Category First Time Home Buyers

Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer

I recently met with a client to update her will, and her big question was whether she still needs a trust for her daughter. Her child has graduated college, is on her second well-paying job, got married and is now a new mom. Her daughter has been maturing into a responsible young adult.  But there’s another factor that weighs heavily on my client’s mind – her son-in-law and the potential for divorce.

My clients don’t want money they’ve worked hard for to pass down to their son’s or daughter’s ex-spouse, if the unfortunate reality of divorce happens.

With the current federal estate tax exemption in 2021 at $11.7 million per person or $23.4 million for married couples, setting up a trust to save taxes upon death is not as much of a driving force as it used to be. Even if the estate tax limit is cut in half, most people will still be protected, as far as taxes go.

The larger question becomes how well they think their children will handle receiving a large sum of money.  As they watch their children mature, in most cases my clients eventually feel their child is up to the task.  Yet they still want a trust because they worry about their adult child losing thousands, if not millions, of dollars of their inheritance as a result of a failed marriage. By establishing a trust as part of their will, these clients can help protect their child’s assets in a divorce settlement.

Let’s examine how this works.  In many cases, if a child receives an inheritance and combines it with assets they own jointly with their spouse – such as a bank account, car or house – depending upon the state in which they live, the inheritance may become subject to marital property division if the adult child and spouse later divorce.

But if the child’s inheritance remains in a trust account, or they use trust funds to pay for assets only in their name, the inherited wealth can further be protected from a divorce.  This gives the adult child their own assets to fall back on in the event of a divorce.

One of my clients left his daughter’s inheritance in a trust after her first divorce because he was afraid his hard-earned dollars might end up squandered if she remarried.  It turns out my client was spot on – she married again; it did not work out, but her second ex-husband never got a dime from her trust.

Trusts can be complex and involve extra administrative work and costs, which may cost more compared with leaving assets outright to your children. In addition, a person or company must be named as a trustee to oversee these funds throughout the trust’s existence. But many people are willing to pay these costs to protect their child’s wealth.

How do parents decide whether to leave assets in trust for their children because of the possibility of a failed marriage? Here are three scenarios to consider:

  1. Children 18 or younger. If your child is under 18, you’re probably not thinking about the marriage/divorce angle!  However, due to their youth, leaving assets in trust for them is often a good idea.  A trustee will be named to oversee the child’s assets and will be able to guide them to make wise decisions with these funds. And the trustee has the power to deny any financial requests, which can be valuable if a young person is immature or easily influenced.
  2. Is your child newly married? Nearly all couples are happy in the first years of marriage, but the road can turn bumpy as life becomes more stressful and complex — whether it’s a job loss, a decline in health, financial stress or simply the demands of raising children. Instead of deciding to set up a trust right after your child’s marriage, it’s best to watch how the marriage progresses over the next five to 10 years.
  3. How is the marriage going?  Even after five years or more, consider how comfortable you are with your child’s relationship and how you feel about your son- or daughter-in-law.  If there is constant fighting or you simply have that bad “gut feeling,” setting up a trust for your child’s inheritance might be a wise move.

I encourage my clients to think about estate plans as five-year plans: Review your wills, trusts and other documents every five years. It isn’t necessary to constantly change these documents, but reviewing them periodically helps a person to carefully evaluate relationships, finances and the emotional dynamics of their families. In addition, an estate lawyer can modify or delete the trust during your life, as your family circumstances change.

Partner and Wealth Advisor, Brightworth

Lisa Brown, CFP®, CIMA®, is author of “Girl Talk, Money Talk, The Smart Girl’s Guide to Money After College.” She is the Partner in Charge for corporate professionals and executives at wealth management firm Brightworth in Atlanta. Advising busy corporate executives on their finances for nearly 20 years has been her passion inside the office. Outside the office she’s an avid runner and supporter of charitable causes focused on homeless children and their families.


Will 2021 Be the Year for Value Stocks?

Over the last decade, value stocks have underperformed when compared to growth stocks. However, several signs point to this long-term slump coming to an end.

Value investing has seen better days. The alluring returns of growth stocks, particularly concentrated in the tech sector, are far more enticing to institutional investors and retail investors alike. There’s no shortage of investors ready to call the time of death for value investing — but 2021 could be the year that proves them all wrong.

In fact, we might be looking at an extended period of time in which value investing will make a big return. And this isn’t just idle speculation: Well-established, respected names in the financial space share this sentiment, including Vanguard. 

But we don’t have to take their word for it. While the numbers clearly suggest that value stocks will make a strong comeback, a large part of that process will be driven by common-sense investing in the months to come.

Let’s jump into precisely what that means.

Why Value Stocks Have Underperformed

First, let’s deal with the performance of value stocks in recent years. Looking at data from the last decade, it is apparent that growth stocks have outperformed value stocks by quite a large margin. And although that fact has caused many to declare that growth stocks are intrinsically superior, this is a narrow and shortsighted approach.

Let’s take a look at the data. Vanguard’s Russell 1000 growth index (VRGWX) has seen returns of 16.36% when looking at a 10-year period, while the Russell 1000 value index (VRVIX) has netted investors returns of 10.32% in the same timeframe.

Although returns of 10.32% are below the 13.6% current 10-year average of the S&P 500, it is clear that value stocks are far from a thing of the past. In fact, this level of performance is encouraging, considering that market conditions have been very unfavorable toward value stocks in the past decade.

What market conditions, you may ask? It’s simple — portfolios that focus on value stocks frequently overweigh industries that haven’t fared so well in the past 10 years, such as energy, utilities and the financial sector. On top of that, it has been demonstrated that low interest rates have a negative effect on value stocks while bringing a positive effect to growth stocks at the same time. 

Growth and Value Cycles

We’ve established that growth stocks have outperformed value stocks in the last decade, but don’t let that fool you. Historically, value stocks have netted investors far greater returns over the long run.

Does this mean that value stocks are always the right call? Well, no. An individual investor’s own investment timeframe is much more important than long-reaching historical data. Up to this point, investing mostly in growth stocks was the better option, but only because we’ve been in a growth cycle.

Much like the market has bullish and bearish cycles, it also has growth and value cycles. As we’ve discussed, the last 10 years have been part of an (admittedly long) growth cycle, driven primarily by tech stocks. However, the conditions that lead to this aren’t set in stone.

In fact, the current growth cycle might be at an end. Although tech stocks may continue to rise, it is uncertain if they can retain their current rate of growth. The largest cause of their meteoric rise, by far, is the monopolization of services. 

With Google, Amazon, Netflix and others like them having already carved up impenetrable economic moats, whether or not they will see a continued rise in share price is an entirely valid question. 

The possibility of higher interest rates and inflation also brings another element of uncertainty to the future of tech stocks.

Stimulus Payments, Reopening the Economy and Value Stocks

The single most important event that will accelerate the return of value stocks is the stimulus in the U.S. and the eventual reopening of the economy after the COVID-19 pandemic.

Although stimulus payments likely won’t cause as much inflation as the most pessimistic among us think, inflation will occur, thereby curbing the returns of growth stocks and increasing the returns of value stocks. 

As the economy reopens, sectors that have been hit hard by the pandemic will likely see a rapid recovery. Reopening the economy will lead to a much larger cash flow for currently undervalued businesses, which will allow them to invest in further growth. This, in turn, will lead to a renewal in investor confidence, culminating in a domino effect of rising stock prices.

If, in fact, the Biden administration passes the sweeping infrastructure bill that it has promised, you should also keep in mind that infrastructure stocks could be poised to see a large increase in price. Many see the industry as undervalued as of late, which can add to the appeal of Biden’s agenda.

What to Keep in Mind Amid Rising Tides

The old adage of rising tides lifting all boats hasn’t fared all too well when it comes to the economy. The expected recovery of the U.S. economy will certainly have a very positive effect on a lot of businesses — perhaps most businesses, even. However, this doesn’t mean that value investing will suddenly become a foolproof silver bullet.

Growth stocks certainly have a place in portfolios, and any warning with the tech sector doesn’t mean that growth should be avoided. In fact, the tech industry is a prime candidate for value investing. However, you should keep an eye out and avoid tech industry value traps — innovative companies that attract a lot of venture capital without actually bringing a product to market.

Look for companies that have intrinsic value, and that you truly believe in. While that may seem like generic advice, something tells me that this year, it could become a lot more profitable than it has shown to be in years past.

Founder, Lakeview Capital

Tim Fries is co-founder of Protective Technologies Capital, an investment firm focused on helping owners of industrial technology businesses manage succession planning and ownership transitions. He is also co-founder of the financial education site The Tokenist. Previously, Tim was a member of the Global Industrial Solutions investment team at Baird Capital, a Chicago-based lower-middle market private equity firm.


PODCAST: Investing Green in a White-Hot Market

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David Muhlbaum: Stock and fund investing meant to also help the environment is nothing new, but boy, has it been a hot sector this past year. In a market full of huge gains, how should you go green now? Executive editor Anne Kates Smith joins us with some stock and fund picks. Also, in a topsy-turvy 2021, Earth Day comes before Tax Day. We’ll explain. That’s all coming up on this episode of Your Money’s Worth. Stick around.

David Muhlbaum: Welcome to Your Money’s Worth. I’m senior editor David Muhlbaum, joined by my co-host, senior editor Sandy Block. How are you doing, Sandy?

Sandy Block: I’m doing good, David.

David Muhlbaum: Good. This podcast is going to drop just a few days before April 15th. And you know what that is, right?

Sandy Block: I know what it’s not. It’s not Tax Day.

David Muhlbaum: That’s right, Sandy. It’s not Tax Day. Yeah, of course, April 15th is traditionally the day when we’re all supposed to have filed our prior year’s taxes or filed for an extension, and traditionally we’d be telling you all sorts of smart moves to make if you’re a tax procrastinator, but this year, we’re not, not because we don’t want to be helpful, but because this year, April 15th is not Tax Day.

Sandy Block: No, this year, basically because of the COVID-19 pandemic, the deadline has been extended to May 17, 2020. So you get an extra month. And that’s not just to file your taxes, but also important things like contributing to an individual retirement account or collecting a refund from three years back.

David Muhlbaum: Enjoy your month, I guess. Maybe you knew, maybe you didn’t. We got a study across the transom from NORC at the University of Chicago, a research outfit, about what Americans do know about their taxes and it was, well, not reassuring. We got some work to do, you and me, Sandy.

Sandy Block: Well, yeah. But our audience, they know stuff.

David Muhlbaum: Well, let us hope so. But they might know some people who don’t know as much.

Sandy Block: Right. So go ahead, tell me the bad news, I’ll try not to be smug.

David Muhlbaum: Okay. So the survey was framed as a pop quiz. Five questions about tax myths. Can’t do all five for reasons of time, but I’ll ask you one. No, I’ll do two. I’m going to do the one most people got wrong, and the one most people got right. The first question: People don’t have to pay taxes if they didn’t earn any income?

Sandy Block: If they didn’t earn any income? That’s wrong. There are plenty of forms of unearned income, interest, dividends, alimony, lottery winnings. But I only have to change one word to change the answer. If you didn’t have any income, you don’t have to pay any taxes.

David Muhlbaum: If you didn’t have any income.

Sandy Block: If you didn’t have any income, you don’t have to pay taxes. And this is skipping right over the earned income tax credit, which is really complicated.

David Muhlbaum: Which is a credit, so it comes after your tax obligation, but well, we’re getting in the weeds.

Sandy Block: As we do. So that was the question most people got right or wrong?

David Muhlbaum: That was the question most people got wrong. Fewer than a third of people got that one right.

Sandy Block: I’d say that’s a reflection of the fact that not a lot of Americans have unearned income. You work a job, you get a W-2 or a 1099 form, there’s your earnings. Okay, but what was the question that most people did well on?

David Muhlbaum: That question was: There are no taxes on side-hustle income?

Sandy Block: Oh, we just did side hustles on this podcast. Taxable, of course.

David Muhlbaum: Yeah. Right. And the respondents got that too. In fact, over 3/4 of respondents got it right. But overall, on the five questions in total, just one in 20 U.S. taxpayers, 5%, answered all five questions correctly. On average, respondents answered fewer than three questions correctly. The precise score was 2.89 out of five.

Sandy Block: Well, search with your extra month of time. Not for you, of course, but for your friend who really needs help.

David Muhlbaum: Of course.

David Muhlbaum: When we return: Green investing, it’s hot. What’s really green and what’s someone who wants to get into this sector, with such nosebleed prices, supposed to do now?

David Muhlbaum: Welcome back to Your Money’s Worth. Executive editor Anne Smith is joining us today to discuss the cover story, stories actually, from Kiplinger’s personal finance on green investing. Because, you know, Earth Day.

Sandy Block: Earth Day is every day.

David Muhlbaum: And every day is Earth Day, true, but it’s also April 22nd this year and every year and that’s just around the corner. So, welcome Anne, as we enjoy a beautiful spring day here, one of those days that makes you think, Hey, maybe everything really is okay in the world and the climate, et cetera, when it isn’t. Just read another grim headline from The Washington Post on a new record for carbon dioxide levels, as measured at the Mauna Loa Observatory in Hawaii. Last year’s global temperature tied for the hottest on record with 2016. But speaking of heat, we appreciate that climate change is a hot-button issue that not everyone agrees on, we’re not here to debate that today. Rather, as Anne can tell us in more detail, investors are very eager to invest in stocks, funds, and bonds that claim to combat climate change, improve sustainability and other environmental goals. You know, follow the money. We are hoping that in our Kiplinger way, to give you guidance on doing that in a way that’s most profitable. Wow. Okay Anne, hi, thanks for joining us. Please excuse my lengthy preamble.

Anne Kates Smith: Happy to be here. It used to be, we’ve been writing about green investing for as long as I’ve been working at Kiplinger, which I’m not even going to go into it. It used to be that if you wanted to put your money where your beliefs were, when it came to investing in ESG stocks, and ESG stands for Environmental, Social, Corporate Governance values, then you had very few choices and you probably were going to sacrifice some returns. And so the investing philosophy back in the day was, make as much money as you can in the stock market and use those profits to support whatever causes you feel like supporting.

David Muhlbaum: Like write a check, make a charitable donation?

Anne Kates Smith: Exactly. With the money that you make. But these days the choices are more than plentiful, and you definitely don’t have to sacrifice returns. ESG investing has not just gone mainstream, it’s pretty much taken over. Even in 2020 when people were fleeing the stock market and more money flowed out of U.S. stock funds than went into them, that was not the case with sustainable funds. And those are not just climate funds, sustainable is another word for ESG. So it includes those social and corporate aspects as well, but they are popular investments and some of them are up, two, three, four, six fold. So, no more sacrifice.

Sandy Block: So Anne, thanks for explaining the acronym ESG. And as you pointed out, it covers a variety of investing goals. But the focus of this round of Kiplinger’s coverage was on the E, the environment. How come?

Anne Kates Smith: Well, because of Earth Day. We have done a lot of stories in the past year on other aspects of ESG, companies that are great to work for, for instance, and other stories. But this time we wanted to focus on the environmental aspect. Again, this is where the money is flowing. BlackRock, the huge investing giant recently did a survey and they found out that climate related risks are at the top of mind for investors who are investing in ESG funds. In other words, the E is top of mind in the ESG world. And the funds are, like I said, are just raking in money, $50 billion in 2020 into sustainable funds. There have been records set for three or four of the past years and that’s double the record set in 2019. And it’s 24% of inflows into all U.S. stock and bond funds last year. So, it’s just raining money on these ESG funds.

David Muhlbaum: So it’s white-hot. I imagine that presents hazards of its own, particularly for people who want to get in now. Like the market broadly speaking has been hitting new highs this year and a lot of those gains are concentrated in green stocks.

Anne Kates Smith: They have been. So, for instance, when we wrote about green stocks in 2020, our theme was that these stocks are going mainstream, that they’re being picked up widely by investors. And, in fact, the six stocks that we recommended in that 2020 story are up about 80% on average, just looking at my list here. We had one stock, TPI Composites, that makes the blades for wind turbines. So it was up 176%. Our worst performer was Waste Management. And even that was up more than 8%. And just for comparison, the S&P over that time period was up about 27%. So, the stocks have done very well.

David Muhlbaum: So if you listened to us last year, you could have done well too?

Anne Kates Smith: Definitely. Yes.

David Muhlbaum: Let’s gloat a little! It’s nice to be right. It doesn’t always happen.

Anne Kates Smith: It was easy to be right in that sector, but that made it a little bit more difficult this time around in 2021, when we wanted to write about green stocks with such a big run-up. We’ve gone well past mainstream with this investing, we had to examine whether or not the stocks were in a bubble and overvalued and ready for a pullback. For instance, I mentioned TPI Composites, that’s a great company with a great future, but it’s trading at nearly 70 times earnings still. So we’re not recommending it for new investors. This year you have to balance your green exposure while also managing risk. This year we focused on, as much as we can say, value-priced plays. They may not be value price plays in the conventional sense, but they’re not as high flying as some of the other green stocks. We looked at green chips for the long haul, companies that you can buy and hold, and some indirect plays to the climate and the whole green sector.

Sandy Block: So, Anne, you mentioned green chips, and maybe we could start by explaining what those are. Sort of the, I guess, environmental version of blue chip stocks?

Anne Kates Smith: Exactly. They’re the cream of the crop, they’re well-managed companies with sizable market shares. They’re considered market leaders in their industries. And the two green stocks on our list this year are NextEra Energy, a big utility and Xylem, which is a water treatment company. NextEra is based in Florida, traces its roots back to Florida Power and Light. So it’s still part stodgy electric utility. It’s got a secure dividend, yielding about 2%, but it also has a clean energy arm with a sizable and growing portfolio, wind, solar, and battery storage projects. NextEra, says it believes it can construct 23 to 30 gigawatts of new renewable energy projects through 2024. To give you an idea of the growth rate here, that’s one and a half times the size of its entire portfolio at the end of 2019.

David Muhlbaum: Okay. That’s growth.

Anne Kates Smith: That’s growth. Xylem is about water, not energy per se, but that’s got an obvious green connection. It uses innovative methods to upgrade water infrastructure, delivering clean water to people in about 150 companies, so it’s got a global reach. Xylem has digital data-driven approaches to water usage. You think about smart meters and sensors that detect pipe leaks, for example, and it serves industrial firms, utilities, municipalities, and homeowners, helping them to conserve and manage water. Xylem technology also helps to reduce the amount of, and excuse this corporate speak here, non-revenue water. That’s a term for the 30 to 40% of water worldwide that’s lost due to leaks, unauthorized use and just basic inefficiencies.

David Muhlbaum: Yeah. It’s like the water that gets wasted before we have the chance to waste it.

Anne Kates Smith: Correct.

Sandy Block: It’s like the water in my basement, right? It’s non-revenue water.

Anne Kates Smith: No.

David Muhlbaum: That’s expensive water. That’s going to cost you, Sandy.

Anne Kates Smith: Yeah. That’s very expensive water. Xylem also has treatment technologies to remove harmful pollutants from water and wastewater. So it pretty much spans the gamut in a water treatment technology.

David Muhlbaum: Water is life. I think that’s someone else’s tagline. Jeopardy question, who knows why it’s called Xylem?

Sandy Block: No idea.

David Muhlbaum: Xylem is the part in plant tissue that moves water through the plant. Up or down kind of depending on the season.

Anne Kates Smith: Wow, back to my botany 101 days.

David Muhlbaum: Yeah. So, well, it’s green. Back to the stocks. I noticed that your 2021 list has a major electric car maker on it, but its name does not start with T.

Anne Kates Smith: That’s right. I told you we were taking a value approach. The car maker in question is General Motors, not Tesla. I don’t want to get sidetracked into a discussion of Tesla’s value or it’s ever moving price targets or any of that, but I don’t think I’d get a ton of argument if I were to call it a high flyer. I think the P/E ratio for Tesla doesn’t even measure on our scale. GM isn’t as sexy as Tesla, maybe, but it’s a big player with a huge commitment to the EV market. It’s up nearly 50% so far this year, that includes dividends. Tesla’s down about two over the same period, and for context, the S&P is up about nine. Over the past 12 months, full year. GM is up nearly 220% counting dividends.

Sandy Block: Oh wow.

Anne Kates Smith: Yeah, not shabby, not as much as Tesla, up about six fold, but not shabby. And I can tell you, the chart is a lot smoother. And GM sells for about 12 times expected earnings.

David Muhlbaum: I know we’re talking stocks, not cars, but I just have to interject that I saw some video of GM’s new electric truck, the Hummer EV SUV, and that thing is just nuts. It’s not just that it’s electric, it’s how being electric enhances its off-roading capabilities. The thing can crab sideways. I can’t tell you that the production Hummer, which is expected to be out next year will be any good, but I can tell you that GM certainly seems capable of generating buzz. Anyway Anne, I’d like to pivot from stocks in part because people can see the other ones we’re recommending for 2021 in the story, Profit From Planet Friendly Companies, which we will link to in the show notes, and in part because a whole lot of the activity in ESG investing is in funds. In fact, that’s kind of where the whole concept got its start. And in the April forecast, the cover stories, you’ve got a bunch of ETFs, a handful of bond funds, and one mutual fund that invests in stocks. And all of these are green.?

Anne Kates Smith: Yeah, there are very few pure green plays in the fund world. Most of these funds pay attention to other so-called sustainable investing principles as well. And we’re talking about the social values and corporate governance practices that make up the second two letters in ESG. But we chose these funds for their focus on the E or the environmental component of ESG.

Sandy Block: Okay. Can I ask for an explainer then? Because, when we talk about individual companies and stocks, we can make our own assessment of whether a company is doing something green, significant. Some are self-evident, like a company that makes wind turbine blades. Others you got to think about, like General Motors and see what the long-term objectives are. But for funds, who says, “Yeah, this fund is green.”?

Anne Kates Smith: And that’s a whole other can of worms. There are a host of raters, more coming in every day, each with their own metrics. And one of them that we refer to a lot is the ginormous investment research firm Morningstar. With Morningstar, a low ESG score is better. It’s a dynamic area. There are some controversies. Some companies can be accused of greenwashing, for instance, making some of their practices look greener than they actually are. But with funds, here’s the deal, you can look at how a fund identifies itself and read the prospectus, see what they consider green and see what they demand as part of their investment criteria before they invest in a stock.

David Muhlbaum: Yeah. I just read an article we posted in our Building Wealth Channel by a financial advisor named Peter Krull, about the distinctions between socially responsible investing — SRI — and ESG — environmental, social, and governance investing, the term we’ve been using. In short, he says, don’t use those interchangeably. We could probably do a whole podcast on that alone, maybe. But I bring that up kind of to say that, we’re aware of these issues and there are differing opinions on what’s green or green enough, but… Anne, to put us back on track, give us a high level look at how ESG funds are faring. We did talk about inflows.

Anne Kates Smith: Yeah. And I’ll just say one more thing about the labels. And this is particularly true in the green bond investing area. There are many, many labels, each with its own set of metrics and criteria. If you limit yourself to the investments that fall within those labels, then you are limiting your universe of investments. So it is a subjective area, and it helps if you do your own homework and keep an open mind. But back to the funds, they are very hot, funds that you invest with environmental concerns in mind have just sizzled. Some have posted triple-digit returns over the past 12 months. And like we’ve mentioned, investors have just poured money into these funds. The $50 billion that went in in 2020 is more than double the record set in 2019. And it’s about 24% of overall inflows into U.S. stock funds for the year.

Sandy Block: Wow. I mean, that’s incredible.

Anne Kates Smith: Yeah. Sustainable investing hasn’t just arrived, it’s taken over. And you can particularly see that in 2020, because U.S. stock investors pulled money out of funds or, investors pulled money out of U.S. stock funds, let me put it that way. But inflows into sustainable funds, ESG funds were positive. So I think that says a lot about how people are consistent investors when they’re putting their money where their values are. Also, one other fact, four of the top 10 sustainable funds with the biggest inflows in 2020 were focused on renewable energy. So, particularly hot there. When we talked to Jon Hale, who’s the head of sustainability research at Morningstar, he characterized some of the excitement in this area as performance chasing. But you have to put that in perspective, the commitment to green energy from the Biden administration and the future there over the long haul means that the potential is still there.

Sandy Block: And speaking of performance chasing, maybe one of your fund choices, Invesco WilderHill Clean Energy, certainly looks like it’s doing very, very well. You could argue that investing in that was going after performance.

Anne Kates Smith: Well, to put it in context, that fund is up about 273% over the past 12 months. So a lot of performance to chase there, but we had already added that fund to the Kiplinger ETF 20, which is the list of our favorite ETFs last year. So, that tracks an index of companies that focuses on green and renewable energy sources like wind, solar, hydro, geothermal, biofuel. It also looks at companies involved in energy storage, clean energy, conversion. Some of these stocks are up over a 1000% in the past year, but we have to warn our readers and listeners that volatility works both ways. The ride in this fund can be a little bit bumpy, and to be honest, it’s down about 4% so far this year. Still has that 272.97% gain for the past 12 months. But you have to be prepared for a little bit of volatility.

Sandy Block: Okay. So I’m green, but I don’t like volatility. Can you recommend something that maybe is a little calmer for my portfolio?

Anne Kates Smith: Well, there are different things you can do to ameliorate some of those concerns. Like we mentioned, the ETF that’s equal weighted, that means that some of the highest-priced stocks, that can be the most volatile and risky, don’t dominate the returns. But there’s another one, the one mutual fund that we recommended, Fidelity Select Environment and Alternative Energy Portfolio. That’s a mouthful. The symbol there is FSLEX. The fund is a diversified approach to companies tackling climate change. It holds stocks in every sector, for instance.

Anne Kates Smith: Mostly companies that get about one quarter of their revenue tied to a smorgasbord of environmentally friendly pursuits. And that means fuel efficiency, generating renewable energy, building water infrastructure, recycling, stuff like that. That means that it holds a handful of big, traditional blue chips. One of them is Honeywell, the giant industrial conglomerate. And it’s got Honeywell because that company works with building owners to install more energy efficient systems. 3M is another big conglomerate that’s in there. 3M is a huge supplier to solar and wind companies. The fund has lagged the S&P over the past three years, but it’s beaten the S&P year-to-date and over the past 12 months and it’s neck and neck over the past five years.

David Muhlbaum: Okay. So here I go, talking about my family again, but my younger daughter wants to invest some of the money she saved up from babysitting, gifts and the like, in a green fund. She’s off at school in Vermont right now where they go to class and run an organic farm, so it’s all very on-brand, if you know what I mean. So I started looking at some of these funds and my God… I keep seeing Tesla as a holding! Like, for that one we were just talking about, Fidelity Select Environment and Alternative Energy Portfolio, it’s number one. They literally have twice as much Tesla as Honeywell. I mean, I imagine a part of this is with the way Tesla shares have been rising, it’s going to get up there in fund holdings. But it’s not exactly reassuring to see this hot potato of a stock keep popping up. To me that is, I don’t think my daughter cares. Her concern is finding a fund that has a manageable minimum investment.

Anne Kates Smith: Well, I’ll tell you, it’s not uncommon to find Tesla in a green fund, but I just have to say, it’s by far and away not the only overvalued green stock out there. Tesla has its supporters. It’s a company for the long haul, they say. But here’s the thing about mutual funds, David, if you hire a pro to manage your green investments, part of the privilege and the benefit of that is leaving those decisions to the fund manager. Now, if you’re uncomfortable with that kind of volatility and that kind of risk, you can check the holdings. Mutual funds disclose their holdings periodically, most ETFs do so daily, but you also use some other criteria to choose a fund. You compare expenses, you try to buy a low-expense fund for instance, that’s extremely important, and you buy a track record. You don’t have to second guess the manager, that’s the beauty of buying a fund until such time as that fund no longer suits your needs or the track record crumbles.

David Muhlbaum: It’s interesting you mentioned those important parameters in choosing a fund. In the process of trying to advise my daughter, I found myself very much going through those parameters and reminding myself again, why those matter and how we go about picking mutual funds, and it was an interesting opportunity to riff on what I hope I’ve learned over the years, and that you helped teach us all. There are four other funds in Earth-First Funds Are Soaring that we didn’t get to today. I’m going to put a link into that article as well. And as long as we’re talking about things that we didn’t have time for, we briefly mentioned bond funds, but we don’t have time to really dig into that today, but there are green bond funds as well. And again, I’ll put a link to that article as well so you can just keep on digging into all the green content that we have put together for Earth Day. Anne, thank you very much for joining us today. We appreciate your insights.

Anne Kates Smith: Oh, it’s my pleasure. Happy Earth Day.

Sandy Block: You too.

David Muhlbaum: And that will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and a review. If you’ve already subscribed, thanks. Please go back and add a rating or a review if you haven’t already, it matters. To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed, go to The episodes, transcripts, and links are all in there by date. And if you’re still here because you wanted to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at Thanks for listening.


Social Security Earnings Tests: 5 Things You Must Know

A big reason experts advise waiting until at least full retirement age to claim Social Security: You get to skip the Social Security benefits earnings test, which hits early claimers who are still working. But there are actually two earnings tests–an annual test and a monthly test–and the second one can help early retirees leaving work midyear avoid the trap.

Here are five things you need to know about the two Social Security earnings tests.

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Social Security Earnings Test for Annual Income

A woman smiles while working on her computer. A woman smiles while working on her computer.

The Social Security Administration always applies the annual earnings test first. Based on that test, the agency temporarily withholds $1 of a worker’s benefits for every $2 earned over $18,960 for 2021. In a year the worker hits full retirement age, the test is more generous–the worker forfeits $1 in benefits for every $3 in 2021 earnings above $50,520.

In the month a worker hits full retirement age, the annual earnings test goes away. The worker can earn whatever he or she likes, and the monthly benefit amount will be adjusted upward to take into account all benefits forfeited in the past (more on recouping lost benefits below).

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Social Security Monthly Earnings Test

Concept art showing a calendar. Concept art showing a calendar.

If you’re tripped up by the annual test, you still have a shot at your full benefit. The SSA will apply a monthly earnings test and set your payments according to whichever test is better for you. “It helps people who retire in the middle of the year not to be penalized,” says Jim Blair, a former Social Security district manager and a partner at Premier Social Security Consulting, in Sharonville, Ohio.

The monthly test can be used for only one year, usually the first year of retirement. And it comes into play generally for midyear retirees who have already earned more than the annual limit. Those who pass the monthly earnings test can receive 100% of their benefits for any whole month the agency considers them retired, regardless of total annual earnings.

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How the Social Security Monthly Earnings Test Works

Concept art showing a Social Security benefits application.Concept art showing a Social Security benefits application.

Here’s how the Social Security monthly earnings test works: If you’re under full retirement age for all of 2021, you’re considered retired in any month you earn $1,580 or less. If you reach full retirement age in 2021, you’re considered retired in any month you earn $4,210 or less.

Say a new Social Security beneficiary will turn 62, the earliest age at which you can claim Social Security but yet nowhere near his Social Security full retirement age, in June. He wants to retire at the end of June after making $100,000 in the first half of 2021, and he wants to start collecting Social Security benefits in July.

Based on the annual earnings test, he’d get no benefit. But in July through December, if he earns $1,580 or less each month, the monthly earnings test would open the door to full benefits. If he went over that amount in a month, then the SSA uses the $100,000 he earned through June and he would not receive a Social Security check for that month. 

When retiring in the year you reach full retirement age, the earnings test only applies in the months prior to the month of your birthday. The higher threshold of $4,210 would apply if the monthly test is used in 2021. The earnings tests count only earned income from a job or self-employment; investment income, for example, and retirement-plan payouts are ignored.

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Recouping Benefits Lost to the Social Security Earnings Tests

A person holding a Social Security check. A person holding a Social Security check.

The burning question when a person loses Social Security benefits to the earnings test: When do I get my money back?

Unfortunately, you won’t get all your temporarily forfeited benefits back in a lump sum at full retirement age. Instead, your monthly benefit amount is adjusted upward in the month you hit full retirement age to account for forfeited benefits. The disappearing benefits essentially reduce the amount of time you were considered to have claimed benefits early.

Say you took benefits at age 62 instead of waiting to your full retirement age of 66, giving your benefits a haircut of 25%. If you forfeited 12 months’ worth of benefits to the earnings test, at your full retirement age, you’ll be treated as if you claimed benefits three years early, instead of four. Your lifetime benefits reduction will get slashed from 25% to about 20%. That puts more money in your check every month, and if you live long enough, you’ll recoup all the benefits the earnings test temporarily took away.

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Beware of Receiving More in Benefits Than You Should

A woman who looks shocked with her hand over her mouth. A woman who looks shocked with her hand over her mouth.

If you work while claiming early benefits, call Social Security with your estimated earnings so you don’t get more benefits than you’re due. “Eventually, earnings are posted to your record and they’ll see they overpaid,” Blair says. The SSA will want the money back–and will withhold benefit checks until the overpayment is cleared.


Estimated Tax Payments Are Due Today

Even though this year’s income tax return filing deadline was pushed back to May 17, the due date for 2021 first quarter estimated tax payments was not moved. That means the first estimate tax due date for the 2021 tax year is still April 15 – that’s today!

So, if you’re self-employed or don’t have taxes withheld from other sources of taxable income (such as interest, dividends, or capital gains), don’t forget to send in your first-quarter tax payment before midnight tonight.

Use Form 1040-ES to calculate and pay your estimated taxes. The various payment methods are described in the instructions for the form. If you owe at least $1,000 in tax for the year, you could be hit with a penalty if you don’t pay enough estimated tax throughout the year.

Also, unless you live in a state with no income tax, you might owe state estimated taxes, too. Check with the state tax agency where you live for state estimate tax payment due dates.

For more information on 2021 estimated tax payments, see When Are 2021 Estimated Tax Payments Due?


What You Need to Know about College 529 Savings Plans

When it comes to saving for college, the 529 plan remains extremely popular, with over $352 billion in assets, according to some estimates. In my previous article (When Choosing Funds for Your College 529 Plan, Don’t Make This Mistake) I reviewed how to maximize the growth in your 529. Many readers agreed with me that the age-based mutual fund options within 529 plans are often too conservative.

 Still, many parents had additional questions about how 529s work. Afterall, the plans are complicated and have very specific rules and regulations. In this article I will summarize answers to the most frequently asked questions on 529s.  However, this list is not all encompassing and if you would like to learn more, join me April 20 and 23 at 12 p.m. EST for a complimentary webinar on college saving strategies. 

Here’s a selection of what you need to know about 529 plans:

What is a 529 plan? The name 529 comes from a section in the IRS tax code. Section 529 Qualified Tuition Programs are investment accounts administered by each state and intended to be used for qualified education expenses.

What are the tax benefits? Generally speaking, the earnings on 529 plan contributions can grow free from federal income tax, and withdrawals used to pay for qualified education expenses are free from federal income tax as well. Contributions are with after-tax money; however, most states offer a state income tax deduction for contributions, but this varies for each state.

Do I have to use my state’s plan? No, you do not have to be a resident of that state to use another state’s plan. However, there may tax advantages to using your own state. It’s best to discuss with your accountant or financial adviser before opening an account.

What are “qualified” education expenses? Qualified education expenses include tuition, mandatory fees, textbooks, computers and software, supplies, required equipment and room and board if enrolled at least half-time. Room and board costs may not exceed certain amounts, either the actual invoiced cost of living on-campus or, if off-campus, the applicable rate determined by the qualified college or institution. Special needs services for a special needs beneficiary are also considered a qualified expense.

Does a 529 account have to be used for college? What about other schools, like a trade or vocation? 529 assets can be used at any eligible institution of higher learning. That includes four-year colleges, universities, qualifying two-year programs, trade schools and vocational schools. To qualify as an eligible institution, a school must be eligible to participate in student financial aid programs offered by the Department of Education.

Can 529 money be used for K-12 schools? A relatively new provision allows 529 account owners to withdraw up to $10,000 per year per student for private primary or secondary education. Unlike for college, this only applies to tuition, not to textbooks, computers or other fees or activities.

What if money is withdrawn for any other expense that isn’t considered “qualified”? Any earnings on a non-qualified withdraw are subject to a 10% federal tax penalty. In addition, the earnings are subject to federal and, if applicable, state income taxes.

Are there any exceptions to the 10% penalty? What if my child receives a scholarship? Withdrawals following a beneficiary’s death, disability or receipt of a scholarship (to the extent of the scholarship award) will not be subject to the 10% penalty. However, you will have to pay taxes on the earnings.

Who can open an account? Any individual who is of legal age to open an account and is a U.S. citizen or legal resident. In addition, U.S. trusts, corporations, partnerships and non-profit organizations may open an account.

Who is the owner? Typically, the parent is the owner. There can only be one owner, no joint ownership. However, there is an option for a successor owner if the account owner dies.

Who is the beneficiary? Usually the child, but it can be anyone — including yourself — and the beneficiary must be either a U.S. citizen or legal U.S. resident.

Who can contribute to the account? Any person or entity may make contributions to the account for the benefit of a beneficiary at any time.

What are the contribution limits? Contributions to 529 college savings plans are considered gifts for tax purposes. In 2021, gifts totaling up to $15,000 per individual qualify for the annual gift tax exclusion. This means if you and your spouse have three children you can gift $90,000 without gift-tax consequences, since each child can receive $15,000 in gifts from you and $15,000 in gifts from your spouse. Remember, this also includes non-529 gifts (such as gifts to a life insurance trust) so be sure to account for those.

Is there an overall limit to 529 plan accounts? Technically there are overall limits to 529 plan account balances. But limits can vary from state to state, generally from $235,000 to $529,000. Once the balance on a 529 plan reaches its limit, the plan will not accept new contributions. It’s worth mentioning some plans will consider balances in other 529 plans for an overall aggregate limit. For instance, if the owner has more than one 529 for the same beneficiary, the plan may aggregate all the plan’s balances to determine if the maximum limit has been reached.

What is the five-year election? You can “front-load” your gifts or contributions to a 529 plan and spread the gift over five years for gift tax purposes. For instance, if you contribute $75,000 in 2021, you can elect to use five years’ worth of gifts in one year ($75,000 divided by the $15,000 annual exclusion). This is important for larger estates. Any 529 contribution over the annual exclusion amount is deducted from the lifetime gift exemption, which is currently $11.7 million per individual in 2021 (Source: Staying under the annual exclusion of $15,000 or using the five-year election will help preserve your lifetime gift exemption for other gifts.

What are the estate tax implications of a contribution to a 529 plan? Except in special circumstances, contributions to a 529 plan are not considered part of the estate of the contributor for estate tax calculation purposes.

Can you roll money from other accounts into a 529? Tax-free rollovers from one 529 into another 529 with the same beneficiary are permissible once every 12 months.

Can you roll UGMA or UTMA assets into a 529? Yes, transfers from a UTMA/UGMA are permissible, but restrictions apply. To transfer UTMA/UGMA accounts to a 529 plan, you may be required to sell the UGMA/UTMA assets first. Generally speaking, UTMA/UGMA accounts do not allow for changing the beneficiary, and as such this restriction will carry over to UTMA/UGMA assets transferred to a 529. It’s best to consult with a financial or tax adviser before transferring UTMA/UGMA assets to a 529.

Can you change the beneficiary? A 529 account owner may change the beneficiary at any time. However, the new beneficiary must be a member of the family of the previous beneficiary to avoid being considered a withdrawal. If the account owner changes the beneficiary to a new beneficiary who is more than one generation younger than the previous beneficiary, the generation-skipping transfer tax may be triggered. For example, a parent changing the beneficiary from their child to their grandchild is considered a generation-skipping transfer.

Can you change the investments in a 529 account? Currently, the IRS allows an account owner to change the mutual fund or funds only twice a year. There are currently no “aggregation rules” with respect to investment changes, so the investment change limit of two per year is per account. For example, if an owner and beneficiary have other 529 accounts, each account will have their own two-change-per-year limit.

What is the treatment of 529s for financial aid? 529 assets may affect a beneficiary’s ability to qualify for federal need-based financial aid. A 529 is an asset of the student’s if the student is considered an independent student for tax purposes or an asset of the parent if the if the student is a dependent student. A student is considered independent if, among other criteria, he or she is at least 24 years of age, or is married, or a graduate or professional student. Generally, if a student is considered “dependent” and the 529 is a parent’s asset, the more favorable the treatment for financial aid. A 529 should not affect the eligibility for a merit-based scholarship.

As you can see, a 529 education savings plan has many rules. But if one follows the rules, the 529 is an unapparelled place to save for college and private school. There are several advantages, including the ability to defer taxes on earnings, withdraw earnings tax-free for qualified education expenses, plus the ability in some states to deduct — within limits — the contribution from state income taxes. Most accounts have several investment choices as well, from auto-pilot programs, such as age-based options, to the ability to pick individual funds, all of which could help contributions grow and keep pace with future college costs.

The 529 plan is very flexible too, with the ability to change beneficiaries without incurring a penalty (assuming to another qualified beneficiary). For new parents, the low minimum contributions and the ability to invest automatically are attractive features. In addition, there are advantages for high-income earners, such as no income limitations to set up an account, very high contribution rates, and a contribution is a completed gift for estate tax purposes if estate tax planning is important.

Higher education is a way to a better life for many people, and the 529 plan remains an excellent way to help get you there. To learn more, please join me April 20 & 23 12pm EST for a webinar on college planning strategies. Register here: College Planning Webinar.

The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Investment advisory and financial planning services are offered through Summit Financial, LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666.
The attached materials, URLs, or referenced external websites are created and maintained by a third party, which is not affiliated with Summit Financial LLC or its affiliates. The information and opinions found within have not been verified by Summit, nor do we make any representations as to its accuracy and completeness. Summit Financial and affiliates are not endorsing these third-party services or their privacy and security policies, which may differ from ours. We recommend that you review this third party’s policies and terms. This material is for your information and guidance and is not intended as legal or tax advice. Legal and/or tax counsel should be consulted before any action is taken.

CFP®, Summit Financial, LLC

Michael Aloi is a CERTIFIED FINANCIAL PLANNER™ Practitioner and Accredited Wealth Management Advisor℠ with Summit Financial, LLC.  With 17 years of experience, Michael specializes in working with executives, professionals and retirees. Since he joined Summit Financial, LLC, Michael has built a process that emphasizes the integration of various facets of financial planning. Supported by a team of in-house estate and income tax specialists, Michael offers his clients coordinated solutions to scattered problems.

The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC.  Investment advisory and financial planning services are offered through Summit Financial, LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Legal and/or tax counsel should be consulted before any action is taken.


Stock Market Today: Nasdaq Climbs, Dow Slips After J&J Vaccine Stumble 

The “recovery trade” took a breather on Tuesday after a setback on the COVID vaccination front.

Both the U.S. Food and Drug Administration and the Centers for Disease Control and Prevention urged a pause in injections of Johnson & Johnson’s (JNJ, -1.3%) single-dose coronavirus vaccine so that the incidence of a blood clotting disorder in six Americans who have received the shot could be studied.

Also Tuesday, the U.S. Bureau of Labor Statistics reported that U.S. consumer prices jumped by 2.6% in March, up from 1.7% in February.

“This morning’s U.S. CPI data came in a touch above expectations but were no worse than feared,” says Michael Reinking, NYSE senior market strategist. “This, coupled with the potential to push out the vaccination process, has put a bid in Treasury markets.”

“That bid strengthened following a strong $24 billion 30-year auction at 1 p.m., with the auction pricing at 2.32% below the 2.338% when issued market. The 10-year yield is down 4.5 (basis points) to 1.63%.”

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This easing in yields, combined with virus concerns, helped boost technology and tech-adjacent stocks – Nvidia (NVDA, +3.1%), Apple (AAPL, +2.4%) and Tesla (TSLA, +8.6%) contributed to a 1.1% gain in the Nasdaq Composite, to 13,996 – as well as utility stocks (+1.2%), which led all sectors Tuesday.

The S&P 500 gained 0.3% to set a new record close at 4,141, and the Dow Jones Industrial Average finished slightly lower, off 0.2% to 33,677.

Other action in the stock market today:

  • The small-cap Russell 2000 slipped 0.2% to 2,228.
  • U.S. crude oil futures improved by 0.6%, settling at $59.70 per barrel.
  • Gold futures declined 0.9% to $1,747.60 per ounce.
  • The CBOE Volatility Index (VIX) declined 1.5% to 16.65.
  • Bitcoin prices hit an all-time high of $63,707 ahead of the Coinbase direct listing Wednesday. Bitcoin cooled to $63,023 by the afternoon, but that still represented a 4.9% improvement on Monday’s price. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
stock chart for 041321stock chart for 041321

Attack of the SPACs

One of Tuesday’s biggest market headlines centered on a company located 9,000 miles away – but it also continues a growing story here at home.

Grab Holdings, a multinational ride-hailing, food-delivery and payments-solutions technology firm based in Singapore, announced it would go public via a $39.6 billion deal that would see it merge with California-based special purpose acquisition company Altimeter Growth (AGC, +9.9%) – the largest such “SPAC” deal in history.

That extends what has been an explosive 2021 for SPACs – a method of bringing private companies public without them having to go directly through the initial public offering (IPO) process. After raising $13.6 billion in 2019, SPAC deals generated an incredible $73 billion in 2020 … only to be eclipsed in just the first three months of 2021, when nearly $88 billion was raised.

Investors need to exercise caution, as this newly red-hot corner of the market is garnering increasing scrutiny from regulators. But those looking for a potential growth booster should take a look at our new “SPAC list”: a regularly updated list of these acquisition-minded companies that are currently on the hunt for merger targets.

Kyle Woodley was long NVDA as of this writing.


When Is Amazon Prime Day 2021?

Bargain hunters know Amazon Prime Day, when online shopping behemoth rolls out a bevy of deals on all manner of merchandise, is typically in July, but there was nothing typical about 2020. And to that point, Amazon Prime Day was not in July last year. It was in October. So when is Amazon Prime Day in 2021? isn’t saying yet, but multiple, unnamed sources — suppliers and the like — told Vox’s recode Amazon is circling mid-June for Amazon Prime Day 2021. Third-party suppliers are often told well in advance when Amazon will launch Prime Day so they can have orders ready.

If that’s true, it will be the first time Amazon has launched two days of Amazon Prime Day in June, just as summer is heating up. When it first launched Amazon Prime Day in 2015, it was a hot summer day in July, a bargain-hunting extravaganza designed to boost sales in summer, traditionally a slow time for online retail.

Last year was the first time Amazon strayed Amazon Prime Day beyond July. That move ignited record Prime Day sales for Amazon and kicked off the holiday shopping season a month early.

What to Expect on Amazon Prime Day 2021

Expect the Prime Day event this year to sing with better deals than ever as Amazon responds to stepped-up competition from Walmart, Target, and even in some cases Costco all now offering free shipping and same-day in-store pickup to siphon off Prime customers and compete with Amazon Prime Day. Other online retailers, answering the demands of customers increasingly shopping online during the lockdown, have also stepped-up free (or close to it) shipping.

In past years, Prime Day has offered huge deals on Amazon’s proprietary gadgets — including Echo personal assistance devices (“Alexa…”), Fire TV sticks, Kindles and their ilk — plus a flea-market array of baubles, gewgaws and bric-a-brac from other vendors large and small, as well as items from Amazon’s Whole Foods supermarket chain. Naysayers note Prime Day has been Amazon’s version of a garage sale, unloading a lot of silly and unsold inventory along with only the occasional true treasure. 

If past is prologue, many Prime Day deals will be posted on weeks in advance of Prime Day, and some can be preordered by Prime members. Nonmembers can sign up for a free 30-day trial to tap the sales on Amazon Prime Day 2021. Not satisfied? Cancel the membership before you have to start paying for it.


5 Gig Stocks for the Rapidly Changing Economy

After 38 years of working from home, my workstyle is finally “in.” You might know it as the “gig economy.”

Whether I call myself a freelance writer, independent contractor or solo entrepreneur, I am considered a “gig worker.” And the idea behind the gig economy is to not be tied to a single job or even a skill. Instead, gig workers can toil for anyone, from anywhere, and are constantly on the lookout for new money-making opportunities.

Playing the new trend isn’t as easy as just buying first-to-mind gig economy stocks like Uber Technologies (UBER) or Lyft (LYFT). They’re no longer the bleeding edge, says David Dziekanski, portfolio manager and partner at Toroso Investments. 

Toroso is an advisor on the SoFi Gig Economy ETF (GIGE). Companies like Uber and Lyft are “out,” Dziekanski says, because in “the next stage of the gig economy you will no longer need large intermediaries to be a platform for your voice.” Everyone is truly an entrepreneur. The platforms that win will be those that enable you to work for many different employers, even in different kinds of jobs. 

Toroso itself is a virtual company. Dziekanski works from a home office in Brooklyn. Toroso Investments, meanwhile, is based in Chicago, while SoFi is run from Los Angeles. 

Dziekanski calls the gig economy an “ecosystem that lets you work disconnected, from seemingly anywhere. It let our economy function through COVID and set up a happier, more productive work culture.” On the other hand, he says, “the economy is changing at such a rapid pace you will need to reinvent yourself two or three times over” during a career.

If GIGE’s performance is any indication, it’s worth paying attention to gig stocks. Since its launch in May 2019, GIGE is up around 95%, roughly twice the total return (price plus dividends) of the S&P 500 over the same time. Read on as we discuss some of Dziekanski’s favorite gig economy stocks held in the GIGE portfolio.

Data is as of April 9.

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Square payment systemSquare payment system
  • Market value: $119.0 billion
  • 2020 revenue: $9.5 billion

Square (SQ, $261.65), which accounts for 3.6% of GIGE’s assets, is Dziekanski’s top gig economy stock to buy at the moment.

Square was founded in 2009 to help small merchants, even gig workers, accept credit cards using hardware that plugs into a smartphone. It also offered one price and quick online sign-ups. It’s since launched other services, including scheduling, employee management and business analytics.

Additionally, Square has expanded into a host of banking services, starting with loans to its users based on the data it collects.

Square could play the role of the banking industry over the coming years,” says Dziekanski. Its Cash App is “not just a payment system, but a bank, with a much lower cost of customer acquisition than a traditional bank has.” 

Cash now also offers investing, competing with Robinhood, and supports the purchase of fractional shares and Bitcoin – all from the same mobile interface. 

Square’s value has exploded in the last year, rising over 340%, as revenue doubled during the pandemic. The company is still only half the size of PayPal Holdings (PYPL), another GIGE name, which Dziekanski says means it can grow faster. 

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The bedroom of a modern, gorgeous beachside homeThe bedroom of a modern, gorgeous beachside home
  • Market value: $109.2 billion
  • 2020 revenue: $3.38 billion

Airbnb (ABNB, $179.50) has been a home run for the gig economy and for investors.

Airbnb lets people rent rooms, apartments and houses like hotel rooms, by the day, week or month. It has gotten pushback in many cities for raising rents by taking properties off the market and turning cities into amusement parks. But it has also created jobs in property management. 

When Airbnb went public in December 2020, it more than doubled its IPO price of $68 on the first day of trading. Since then, the gig economy stock is up another 25%. It is the second-largest holding in GIGE, with 3.5% of the fund’s assets. 

Airbnb competes with such internet travel sites as Booking Holdings (BKNG), Expedia Group (EXPE) and TripAdvisor (TRIP). Just three months after going public, it’s worth more than any of them.

Revenue was hit hard by the pandemic but had returned to previous levels by the December quarter. In 2019, the company had $4.8 billion in revenue, growing at 31%, with gross income growth of 29%. 

For gig workers, the site means mobility. If you have skills and a computer, Airbnb lets you work from anywhere, changing location on a whim, says Dziekanski.

He calls the site’s new “Experiences” offering an underrated growth engine. It was conceived to give tourists things to do – tour guides or cooking classes, for example. Dziekanski, however, recently attended a virtual party featuring a magician in Japan who was a former baker. The party was hosted on Zoom, but the magician was found and paid for through Airbnb Experiences. 

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Shopify signageShopify signage
  • Market value: $150.1 billion
  • 2020 revenue: $2.9 million

Shopify (SHOP, $1,227.30) is like an (AMZN) for small business. It lets gig workers set up their own online storefronts, selling goods or services. It has expanded into order fulfillment, video production and in 2019, Spotify added 6 River Systems, which automates distribution centers. 

Twice in the last few months I’ve been solicited by Shopify partners. I bought presents from a neighbor’s newsletter, who turned out to be a Shopify merchant, and was asked to set up a shopping account. Then I launched my own Substack newsletter and was solicited to become a Shopify merchant. 

These kinds of partnerships helped Shopify double its revenue in 2020, after it increased 50% in 2019. “We think it’s going further, servicing loans to both merchants and their customers,” says Dziekanski. 

Shopify can compete with Amazon for small merchants because “people are more concerned now with who they’re making wealthy with their purchases.” He says, “many platforms are terrified of Amazon, and feel less competition from Shopify.” 

Shopify is the third-largest holding for GIGE, accounting for 3.3% of the fund’s holdings. Shares of the gig economy stock are up almost 175% in the last year. 

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Spotify Technology

A person uses the Spotify app to listen to The Beatles on their phone.A person uses the Spotify app to listen to The Beatles on their phone.
  • Market value: $53.3 billion
  • 2020 revenue: $7.9 million

Spotify Technology (SPOT, $279.20) began as a music service, competing with Sirius XM Holdings (SIRI), Pandora,, and Apple (AAPL). 

It has made a turn to the creative side in recent years, letting artists sell their music and, more recently, their podcasts on the platform. Shares of the gig economy stock are up 115% in the last year.

Dziekanski is very excited about the podcast offering. He asks, “Where else can you find a company that allows you to provide your own podcasting platform” and profit from it? “If you’re trying to get your brand out, your voice is super powerful as a platform.” 

Since 2018, Spotify has been acquiring podcasts to make them exclusive on its platform. Its best-known deal is with Joe Rogan, but it has also picked up Gimlet Media – which The Verge favorably compared to Walt Disney’s (DIS) purchases of Pixar and Marvel – Parcast and The Ringer, a sports network. SPOT also bought Anchor, a podcast production app. 

That’s a problem because many big media companies, including Disney, are now producing their own podcasts. And many TV shows are now offered as podcasts or have podcast adjuncts. 

But Dziekanski believes this only grows the market, making Spotify a must-have for millions, and giving gig workers access to a huge audience by recording on the platform.

5 of 5

Jumia Technologies

Jumia Technologies webpageJumia Technologies webpage
  • Market value: $3.7 billion
  • 2020 revenue: $139.6 million

Jumia Technologies (JMIA, $37.20) is an African version of, and thus is focused on some of the world’s fastest-growing, most entrepreneurial markets.

JMIA is based in Berlin, Germany, with offices in Portugal and Dubai. It currently operates shopping platforms in 11 African countries, with plans to open soon in Ethiopia, Angola and the Congo.  

Similar to, JMIA offers a logistics service and like Apple, it has a mobile payments service, JumiaPay. 

Jumia’s first year as a public company, however, was difficult. Large losses sent shares of the gig economy stock from $40 in May 2019 down to $2.15 roughly a year later. The company exited Cameroon, Tanzania and Rwanda as part of a larger effort to cut costs. 

It reduced its losses by half during the back-end of the year, and management says its fulfillment operations are now profitable. Additionally, Jumia recently completed a secondary offering worth almost $350 million.

Jumia is a small holding for GIGE, but Dziekanski believes in it.

“Jumia was able to scale because of the pandemic and see its adoption grow substantially,” he says. Jumia helps both producers and buyers in Africa, providing markets for the former and services for the latter. “Jumia has an opportunity to really benefit from the gig economy,” Dziekanski adds, and because of its small size, it has enormous room to grow.


7 Super Small-Cap Growth Stocks to Buy

Stocks with smaller market values are outperforming by a wide margin so far this year, and strategists and analysts alike say small caps should continue to lead the way as the economic recovery gains steam.

“The U.S. economy is currently trending toward high-single digit GDP growth in 2021 as COVID-19 vaccine distribution expands and we gradually emerge from the pandemic,” says Lule Demmissie, president of Ally Invest. “That environment favors small-cap names, which tend to have a more domestic focus than larger multinational firms.”

Small caps tend to outperform in the early parts of the economic cycle, so it should come as no surprise that they are clobbering stocks with larger market values these days.

Indeed, the small-cap benchmark Russell 2000 index is up 13.6% for the year-to-date through April 8, while the blue chip Dow Jones Industrial Average added just 9.5% over the same span.

Keep in mind that small-cap stocks come with heightened volatility and risk. It’s also important to note that it can be dangerous to chase performance. But small-cap growth stocks – particularly in this environment – can offer potentially much greater rewards. 

Given the increased interest in these securities, we decided to find some of analysts’ favorite small caps to buy. To do so, we screened the Russell 2000 for small caps with outsized growth prospects and analysts’ highest consensus recommendations, according to S&P Global Market Intelligence.

Here’s how the recommendation system works: S&P Global Market Intelligence surveys analysts’ stock recommendations and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score below 2.5 means that analysts, on average, rate the stock as being Buy-worthy. The closer a score gets to 1.0, the stronger the Buy recommendation.

We also limited ourselves to names with projected long-term growth (LTG) rates of at least 20%. That means analysts, on average, expect these companies to generate compound annual earnings per share (EPS) growth of 20% or more for the next three to five years. 

And lastly, we dug into research, fundamental factors and analysts’ estimates on the most promising small caps. 

That led us to this list of the 7 best small-cap growth stocks to buy now, by virtue of their high analyst ratings and bullish outlooks. Read on as we analyze what makes each one stand out.

Share prices are as of April 8. Companies are listed by strength of analysts’ consensus recommendation, from lowest to highest. Data courtesy of S&P Global Market Intelligence, unless otherwise noted.

1 of 7

Q2 Holdings

Digital banking technologyDigital banking technology
  • Market value: $5.7 billion
  • Long-term growth rate: 150.0%
  • Analysts’ consensus recommendation: 1.68 (Buy)

Q2 Holdings (QTWO, $103.06) provides cloud-based virtual banking services to regional and community financial institutions. The idea is to make it so that smaller firms – which are sometimes small caps themselves – can give account holders the same kind of top-flight online tools, services and experiences as the industry’s big boys.

To that end, Q2 recently announced the acquisition of ClickSWITCH, which focuses on customer acquisition and retention by making the process of switching digital accounts easier. Terms of the deal were not disclosed. 

Q2’s business model and execution has Wall Street drooling over the small cap’s growth prospects. Indeed, analysts expect the software company to generate compound annual earnings per share growth of 150% over the next three to five years, according to data from S&P Global Market Intelligence. 

“In the last year, the pandemic has accelerated the digital transformation efforts and investments of the financial services industry, and we believe Q2 Holdings is well positioned to support and grow its customer base,” writes Stifel equity research analyst Tom Roderick, who rates the stock at Buy. 

Of the 19 analysts covering Q2 tracked by S&P Global Market Intelligence, 10 call it a Strong Buy, five say Buy and four rate it at Hold. Their average target price of $152.25 gives QTWO implied upside of almost 50% over the next 12 months or so. Such high expected returns make it easy to understand why the Street sees QTWO as one of the best small-cap growth stocks.

2 of 7

BellRing Brands

A man drinking a protein shakeA man drinking a protein shake
  • Market value: $962.8 million
  • Long-term growth rate: 21.6%
  • Analysts’ consensus recommendation: 1.60 (Buy)

BellRing Brands (BRBR, $24.37), which sells protein shakes and other nutritional beverages, powders and supplements, is forecast to generate unusually healthy EPS growth over the next few years. 

Stifel equity research, which specializes in small caps, says BellRing offers a “compelling growth opportunity” thanks to its positioning in the large and fast-growing category known as “convenient nutrition.”

U.S. consumers are increasingly turning toward high-protein, low-carbohydrate foods and beverages for snacks and meal replacement, Stifel notes, and BellRing Brands, spun off from Post Holdings (POST) in late 2019, is in prime position to thrive from those changing consumer tastes. 

After all, the company’s portfolio includes such well-known brands as Premier Protein shakes and PowerBar nutrition bars. 

In another point favoring the bulls, BellRing’s “asset-light business model requires limited capital expenditures and generates very strong free cash flow,” notes Stifel analyst Christopher Growe, who rates the stock at Buy.

Most of the Street also puts BRBR in the small-caps-to-buy camp. Of the 15 analysts covering BRBR, eight call it a Strong Buy, five say Buy and two have it at Hold. Their average price target of $28.33 gives the stock implied upside of about 16% over the next year or so. 

With shares trading at just a bit more than 25 times estimated earnings for 2022, BRBR appears to offer a compelling valuation.

3 of 7

Rackspace Technology

Cloud technologyCloud technology
  • Market value: $5.3 billion
  • Long-term growth rate: 21.8%
  • Analysts’ consensus recommendation: 1.50 (Strong Buy)

Rackspace Technology (RXT, $25.61) partners with cloud services providers such as Google parent Alphabet (GOOGL), (AMZN) and Microsoft (MSFT) to manage its enterprise customers’ cloud-based services. 

And make no mistake, this sort of expertise is much in demand.

The pandemic accelerated many industries’ migration to cloud technology. As such, plenty of firms have discovered they need all the help they can get when it comes to transitioning and managing their operations – often with more than one cloud service provider.

“The prevalence of a multicloud approach has created integration and operational complexity that require expertise and resources most companies lack,”  writes William Blair analyst Jim Breen, who rates RXT at Outperform (the equivalent of Buy). “This creates an opportunity for a multicloud services partner to enable businesses to fully realize the benefits of cloud transformation.”

Breen adds that research firm IDC forecasts the managed cloud services market to grow 15% a year to more than $100 billion by 2024.

As the leading company in the field of multicloud services, bulls argue that Rackspace stands to benefit disproportionately from all this burgeoning demand. 

Speaking of bulls, of the 10 analysts covering the stock tracked by S&P Global Market Intelligence, five rate RXT at Strong Buy and five call it a Buy. The bottom line is that Rackspace easily makes the Street’s list of small-cap growth stocks to buy.

4 of 7

Chart Industries

Cryogenic technologyCryogenic technology
  • Market value: $5.3 billion
  • Long-term growth rate: 34.2%
  • Analysts’ consensus recommendation: 1.50 (Strong Buy)

Shares in Chart Industries (GTLS, $146.76), which manufactures cryogenic equipment for industrial gasses such as liquefied natural gas (LNG), are riding the global secular trend toward sustainable energy.

The market certainly likes GTLS’ commitment to greener energy. The small-cap stock is up more than 410% over the past 52 weeks – analysts expect a torrid pace of profit growth over the next few years to keep the gains coming. Indeed, the Street forecasts compound annual EPS growth of more than 34% over the next three to five years.

Analysts say the company’s unique portfolio of technologies gives it an edge in a growing industry. To that end, they applauded its $20 million acquisition of Sustainable Energy Solutions in December because it bolsters the company’s carbon capture capabilities.

“In the context of the decarbonization megatrend, Chart is a one-of-a-kind play on the global shift to more gas-centric economies,” writes Raymond James analyst Pavel Molchanov in a note to clients. “There is upside potential from large liquefied natural gas projects. Notwithstanding the lingering headwinds from the North American energy sector, we reiterate our Outperform [Buy] rating.”

Stifel, which chimes in with a Buy rating, says GTLS deserves a premium valuation given its outsized growth prospects. 

“With potentially a decade or more of high single-digit to low double-digit revenue growth, more recurring revenue, accelerating hydrogen opportunities, and the potential big LNG surprise bounces, we expect shares could trade north of 30 times normalized earnings,” writes analyst Benjamin Nolan.

The stock currently trades at nearly 30 times estimated earnings for 2022, per S&P Global Market Intelligence. Small caps to buy often sport lofty valuations, but with a projected long-term growth rate of more than 34%, one could argue GTLS is actually a bargain.

Raymond James and Stifel are very much in the majority on the Street, where 12 analysts rate GTLS at Strong Buy, four say Buy, one has it at Hold and one says Sell.

5 of 7


Lab equipmentLab equipment
  • Market value: $5.5 billion
  • Long-term growth rate: 43.0%
  • Analysts’ consensus recommendation: 1.33 (Strong Buy)

NeoGenomics (NEO, $47.87), an oncology testing and research laboratory, is still coming out from under the pressure of the pandemic, which led to the cancellation of legions of procedures.

But there’s been quite a lot of activity at the company, nevertheless, and analysts still see it as one of the better small-cap growth stocks to buy.

In February, the company said longtime Chairman and CEO Doug VanOort would step aside to become executive chairman in April. He was succeeded by Mark Mallon, former CEO of Ironwood Pharmaceuticals (IRWD). The following month, NeoGenomics announced a $65 million cash-and-stock deal for Trapelo Health, an IT firm focused on precision oncology. 

All the while, shares have been lagging in 2021, falling more than 11% for the year-to-date vs. a gain of 13.5% for the small-cap benchmark Russell 2000.

Although COVID-19 has been squeezing clinical volumes – and bad winter weather is always a concern – analysts by and large remain fans of this small cap’s industry position. 

“We continue to find the company’s leading market share in clinical oncology testing and expanding presence in pharma services for oncology-based clients to be a very attractive combination,” writes William Blair equity analyst Brian Weinstein, who rates NEO at Outperform. 

Of the 12 analysts covering NEO tracked by S&P Global Market Intelligence, nine call it a Strong Buy, two say Buy and one says Hold. With an average target price of $63.20, analysts give NEO implied upside of about 32% in the next year or so. That’s good enough to make almost any list of small caps to buy.

6 of 7


A Lovesac storeA Lovesac store
  • Market value: $917.3 million
  • Long-term growth rate: 32.5%
  • Analysts’ consensus recommendation: 1.14 (Strong Buy)

The Lovesac Co. (LOVE, $62.47) is a niche consumer discretionary company that designs “foam-filled furniture,” which mostly includes bean bag chairs. 

Although it operates about 90 showrooms at malls around the country, revenue – thankfully – is largely driven by online sales. That’s led to a boom in business as folks, stuck at home, shop online for ways to spruce up their living spaces.

Shares have followed, rising about 45% for the year-to-date and more than 1,000% over the past 52 weeks. And analysts expect even more upside ahead, driven by a long-term growth rate forecast of 32.5% for the next three to five years, according to S&P Global Market Intelligence. 

Stifel, which says LOVE is among its small caps to Buy, expects the consumer shift to buying furnishing online to persist, and even accelerate, once the pandemic subsides.

“Lovesac is well positioned for continued share gains in the furniture category with its strong product, omni-channel capabilities and enhancements to the platform, many of which were initiated during the pandemic,” writes Stifel’s Lamont Williams in a note to clients.

The analyst adds that LOVE has a long ramp-up opportunity thanks to a new generation of home buyers.

“As the housing market remains healthy there is the opportunity to capture new buyers as more middle- to upper-income millennials become homeowners and increase spending on [the company’s] category,” Williams writes. 

Of the seven analysts covering the stock tracked by S&P Global Market Intelligence, six rate it at Strong Buy and one says Buy. That’s a small sample size, but the bull case for LOVE as one of the better small-cap growth stocks to buy still stands.

7 of 7


An elderly person using a walker during home rehabAn elderly person using a walker during home rehab
  • Market value: $4.3 billion
  • Long-term growth rate: 43.0%
  • Analysts’ consensus recommendation: 1.11 (Strong Buy)

AdaptHealth (AHCO, $37.61) comes in at No. 1 on our list of small caps to buy thanks to their outsized growth prospects. The bull case rests partly on demographics and the aging of baby boomers. 

AdaptHealth provides home healthcare equipment and medical supplies. Most notably, it provides sleep therapy equipment such as CPAP machines for sleep apnea – a condition that tends to increase with age and weight.

With the majority of the boomer cohort of roughly 70 million Americans hitting their 60s and 70s, home medical equipment for sleep apnea and other conditions is increasingly in demand.

Mergers and acquisitions are also a part of the company’s growth story, notes UBS Global Research, which rates AHCO at Buy. Most recently, in February, the company closed a $2 billion cash-and-stock deal for AeroCare, a respiratory and home medical equipment distributor. 

“AdaptHealth exits 2020 with material themes of accelerating growth,” writes UBS analyst Whit Mayo. “In each quarter of 2022, we assume that AHCO acquires $35 million in annual revenues, closing these deals at the middle of the quarter. This drives estimated acquired revs from yet to be announced deals of $70 million.”

Small caps have been rallying in 2021, but not AHCO, which is essentially flat for the year-to-date. Happily, the Street expects that to change sooner rather than later. With an average target price of $47.22, analysts give the stock implied upside of about 25% over the next 12 months or so.

Of the nine analysts covering AHCO tracked by S&P Global Market Intelligence, eight rate it at Strong Buy and one says Buy. As noted above, they expect the company to generate compound annual EPS growth of 43% over the next three to five years.