Tradewinds Navigating Life & Finances
JANUARY 7 / VOL 14, NO 4
Please welcome our newest team member!!
See What’s Inside Our Commitment to Quality
2021 Benchmark Returns: 12/31/2021
Reporting Gifts on Your Taxes
MSCI All Country World Index: 18.54%
Dare to Lead a Conversation
Morningstar Moderate Target Risk Index: 10.19%
Balancing the Real Estate Market
S&P 500 Index: 28.71%
US Aggregate Bond Index: -1.54%
N E W S L E T T E R / JA N UA R Y 2 0 2 2
Commitment to Quality
By Spencer Kelly, Co-Founder & Head of Advisory Services
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s I write this, I’m recovering from COVID-19. Double vaccinated and boosted, yet I still caught the Omicron variant. My 9-month-old, River, caught it as well. Poor guy. We’re all doing fine now and hopefully stronger because of it! In the short term, I’m concerned about the effects of this recent surge on our economy. Just the mere fact that I have this concern 21 months after COVID-19 first took its grip on our country is maybe what’s even more troubling. Or maybe it’s just the opposite. We’re 21 months into this pandemic still fighting against this virus, but also working together to keep our families strong and our communities safe. We’re working our tails off, our economy is thriving, and we continue to adapt and innovate. Let’s turn away from the 24 hours news cycle and sensationalized media, and look at our own lives to truly understand what this country is all about. The front-page news and clickbait headlines are often meant to be divisive; to create conflict and stir up emotions of fear and greed. But, as a
country, we should be proud. Because we continue to push forward. We adjust. We pivot. We grow. If you have confidence in yourself and in each other to continue to do what we’ve done these past two years, then you need to have faith in the importance to keep investing in our country’s future and in your personal future. I promise you, it will pay off. Where you invest your money, how you spend your time and who you associate with all overlap. Search out high-quality, authentic, and sincere people, experiences, and investments, and I believe you will live a life full of abundance, financial security, incredible memories, and extraordinary relationships. At Regatta, we believe this to be true. Due diligence combined with a steadfast commitment to our values is the key to our success. Before every hire at our firm, before agreeing to work with each client and before we give the stamp of approval on each and every investment we recommend to our clients, we have gone through an extensive process to make sure our
decision to move forward fits with our culture, our values, and our mission. We do not waiver on this commitment to quality. As we embark on 2022, nagging inflation, Fed policy, stock valuations, bitcoin bubbles, COVID variants and rising rates are all on our mind. Justifiably. These things move the markets short-term – and they should. So, talk to your Regatta Advisor and review your plan. It’s important that your short-term money is in short-term investments, and make sure your longterm money is in long-term investments. If you want to earn significant returns and experience the wonders of compounding interest, then you either need to embrace the volatility of public markets or you need to be willing to tie your money up in illiquid, private investments. We strongly believe in both. We’ve built Regatta for you. We’re 100% independent. We’re fiduciaries. And we are dedicated to you, the client. As always, we are thankful for the opportunity to work for you and for you to allow us into your lives.
FIRM UPDAT E Regatta Capital Group welcomes our newest Financial Advisor Associate, Chloe Barnett, to the Regatta Family!! Chloe comes to Regatta from Fidelity Investments where she worked as a planning consultant directly helping clients organize and analyze their personal finances. She works closely with Russell & Spencer on the Founder’s team assisting with client service needs.To learn more about Chloe, please visit our website at regattainvest.com.
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S T O C K M A R K E T U P D AT E
Executive Summary
By Russell Mohberg, Co-Founder & Chief Investment Officer “Life doesn’t have to be perfect to be wonderful,”says the sign in my hallway. I would take it a step further and say the world can be a mess, but your investments can still do well. The table below shows our gross returns in the various asset classes for the year. This doesn’t include the $100 million that we manage in group 401k plans. The cash return is negative because it includes margin interest charges and some modest foreign currency positions (which reported negative last year). It was a very good year in many regards. But if you heard our investment meetings you would know we are not celebrating. We are focused on how we can do better for our clients. How can we prune inferior holdings, find better solutions from enhanced cash to aggressive growth, and reduce internal expenses without sacrificing returns? The lowest returning asset class outside of cash was bonds at +3.55%. This is quite good considering the Barclays US Aggregate Bond Index was down -1.54% for the year. About $77 million of the $134 million in “Bonds” is tax-exempt bonds and funds. This illustrates how poorly we view the prospects for taxable investment-grade bonds going forward (very little relative to our total AUM). Our move to replace bonds with income-producing real estate and alternatives (such as private loans and renewable energy) worked phenomenally in 2021 but it won’t always be this easy – we often take on more volatility or sacrifice daily liquidity when we seek a better alternative to bonds. The future is uncertain, but here is what we see. Covid-19 appears to be burn-
ing itself out with the super contagious but milder Omicron variant. The market is looking past that and now watching earnings, interest rates, inflation, monetary policy, and global politics. S&P earnings are expected to grow 9% in 2022 while the forward PE ratio is about 21. That is neither cheap nor nosebleed. In this interest rate environment, stocks can go higher but investors will likely become more selective. All S&P sectors are projected to increase earnings, except financials which are on track for an 8.9% drop. The leaders are forecasted to be industrials +45%, consumer discretionary +32%, and energy +28%. The additional good news is this isn’t based on cost-cutting or other financial maneuvers, the S&P 500 revenue is forecasted to grow 7.3% this year, which is more than double its 10-year average. On the interest rate front, based on the last Fed meeting minutes they could start raising short-term interest rates as early as March. This is earlier than expected and we could see three to four 0.25% increases this year. This doesn’t directly move long-term rates but with Asset Class
the economy projected to grow at 4% to 4.5% and inflation between 3% to 4%, long-term rates should go higher as bond investors strive to keep up. Rising rates are going to be a head wind for the real estate market unless rents increase to offset the rising cost of capital. This will be the case in growth cities around the world, but not the case where rent controls remain in place. Real estate is an excellent inflation hedge so it should continue to be in high demand despite rising interest rates. The best news is employment and wages should grow this year and pent-up demand should keep household spending strong. Businesses will need to rebuild their inventories. This is the recipe for expansion and feels more like mid-cycle than late-cycle; we see no near-term recession on the horizon. That bodes well for innovative companies, undervalued companies, mortgages, private business loans, and many other economically sensitive investments. We love the start of a new year; we get to put on our game faces and go find some more great investments for you.
Last Market Close Value
2021 Gross Return
Cash
$43,756,070
(0.26%)
Enhanced Cash
$18,489,623
0.32%
$134,928,066
3.55%
$16,024,930
13.15%
$315,240,192
19.74%
Bonds Balanced US Stocks/Funds Non US Stocks/Funds
$68,297,582
6.00%
Private Real Estate
$77,266,639
24.12%
$3,608,369
63.86%
$125,949,368
15.19%
$9,414,527
7.77%
Venture Capital Alternatives 529 Plans
Regatta Capital Group’s Assets Under Management as of 12/31/2021. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Regatta strategies are disclosed in the publicly available Form ADV Part 2A. Past performance does not predict future results. Results shown are unaudited, gross aggregate actual account performance generated by Tamarac. The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon.
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N E W S L E T T E R / JA N UA R Y 2 0 2 2
Gift Taxation & Reporting By Benjamin Kingston, Esq. of Regatta Trusts & Estates
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ave you ever made a gift or multiple gifts of substantial monetary value to a family member, loved one, friend, charity, or trust? Did you file a Form 709 reporting the gift to the I.R.S.? Were you supposed to report it? What is the dollar amount at which gifts must (or should) be reported? Over what period? Are all valuable gifts reportable? What are the implications of the federal gift tax as it relates to estate planning? Each year, U.S. citizens and residents report hundreds of thousands of gifts on I.R.S. Form 709 and pay hundreds of millions of dollars in gift taxes. Yet, each year, hundreds of thousands of gifts and millions of dollars in gift taxes go unreported and unpaid. Is it a gift, and when does the gifting take place? A gift is (i) a transfer of property, (ii) made during a donor’s lifetime, (iii) to another (including a minor, a trust, a charity, a corporation, or a partnership), (iv) for less than the value of what was gifted. A gift occurs when the donor no longer has control over the property. If the donor’s control over an asset does not terminate until the donor’s death, the gift tax does not apply because it is no longer a lifetime transfer; instead, the transfer would be subject to estate tax. Okay, it’s a gift. Now is it reportable?
When will a reportable gift trigger a gift tax? The I.R.S. provides an annual exclusion amount (currently, $15,000) per donee, at or below which a donor may but does not have to report the gift. Thus, if a donor gifts property (money) to each of her three donee-kids that do not exceed the annual exclusion amount of $15,000 per child-donee in 2020, no gift tax will be owed. Suppose in the above example the donor is married, and both spouses are U.S. residents. There, the married couple could gift community property valued at up to $30,000 per child per year. Is there any benefit to reporting nonreportable gifts? Frankly, there is sometimes. Under I.R.C. § 6501(a), the I.R.S. must assess gift tax within three years after a taxpayer files a Form 709. The three-year statute of limitations runs when the taxpayer files the gift tax return and adequately discloses the gift on the gift tax (Form 709). Taxpayers who take advantage of discounts or gift difficult-to-value assets such as an interest in a closely held family business should consult with a tax or legal professional to determine whether it would be in their best interest for the statute of limitations to run immediately upon filing Form 709. Contact Regatta Trusts and Estates to determine what tax planning strategies should be implemented in your estate plan.
The I.R.S. generally deems that any gift is a taxable gift unless it falls under one or more exceptions or exclusions, such as gifts: • • • • •
its less than the annual exclusion for the calendar year in tuition or medical expenses paid for someone to your spouse to a political organization to qualifying charities
Regatta Trusts & Estates assists with not only estate tax planning strategies but trust administration, probate, and other complex estate planning to all in need. If you would like to schedule a time to discuss with an estate attorney at Regatta Trusts and Estates, please visit their website at regattalaw.com or give them a call at (310) 220-2225.
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Dare to Lead a Conversation By Lisa Margulies, Financial Advisor & Transformational Coach
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s I embark on my 60th year, I am getting bolder and more curious. For the first time, I feel a pinch around time and around my legacy. I am discovering though that the pinch is a blessing and perhaps I hold a small wish that I had realized this earlier. Since I am living without regret these days, I will leave that wish as a fleeting thought. Times are changing and with the changing times, I am too. A better word is transforming. Covid-19 and Black Lives Matter protests were in full force when a LAUSD special education teacher was referred to me by a client in April 2020. More than anything, she wanted to retire. She was very depressed with her job and with current events. Over a period of a couple of months and many tissues later, she was reborn. Her new grasp of finances allowed us to create possibilities which have led her to her first home purchase. We created a Net Worth and Cash Flow statement.
We analyzed her accounts and set up budgets. As the light turned on inside of her, she looked at me and asked if I would teach her friends. In July 2020, she created a zoom meeting and about 15 women joined. Most of them were African American. All of them were also skeptical that this white financial professional woman would ever “get” them. They hesitantly came monthly to “try” financial literacy. Each time I was met with a challenge to bridge emotional, cultural, spiritual, economic, and family of origin gaps in learning and myths. What organically happened over the next 15 months leaves me near tears. This group of women has taken financial literacy to an entirely new level. They are now forming a non-profit called Wise Women of Wealth. What started as a 6-week financial literacy workshop has turned into a 15-month life-changing, duplicatable program. It took one teacher with a vision and love for herself and friends to make
this opportunity happen. Those women are being considered by a nonprofit Centro Community Partners to bring a “radical new financial literacy program” to light. Centro Community Partners has a vision of supporting its graduates, now at +6,000 mostly minority women entrepreneurs, into full financial literacy and mastery. My fingers are crossed and my heart is filled to see that it only takes one match to light a fire. Financial Literacy is a passion. Regatta Capital continues in its commitment to lift every individual, family, and community member it touches. https://www.centrocommunity.org/
The Regatta Financial Weather Report Key Economic and Market Indicators U.S. Retail Sales Growth, 1 year
18.2%
Expect to increase by Q2 ‘22
U.S. Unemployment Rate
4.2%
Forecast to fall below 4%
Inflation (CPI)
6.8%
Highest rate since June 1982
Manufacturing Economic Health (PMI)
57.7
Slightly lower than prior qtr
S&P 500 Valuation (Forward P/E Ratio)
21.30
Gradual decline since Sep19
Source: TradingEconomics.com, ycharts.com)
Interest Rates 30-year mortgage, fixed
3.29%
slight increase over the year
Money Market
0.07%
Steady decline towards 0
Five-year CD
0.42%
Steady decline
Prime rate
3.25%
No change since prior quarter
Economic Growth Forecasts 2022 US
5.2%
Euro ex UK
4.3%
UK
5.0%
Japan
3.2%
EM
5.1%
China
5.6%
India
8.5%
World
4.9%
Source: OECD
Source: wsj.com/market-data/bonds
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N E W S L E T T E R / JA N UA R Y 2 0 2 2
Bringing Balance Back to the Real Estate Market By Cole Thompson, Financial Advisor Associate & Director
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021 was a record year for US home sales and with that came major price acceleration. The Case-Shiller home price index peaked in August when prices rose 19.8 percent year-over-year that month and the national median home price hit $362,800 in June, an all-time high, according to the National Association of Realtors. But what does this mean for 2022 and on? Do economists predict a similar crash to that of 2008 or perhaps a pullback that every firsttime homebuyer is looking for? The experts say neither, so let’s fortify this claim by crisscrossing forecasts made by associations, brokerage platforms, and lending intermediaries. Let’s start with the outlook from Realtor.com, Redfin, Zillow – platforms that have immense amounts of real estate data at their fingertips. “Homebuyers will have a better chance to find homes in 2022 but will face a competitive seller’s market,” said Danielle Hale, the chief economist at the real estate listings website. “Affordability will increasingly be a challenge as interest rates and prices rise, but remote work may expand search areas and enable younger buyers to find their first homes sooner than they might have otherwise,”
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she said. Hale says sales of existing homes will rise 6.6 percent. She expects 2022 to have the second-highest sales in the past 15 years, surpassed only by 2021. Similarly viewed, Redfin doesn’t expect the 2022 housing market to be any more predictable than it was in the past two years. “We
will see a rush to buy homes at the start of the year before mortgage rates rise. That early onslaught of demand will deplete the supply of homes for sale. In the second half of the year, a much-needed increase in new construction will boost sales slightly. In 2022, there will be 1 percent more sales than in 2021, and by the end of the year, home price growth will slow to 3 percent.”
Zillow completes the triage, forecasting 11 percent home value growth in 2022, down from a projected 19.5 percent in 2021. It expects sales of existing homes to total 6.35 million, up from an estimated 6.12 million in 2021. According to the National Association of Home Builders, low inventory and strong demand should continue to propel the home-building industry in 2022, but shortages of skilled labor persist. More than 400,000 jobs are open in the industry on top of the fact that NAHB estimates the construction industry needs to add 740,000 workers a year to make up for retirements and the industry’s growth. And from the bank’s perspective, Greg McBride, the chief financial analyst at Bankrate.com, predicts that the 30-year fixed mortgage rate will peak at 3.75 percent during the year and fall back to 3.5 percent by the end of the year. Reconciling all of this: as home prices rise in conjunction with mortgage rates, a sellers’ market will remain. The X-factor is inventory. Supply will meet demand if building materials and labor become replenished. Until then, a crash seems somewhat invisible.
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Finance-ology
NON-FUNGIBLE TOKEN - Widely known for its acronym NFT, a non-fungible token is a
unique and non-interchangeable digital asset that is stored and traded on a digital marketplace known as a blockchain. An NFT can be any art form including but not limited to an image, a video clip, gif, or a unique piece of property. Essentially a virtual collector’s item, owners of an NFT have exclusive ownership rights that can be sold to other owners for profit. Records show one NFT sold for $69.3 million in 2021. NFTs sales totaled approximately $25 billion that same year.
If you have comments or questions, please do not hesitate to reach out to us at info@regattainvest.com Ellen Himmel, JD; Grant Nabell, Lisa Margulies, Cole Thompson, Ben Satterfield, Kristin Grant, Lee Clay, CSRIC; Grace Yu, CFA, FRM; Marc Joyce, Esq; Nick Ozer, CFP®; Benjamin Kingston, Esq; Spencer Kelly, CFP®; Lindsey Diranian, Chloe Barnett, Erika Jenkins, CPA; Britt Joyce, CFA, CFP®; Russell Mohberg, CFP®.
Main Branch Office
Westchester Branch Office
Brentwood Branch Office
Spencer Kelly, Nick Ozer,
Lisa Margulies
Ellen Himmel
Britt Joyce, Lee Clay, Ben
7135 W. Manchester Avenue, Ste 2
12011 San Vicente Blvd. Ste 320
Satterfield & Russell Mohberg
Westchester, CA 90045
Los Angeles, CA 90049
880 Apollo Street, Ste 129
Office: (424) 255-1045
Office: (310) 471-6461
El Segundo, CA 90245 Office: (310) 725-9102 7
Regatta Newsletter Volume 14, Number 4 Editors: Kristin Grant Russell Mohberg, CFP®
880 APOLLO STREET, STE 129 EL SEGUNDO, CA 90245
Contributing Editor: Spencer Kelly, CFP® Contributors: Venessa Robinson Grace Yu, CFA, FRM Britt Joyce, CFA, CFP® Lisa Margulies Erika Jenkins, CPA Ellen Himmel, JD Nick Ozer, CFP® Lee Clay, CSRIC Marc Joyce, Esq. Brian Mollo Cole Thompson Grant Nabell Benchmark Data Source: Tamarac, Inc
Your personal performance report has been posted to: https://regatta.portal.tamaracinc.com
ABOUT US
We are unabashed in our commitment to scouring the investment universe to find the best possible solutions for our clients and their money. We know there’s an easier way to manage money, but we choose to take the road less traveled.
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Regatta Capital Group
egatta Capital Group provides investment management and financial planning advice to individuals, families, business owners and endowments. The firm manages more than $800 million for clients in Los Angeles and more than 32 states.
For example, we invested in Facebook pre-
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IPO, own clean energy facilities and have directly invested in over 50 private, multi-family apartment building LLCs.
©
2022 Regatta Capital Group, LLC. All rights reserved. Reproduction by any means is prohibited. While data contained in this report are gathered from reliable sources, accuracy and completeness cannot be guaranteed. All data, information and
opinions are subject to change without notice. Investments referenced are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. Past performance does not predict future results.