The start of the new year is a great time to assess financial strategies while positioning yourself for the next phase of interest rate movements and economic changes. With a potential economic slowdown on the horizon, risks of market volatility, and shifting tax policies, proactive wealth management will be key to navigate the year while protecting and maximizing your capital.
In this executive wealth management outlook, we will explore:
Economic and Market Outlook for 2024 Wealth preservation approaches Evolving tax code changes
Executive compensation planning
Economic & Market Outlook for 2024
by Mark Luschini and Guy LeBas December 15, 2023
Outlook 2024 offers the Janney Investment Strategy Group’s baseline forecasts for the economy and equity and fixed income markets in the coming year.
Phase Transition
Phase transition describes a change in the state of an object, such as water going from stasis to boiling once the temperature reaches 212 degrees F°, or conversely, freezes at 32 degrees F°. Outlook 2024 is about an economic phase transition. After a year of posting positive and surprisingly strong growth, the question is whether, metaphorically speaking, inflation’s falling temperature and the Federal Reserve’s rising temperature will change its state. Could the economy continue to expand, averting a recession, and perhaps even overheat should inflation reignite? Or will the economy slow and even contract as the yoke of high borrowing costs and shrinking savings bears too much weight for the consumer and businesses to carry?
There is even a theory developing that productivity, often quoted but difficult to see and measure, may be the elixir to rescue the economy from a growth-sapping policy of maintaining a tight monetary setting until inflation is ameliorated. That is, even if it comes at the cost of job losses and an accompanying recession. The latest report on that front did hint at such an outcome, giving hope that an upshift in the output/worker will help cure inflation without the need for further heavy-handed monetary intervention. It may be too soon to tell, but the means by which it could happen, via the application and ubiquitous adoption of artificial intelligence, robotics, and various other forms of automation, are among those things that could be the catalyst.
Outlook 2024 establishes a central case with the acknowledgment that new data will be parsed in the coming months that might provide even better clarity as to which phase transition outcome is increasingly likely. In the meantime, also presented are the investment implications to peruse and consider in the context of an investor’s bespoke goals and objectives.
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Executive Wealth Preservation Strategies
With market uncertainty elevated, wealth preservation should take priority in 2024 planning. Top priorities include:
Risk Management Assessment - Review all existing insurance policies both internally and externally to ensure adequate coverage levels for health, life, disability, and long-term care based on individual executive needs.
Portfolio Immunization - Stress test investment allocations to guard against market drawdowns.
Liquidity Optimization – Rates haven’t fallen yet, and until that time, consider maximizing cash reserves by moving extra cash into tax-free high yielding money markets, T-Bills and CD ladders. Maintain adequate liquidity for 1-2 years of living expenses.
Tax Diversification – Harvest tax losses throughout the year to help offset capital gains realized from the sale of highly appreciated equity. Any unused losses may be used in subsequent years to help offset future years’ capital gains. Maximize funding to all retirement accounts by confirming the new year’s IRS limits. Engage tax-advantaged strategies like deferred compensation and trusts whenever possible.
Estate Optimization - Maximize exemptions before they sunset in 2026. Front-load large gifts into irrevocable grantor trusts and implement other protective estate strategies in anticipation of change.
Tax Code Projections for 2024
While tax policy changes remain uncertain, some projections based on existing legislation include:
Estate tax exemption sunsets to $5 million in 2026
Long-term capital gains tax rates may rise to 28% for incomes above $400k Roth IRA conversions could face new restrictions
Earned income thresholds may be introduced for current passive loss restrictions
Executives have a closing window to implement tax planning under the current historically favorable laws. Accelerate any contemplated moves to 2024 to maximize exemptions and lock in preferential rates.
Executive Equity Compensation Planning
Fluctuations in company stock prices and vesting schedules can significantly impact the value derived from ISO, NQSO and RSU grants. Monitor position expiration dates so as not to allow options to expire. When applicable, plan on selling equity immediately after exercising to avoid capital gains.
For concentrated positions with low-cost basis, engage sophisticated hedging, monetization, and disposition techniques. Use tax-loss harvesting consistently throughout the year. Seek an “Exchange” fund for swapping concentrated stock for shares in a “pooled” fund. Have a plan in place for strategic vesting, exercise, and liquidity opportunities as they emerge.
During periods of volatility or expansion, restricted stock and options plays an enhanced role in driving executive wealth. Work closely with a specialist to maximize tax-efficiency and reduce risk while aligning financial goals with wealth optimization strategies.
Key Takeaways for Executive
As 2024 uncertainty builds, being proactive, resilient, and opportunistic will enable executives to thrive. Keep liquidity high, risk managed, and optionality open across finances. Leverage changing market conditions for tax optimization and strategic planning moves before economic landscapes shift.
Most critically, take this period to ensure complete alignment between wealth management strategies and your life’s highest priorities. Envision your multi-generational financial legacy and purpose-driven impact, and plant seeds for an abundant future.
This is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here. The concepts illustrated here have legal, accounting and tax implications. Neither Janney Montgomery Scott LLC nor its Financial Advisors give tax, legal, or accounting advice. Please consult with the appropriate professional for advice concerning your individual circumstances. For more information about Janney, please see Janney's Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
