflation, but not a particularly positive real yield and minimal
double-check and make sure your strong one. Plain vanilla fixed-rate sensitivity to both rising inflation
plan doesn’t need any tweaks. bonds won’t help, given that their expectations and rising real yields.
REVIEW DEBT BALANCES returns don’t change in response
TIPS Treasury Inflation-Protected
Debt can be a double-edged to the wider economy.
Securities can provide the best
sword when inflation is rising.
But there are some asset classes protection against rising inflation
On one hand, you are repaying
that may provide a bit of a hedge: expectations, as long as real rates
existing debts with money that’s
Financial Stocks Rising inflation don’t rise.
worth less than the money you
borrowed, so it’s advantageous expectations tend to coincide None of these asset classes are
to be paying off debt now. But if with steepening rate curves and a pure hedge against inflation,
you’re planning to take out a new easing credit conditions, both of but you may want to consider
mortgage, those rates could be which support bank stock prices. combining them with other
moving higher, and if you have a inflation-fighting strategies in
Energy Stocks Energy should have
variable-rate credit card, expect to order to safeguard your financial
little correlation to interest rates
pay more for that as well. future. Talk to your Baird Financial
that are driven by volatile, rising
inflation. Energy stocks also tend Advisor team about how you can
There may still be time to
to provide dividends, which serve stay protected against inflation. D
make moves before rates
rise significantly. It’s a good as another hedge against inflation.
opportunity to review what
Small Cap Stocks Small cap stocks
you owe and see if there are
are the only asset class that has
any chances to refinance or
outperformed inflation every
consolidate your debts into fixed-
decade since the 1930s. They
bairddigest.com 3
WEALTH STRATEGIES
How Liquid Are You?
When people think about spending, One of the biggest challenges financial decisions for both the
to the proper management present and the future.
we tend to focus on two things – of wealth is accounting for We can also plan for opportunity
what is being purchased and opportunity cost – that once costs proactively. Opening 529
money is spent toward one
how much it costs. Sound wealth goal, it becomes unavailable
education savings plans and
buying life insurance policies are
management asks that we consider for another. The $50,000 you actions we take now to give us
a third question – how best to spent on a new car can’t also financial flexibility for potentially
be used to remodel your major expenses down the road.
pay for it, especially when it’s kitchen or to cover a medical Another strategy for mitigating
unexpected. bill you weren’t anticipating. opportunity cost is increasing
To address opportunity cost, our liquidity.
we compromise (let’s install a
WHAT IS LIQUIDITY?
laminate floor instead of wood)
and prioritize (let’s hold off on When we talk about financial
the new car until next year) as liquidity, we typically refer
we try to make the smartest to your ability to access cash
4 DIGEST | SUMMER 2021
very quickly. It’s often used You’re starting a THE COSTS OF LIQUIDITY
to describe different types of business. You could That said, how you increase your
savings or investment vehicles: take out a business liquidity matters. Taking money
$20,000 saved in a bank account loan to pay for start-up expenses, out of your 401(k) or IRA to have
is likely far more accessible inventory and salary, but then “at the ready” can create its own
than, say, $20,000 invested in you’re paying financing charges opportunity costs in the form
real estate. In terms of personal as well. Access to funds when of taxes and early withdrawal
spending, a high degree of you need them could let you penalties, not to mention a
liquidity can create opportunities cover any short-term cash flow smaller nest egg at retirement.
that might otherwise be issues and potentially stay afloat You can become too liquid if
unavailable. Consider: during emergencies. you shortchange your savings
in the pursuit of maximizing
You’re looking to buy In each of these scenarios,
a new house in a hot financial flexibility.
the illiquid solutions create
market. You could make opportunity costs (such as tax The ideal use of liquidity is to
an offer that’s contingent on increases or being out of the maintain the ability to tap into
the sale of your existing house market) that increased liquidity cash, equity or credit when you
– but what if you could make an avoids entirely. need it – without compromising
all-cash offer, or access a bridge your ability to build and preserve
loan to pay for the new house wealth when you don’t. Your
now and then repay the loan Baird Financial Advisor can
when you sell your old house? “The ideal use of liquidity help you determine your
That liquidity could be the own liquidity needs and what
advantage you need to secure is to maintain the liquidity solutions might be right
the winning bid. ability to tap into cash, for you. D
You have a large tax equity or credit when
or medical bill you
weren’t expecting.
you need it – without
You could sell stock to cover compromising your
it, but doing so could create
an entirely new set of concerns,
ability to build and
like the sale’s impact on your preserve wealth when
taxes and broader portfolio. you don’t.”
You’d also have to account for
any transaction costs plus the
possibility of selling in a down
market.
bairddigest.com 5
WEALTH STRATEGIES
Seeing the
Big Picture
THE BENEFITS OF KEEPING ALL
YOUR FINANCIAL PIECES IN VIEW
As our lives grow more complicated, it With all your data in different places, it can be a challenge to keep
everything coordinated as you try to achieve your financial goals.
becomes harder and harder to get a grasp Disparate parts of your financial life are often intertwined with each
on your financial health. Your bank account other. Let’s say you have the following pieces in motion:
is one place, while your securities are held Y
our 401(k) is custodied by your company’s plan administrator.
in another, your mortgage in yet another, Y
ou’re also saving and investing towards your dream retirement
which includes travel, philanthropy and funding the grandkids’
and so on. education.
Y
ou’re also considering purchasing a vacation home.
It would be hard enough to coordinate all these moving pieces,
but on top of that, your 401(k) is with one financial institution, your
investment accounts with another one, and your mortgage is being
held by a third.
6 DIGEST | SUMMER 2021
Planning Calendar
JUNE 30
Free Application for Federal Student Aid (FAFSA)
forms must be submitted for the 2020–21 academic
year. Individual state applications might be due
before the federal deadline and do not replace filling
out the FAFSA.
JULY 31
To meet the financial goals, your data can be read but no
needs, wants and wishes you’ve transactions or updates can be Last day employers with calendar-year retirement
set out for yourself, all these made through this service. plans can file Form 5500.
pieces need to be working in For more on the security
coordination with each other. protections you can expect, see
That’s a role that your Baird boldemo.rwbaird.com/360FAQ.html.
SEPTEMBER
Financial Advisor generally fills,
With that type of secure
but new tools such as 360 Wealth Put any year-end tax plans in motion. Reach out to
communication in place, 360
have made it easier for you to your Financial Advisor and tax professional to start
Wealth links both your Baird and
keep an eye on the big picture
your non-Baird accounts. With talking about steps you may be able to take to lower
yourself. The information on
360 Wealth, you can then view your tax bill for 2021.
360 Wealth not only supports
a comprehensive Net Worth
your financial planning efforts
Statement, track changes in your
but can help your Baird Advisor
portfolio, and manage and view SEPTEMBER 10
streamline your plans and wealth
your current month budget,
management discussions.
spending and cash flow. It’s National 401(k) Day – and time for a retirement
The chief concern that most plan checkup! Celebrate by working with your
Perhaps the most helpful part of
individuals have with a single Financial Advisor to make sure your asset allocation
this is that 360 Wealth helps and
resource containing all their
supports your Financial Advisor
is still consistent with your goals and, if necessary,
financial information is security. rebalance your investments.
team as they provide the best
That’s why it’s always important
advice to help reach your goals.
to follow the most rigorous
For more on this, and on how
security protocols.
360 Wealth can help you keep all SEPTEMBER 15
With 360 Wealth, for instance, your accounts working together,
your credentials are always or talk to your Baird Financial
Estimated third-quarter income tax payments
encrypted from the time we Advisor team. D
are due.
receive them until we present
them to the other financial
institutions. All access and
activity is controlled, logged, and
monitored by a 24x7 Security
Operations Center, which can
detect any attempt to bypass
our security program. The access
is read-only, meaning that
bairddigest.com 7
WEALTH STRATEGIES
Efficient Strategies for
Charitable Giving
WAYS TO SUPPORT ORGANIZATIONS STILL
HURTING FROM THE PANDEMIC
In some ways, the coronavirus But while we were generously DIRECT CONTRIBUTIONS
supporting desperately needed When you make a contribution
pandemic brought out the best in organizations devoted to such directly to a 501(c)(3) public
our society, as Americans increased things as feeding the poor and charity or private foundation,
health care, many nonprofits in you can claim a charitable
their philanthropic gifts throughout areas such as arts and education deduction on your income
the course of the year. Charitable felt the pinch. As we return taxes. But keep in mind that
the claimed deduction only
giving increased 10.6% in 2020 from to normal in 2021, it’s worth
becomes effective if you itemize
seeking out organizations that
2019, according to the Fundraising lost ground in 2020. deductions, and that the
Effectiveness Project, with gifts of Fortunately, there are many
standard deduction has moved
higher in recent years. The 2021
$1,000 or more increasing by 10.4%. different strategies available
standard deduction stands at
to help you make the most
$12,550 for single taxpayers and
effective use of your generosity.
$25,100 for married taxpayers
Here are a few ways you can help
filing jointly. So to fully take
make your gift most efficiently:
advantage of the deduction
8 DIGEST | SUMMER 2021potential, your contribution, to a charity. The greater the
combined with other itemized appreciation on the stock, Keep in mind that you
deductions like property taxes the greater the tax benefit of only get to claim a
or mortgage interest, should donating it, as opposed to
exceed that level. donating assets from other
charitable deduction if
sources. As long as you’ve you itemize deductions,
DONOR ADVISED FUNDS
Some high-net-worth individuals
owned the security for more and that the standard
than one year, you can avoid
establish a private foundation
capital gains tax on all the deduction has moved
for their charitable activities,
but a donor-advised fund (DAF)
appreciation in value. If the higher in recent years.
gifted stock has been held less
can provide many of the same
than a year, you can still get a
benefits, without the operating
deduction, but it will be the
expense or administrative burden.
cost basis on the shares, which These are only a few of the
Here’s how it works: You make a
most likely is less than current strategies that you can use to
contribution to a DAF established
market value. spread your wealth throughout
by one of several financial
organizations, investing those CHARITABLE TRUSTS your community in responsible
assets in a variety of vehicles There are two basic flavors of ways. If you’d like some help in
and receiving an immediate charitable trusts you can set exploring how you can more
tax deduction. You then decide up: a charitable remainder trust effectively help organizations
how much to send each of your or a charitable lead trust. A that are still recovering from
chosen charities, or the fund can charitable remainder trust pays the pandemic, call your Baird
then recommend public charities out a specific amount over a Financial Advisory team. D
to receive your grants. period of years to your named
beneficiary, with the remainder
QCD FROM AN IRA
going to your designated
If you have an IRA, the Qualified
charity. The charitable lead trust
Charitable Distribution (QCD)
is the opposite, with the charity
rules allow you to make a
getting their payment first over
distribution of up to $100,000
a fixed period of years. After
directly to a qualified charity
that, the remaining assets go to
without treating it as taxable
your named beneficiaries. These
income. You must be at least age
trusts also offer estate planning
70½ to take advantage of a QCD.
benefits, since they can move a
APPRECIATED SECURITIES significant amount of assets out
An alternative to a QCD is of your taxable estate.
donating appreciated stock
bairddigest.com 9Doing Well by Doing Good
At Baird, our commitment to the people we serve is what drives our business.
In May 2019, Baird Capital’s Venture Capital team led an investment in Cala Health,
an early-stage, women-led healthcare company that recently developed a wrist-
worn device that treats essential tremor, a rhythmic shaking of the hands affecting 8
million Americans. The device, called Cala Trio, was approved by the FDA in 2018 and
provides hours of relief from these tremors, with minimal to no side effects.
For more on how Baird makes a difference, see rwbaird.com/bairddifference
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Baird does not provide tax or legal services. This is not a complete analysis of every material fact regarding any company, Want More?
industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. Information
in Digest has been obtained from sources we consider to be reliable, but we cannot guarantee its accuracy. All investments Additional information is
carry some level of risk, including loss of principal. Past performance is not a guarantee of future results. available at bairddigest.com,
©2021 Robert W. Baird & Co. Incorporated. 777 East Wisconsin Avenue, Milwaukee, WI 53202. 800-79-BAIRD. rwbaird.com. or contact a Baird Financial
Member New York Stock Exchange Inc. and other principal exchanges. Member SIPC. MC-580051. #7056.44.
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