Posted: 3-11-25 | Innovia Wealth
Innovia Planning Insights: Charitable Remainder Trust
A Charitable Remainder Trust (CRT) is a powerful estate planning tool that allows you to support your favorite charities while still receiving income during your lifetime or for a set period. By transferring assets into the trust, you or your beneficiaries receive a stream of income, often with favorable tax treatment. After the payment term ends, the remaining assets eventually go to the designated charitable organizations. This strategy helps reduce estate taxes and allows for the elimination of capital gains taxes if highly appreciated assets are used to fund the trust. A CRT ensures that your wealth benefits both your heirs and charitable causes, aligning with legacy and philanthropic goals.
Market Dynamics
| Asset Class | 1 month returns | 3-year returns (annualized) | 5-year returns (annualized) |
| Large companies (S&P 500) | -1.3% | 12.6% | 16.9% |
| Big technology businesses (Nasdaq 100) | -2.7% | 14.6% | 20.8% |
| Small companies (Russell 2000) | -5.4% | 3.3% | 9.4% |
| Foreign stocks (ACWI ex US) | 1.4% | 5.2% | 8.1% |
| Bonds (Bloomberg US Aggregate) | 2.2% | -0.4% | -0.5% |
February Recap: Mixed Stock Performance, Strong Bond Returns
- Stocks had a mixed month, with international stocks outperforming due to a weaker dollar, while small-cap, large cap, and technology stocks struggled amid concerns over slower growth, weaker retail sales, and lower consumer confidence.
- Bond markets performed well as interest rates declined. The 10-year Treasury yield fell from 4.6% to 4.3%.
- The Federal Reserve kept interest rates steady, balancing inflation concerns with unemployment risks. Higher-than-expected inflation figures reported in January suggest ongoing price pressures.
- The earnings season wrapped up with strong results: S&P 500 companies posted over 18% growth from Q4 2023 to Q4 2024. However, large-cap stocks lagged as companies issued cautious profit guidance for 2025 due to economic and policy uncertainty.
- The economy remained solid, with unemployment dropping to 4% and signs of a manufacturing rebound. On the downside, the services sector, which represents over two-thirds of economic activity, weakened more than expected.
10-year Treasury rate decreased along with U.S. dollar relative to other currencies.
March Outlook: Focus on Policy Uncertainty & Inflation
- Economic growth forecasts for 2025 have been revised downward, with first quarter growth expected to dip below 2.5%, compared to 2.9% and 2.8% in 2023 and 2024.
- Investors are closely watching inflation and employment data, which will influence the Federal Reserve’s next move. If inflation rises, interest rate cuts may be delayed or reversed. If job numbers weaken, the Fed will likely cut rates aggressively.
- Uncertainty around the new administration’s policy changes, including immigration, tariffs, and deficits, poses risks to economic stability, while deregulation and tax cuts could provide upside benefits.
- A potential budget deal could impact market stability as well. If the government reaches a compromise and reduces the deficit as many hope, long-term interest rates may decline further, as was seen in the second half of February.
Economic growth forecasts have been shrinking since early February.
Investment Strategy & Outlook
- We see an upside in equity markets for 2025, though gains will likely be more modest compared to 2023 and 2024.
- Policy uncertainty will be a key driver of market movements in the short term. Portfolio rebalancing is a rewarding tool for diversified portfolios at times like this. We recommend revisiting strategic allocations, with a focus on value stocks, small caps, and international equities.
- In fixed income, we favor extending duration when long-term interest rates move higher and reducing maturities as rates decline. Mortgage-backed securities and mid-quality corporate bonds offer attractive spreads with low default risk.
- In private investments, we continue expanding our Vintage 2025 and Opportunity Funds while refining our exposure to semi-liquid private credit, real estate, infrastructure, and equity. We are also evaluating promising seed and anchor investment rounds in those same places.
Please reach out if you’d like to discuss how we can position your portfolio for good results or explore private market opportunities.
Private Market Pulse: Investing in Infrastructure:
Innovia has been recommending making investments in infrastructure assets for a few years as part of a balanced portfolio, but what is infrastructure and why do we think it is beneficial? Infrastructure investments refer to the essential portions of transportation, like ports and toll roads, energy, like power plants or pipelines, and digital infrastructure, like cell towers or data centers. These assets usually have long-term contracts with high quality customers that are tied to inflation. Some managers own the operating companies as well as the assets and are continually working to improve the overall performance. This combination of assets, demand, and contracts should provide diversification benefits, high single digit to low double-digit steady returns, and inflation protection. These are all valuable components towards reaching client goals.