December 16, 2023 | CPI, Government Debt, Apple, Accident Repair, Season of Giving

Smart Investing with Brent & Chase Wilsey

CPI

The Consumer Price Index (CPI) did not show us much new news and I believe it will be enough for the Fed to keep rates steady and put an end to their hiking cycle. The headline number showed just a 3.1% increase compared to last year and the core CPI, which excludes food and energy showed an increase of 4%. The headline number saw a nice benefit from falling energy prices as the energy index declined 5.4% compared to last year and gasoline prices were down 8.9% compared to last year. Although the annual increases showed little to no change compared to last month, it’s important to understand the progress that has been made from the peak inflation levels. In June 2022, headline CPI hit a cycle high of 9% and in September 2022, core CPI hit it’s cycle high of 6.6%. Progress continues to be made in many areas including food at home which showed an increase of just 1.7% compared to last year, but remains stubbornly high in areas like motor vehicle insurance which was up 19.2% compared to last year and motor vehicle repair which was up 12.7% compared to last year. Shelter continues to be the big headwind in the report as the index was up 6.5% compared to last year and accounted for nearly 70% of the total annual increase in the core CPI. While this has taken longer than I anticipated, I still believe this shelter index will see subsiding price increases which should continue to bode well for the overall inflation report.

Government Debt
Many times I’m asked or hear concerns by people about the government debt and I tell them I don’t like where it is, but it’s not a major problem at this point. Currently the debt to GDP stands at 119.47%. Compare that to another developed nation like Japan, who has a debt to GDP of 263%. I do not wish to see the US get into that situation, but you have to notice that Japan has not fallen and it has continued to move forward. One problem with our government debt being so high is that there is only a certain number of buyers looking for debt and if the government is absorbing more debt to cover their bills, it takes money out of the private sector debt market, which can slow down our economy. In summary, we are not in danger territory, but to improve our growth going forward we need to get a handle on our debt and or grow our GDP much more. I still believe there is no need to panic for years to come.

Apple

In the future, the next iPhone you purchase may not come from China and instead it may come from India. Within two to three years, Apple is expecting to build over 50 million iPhones in India. If Apple reaches this goal, that would mean India would make up about 25% of global iPhone production. Currently global iPhone shipments are around 220 million per year, which means China will still continue to account for over 50% of the iPhone production. It does appear that relationships with Apple and the Chinese government are a little strained since the Chinese government banned some officials from using iPhones at work. Apple responded saying any iPhones sold in China will be produced in China. There are unions in India that do put up some barriers for Apple, but so far, they have been able to work with the unions to get things done like having the ability to do a 12-hour workday if production increases are needed. Even with Apple’s popularity here in the US, Samsung is still the global smartphone leader.

Accident Repair

People who own EV’s may be saving money on gas, but they lose that benefit when it comes to repairs if you get in an accident. This is because of such things as how the cars are built and special storage may be required because of lithium batteries to prevent fires. Last year the average cost for a crash of an electric vehicle was $6,587 which was 55% higher than on all vehicles which was $4,215. You may be thinking that’s ok, I don’t have to pay for accidents as my insurance will cover them. Unfortunately, the insurance companies know they pay more for electric vehicle repairs so you’ll pay 44% more for car insurance on an electric vehicle or about $357 per month compared to $248 per month for normal vehicles. You may still love your electric vehicle, but they’ve only really been around for a few years. As time passes, we are finding out more about some downsides that we did not know before.

Financial Planning: The Season of Giving

Whether it’s to charity, church, or family, people tend to be in a more giving spirit during the holidays. If you happen to be in the giving mood, there are a few stipulations to be aware of. When giving to family or friends, there is an annual gift limit that applies. In 2023 it is $17,000 per person and next year it increases to $18,000. This limit is stackable so a married couple may gift $34,000 to as many people as they want and may repeat this for as many years as they want. This gift is not deductible to the giver and does not count as income to the recipient. For extra generous givers, a 529 account may be used to gift 5 years’ worth of gifts at a single time, meaning a married couple could give $170,000 to as many beneficiaries as they want. This applies to beneficiaries of any age and they do not need to use the funds for education as long as they withdraw the entire gift from the 529 before it has a chance to accumulate earnings. Givers may also gift appreciated shares of stock to avoid paying taxes on the gains. In this case, the recipient inherits the gain and will realize income if the shares are sold, which may be at a lower tax rate than the giver. When making charitable gifts, it is important to verify if the donation will be deductible to you. In order to receive a tax benefit, you must itemize your deductions which means you need the total amount of your deductions to exceed the standard deduction. This applies to both federal and state taxes so even if you do not itemize federally, you may still itemize on the state side and receive a tax benefit. Givers may also donate appreciated shares of stock when donating to charity to receive the tax deduction and avoid the capital gains tax. If you liked the investment, you could repurchase the stock which essentially resets your cost basis while you receive the tax benefit from the donation. Keep in mind, when you give to charity, the dollar amount of the tax benefit does not outweigh the amount of the donation so it is still costing you money. In other words, you are still being charitable! Lastly, for people who are over the age of 70.5, have an IRA, and who would like to make a charitable donation, they should heavily consider using the IRA to make the donation directly to the charity. This is called a Qualified Charitable Distribution (QCD) and will offer the same tax benefit as an outright donation, but with a bunch of extra perks. With a QCD, the giver receives the full tax benefit whether they itemize or claim the standard deduction. Since the donation is coming from an IRA, this will reduce the amount of future required distributions and therefore reduces taxable income. Also, a QCD is not included in either the adjusted gross income or taxable income (regular donations only reduce taxable income) which means the donation may also reduce Medicare premiums in addition to taxes. If you plan to give this season, doing it in the most efficient way will give some tax savings or even allow you to give more.