But today the most likely path to prosperity crosses a stage full of people in robes and funny hats.

Those caps and gowns, though, are getting prohibitively expensive, even for the wealthy. If you’re saving to send a child to a private university, you need to sock away around $200,000. The balance of the average college savings plan is one-seventh of that.

And how many kids did you say you have? Depending on your answer, their college expenses could add up to more than your mortgage. In any event, your children’s education ranks right up there with the family homestead and a comfortable retirement when it comes to the need for financial planning. So, let’s look at some ideas on how to pay for it.

Review session

If you already know this basic stuff, feel free to skip down to the next heading. But for those who didn’t do their homework:

• 529s: The college savings plan we mentioned above is called a qualified tuition program or, more frequently, a 529 plan. These state-chartered accounts are usually tax-deferred savings plans, like a qualified retirement account. While there’s no legal limit on annual contributions, you could trigger gift tax issues if you exceed $18,000. Nine states, though, offer the opportunity to prepay your children’s tuition expenses – often locking in tuition costs as of the time that you open the account. This prepaid plan is great – providing there’s no question that your child will attend an in-state school. Also, prepaid plans are for tuition only, and can’t be used for room, board or other expenses. There’s additionally something called a Coverdell plan, which we’ll just mention briefly. It’s a self-directed educational savings plan that gives you more latitude in how you want to invest the money, but you can only add $2,000 per year. Think of it as a supplement to the 529, not a replacement for it.
• Scholarships: If your kid is smart, athletic or talented, schools will find ways of waiving a portion of the tuition. Also, you should consider hitting up any organization – profit or non-profit – with which your family is affiliated. Your employer, your church and your professional association or union are all places to inquire about scholarship opportunities. So are fraternal organization and youth groups. Further, there’s no shortage of companies and philanthropies that offer tuition assistance. Don’t get overwhelmed by the tall stack of paper; it might take an hour or two to do the first application, but maybe only about five to ten minutes to do each subsequent one.
• Grants: Don’t assume you make too much money for needs-based scholarships. If you’ve been working with a financial advisor to drive down your taxable income, you might also limbo under the bar for eligibility for Pell grants, federal supplemental grants and state-level equivalents. Besides, the U.S. Department of Education also has set-asides for military veterans, children of active-duty service members and those who agree to become classroom teachers or otherwise serve the public. Recent legislation increased federal grant money for families with farms or small businesses as well.
• Work study: Your college-aged child might qualify for federally subsidized go-fer work in one of the school’s academic departments or administrative offices. For that matter, they could cross the street from the school and flip burgers for the same money. Probably the sweetest deal on campus is as a residence assistant. A kid who goes the RA route after freshman year gets a free room plus a stipend. Making sure that a floor full of 18-year-olds don’t get caught doing something stupid is a lot of responsibility, but not actually a lot of time-intensive work.
• Loans: Stafford loans from the U.S. government – either subsidized or not – might be a good deal for you, as could Perkins loans, which come from the schools. Your state – or the state your child’s college is located in – might have more funding available. But don’t be fooled by the private lenders out there who charge higher interest for loans which will never be forgiven under any circumstances.
• Community college: When you’re touring colleges, ask the question the university administration hopes you won’t ask: “Is there a two-year school you recommend as a feeder?” Turns out, you can get the same UCLA or Loyola Marymount degree after spending your first two years at Pierce College, a much less expensive community college. On the East Coast, New York University famously partners with more than a dozen local, two-year public colleges. One consultant offers a guide to leap from community college to the Ivy League.

By the way, the first step in getting any financial aid is to fill out the FAFSA form, here. SavingForCollege.com offers great advice for filling it out. And one last note about the 529: Since 2019, it can be used for skilled labor apprenticeships as well as academia.

Extra credit

Still, those aren’t the only ways to save for college. Here are a few ideas you might not have known about, which you could use as either a replacement for or supplement to the classic 529:

Roth IRAs: Your kids’ eligibility for federal financial aid is a factor of their parents’ assets. Money in a 529 counts toward that factor, but money in an IRA or Roth IRA doesn’t. A Roth IRA can’t completely replace the savings that can build up in a 529 account due to contribution limits, and you should consider tax effects, holding periods and maximum income ceilings as well – not to mention that, like a 529, an IRA — Roth or otherwise — can also lose money. Even so, you can withdraw funds from one for college expenses without penalty – and one report suggests that at least 14% of IRAs get tapped for educational purposes – either by direct withdrawal or by taking out loans secured by them. Like a Coverdell plan, think of an IRA or Roth IRA as a funding channel supplementary to a 529. This year, the big news in college saving is that owners of 529s can make tax-free, penalty-free rollovers from their 529 accounts to Roth IRAs, subject to limitations. These changes, stemming from the SECURE 2.0 Act, enable savers over age 50 to transfer up to $8,000 per year – otherwise up to $7,000 – and $35,000 lifetime. This helps avoid taxes on unused 529 funds, turning them into a head start on retirement savings for the young adult. The Roth receiving the transfer must be at least 15 years old and in the name of the beneficiary so, practically speaking, the time to start planning this move is when the kids are still in preschool. Also, any funds transferred must have been held in the 529 for at least five years. The Internal Revenue Service hasn’t yet provided firm guidance on restrictions related to income limitations, so you might need to be careful there.

UGMAs/UTMAs: Accounts established under the Uniformed Gift to Minors Act don’t have all the tax benefits of 529s, so they are generally less attractive. Also, their value counts toward parents’ assets for FAFSA purposes. Like Coverdells, though, you can invest UGMA funds in any kind of securities you like. Accounts established under the Uniform Transfer to Minors Act go further, allowing for investments in real estate, collectibles, and even cryptocurrency.

HELOCs: Home equity lines of credit don’t have the tax advantages of a 529, and you can’t even deduct the interest payments as you would if you were using the money to improve your house. Still, the interest rate will be lower than taking out an unsubsidized loan – and certainly lower than putting any portion of college bills on your credit card. This could also be your best bet should you want to refinance a student loan. So as long as you’re aware that you’re literally betting the house that you’ll be able to keep up with the payments, a HELOC might play a role in your education funding plan.

Life insurance: No, we’re not suggesting you go to your final reward to pay for your kids’ college. We note that borrowing against your policy’s accrued value is one option.

Class dismissed

These aren’t all the options, but most people paying for college use some combination of what we’ve listed here. Before considering the optimal mix for you and your family, you might want to discuss your situation with an advisor. If you would like to take advantage of a personal consultation with one of our Wealth Advisors, please get in touch with us today!

The arguments pro and con

Two out of three employees who worked from home in the wake of the Covid-19 pandemic didn’t – and still don’t – want to return to work. Can you blame them? They found out they could function at their jobs without wasting time, money and mental energy commuting twice a day. Beyond that, you can work in the same clothes you wear to the gym and easily avoid anyone you don’t want to share space with. That you can save thousands of dollars a year on childcare or eldercare is just the icing on the cake (the figurative cake, not the literal one you’re expected to chip in five bucks because it’s the security guard’s birthday).

Of course, the shills from HR can counter that. People get lonely working from home and work can intrude on personal time and people can get marginalized in the decision-making process. Meanwhile, communication and collaboration opportunities are reduced.

A lot of this, of course, is nonsense. Some people do get lonely, but others just spend less time with their cubicle neighbors and more with their actual friends. HR doesn’t seem to mind if your boss requires you to stay late at the office, so it’s a laugh that they care about you getting a phone call during Wheel of Fortune. Decisions are made in conference rooms with the door closed and blinds drawn, not in the hallway to the printer room. And if in-person presence is so important for communication and collaboration, why does the company spend so much on WebEx, Slack and all that other remote working software? If showing up for meetings is so important, why do travel budgets always get slashed this time of year?

Up to now, employees have had the upper hand. From February 2022 through April 2024, unemployment was below 4%, effectively a labor shortage. Since then, it hasn’t gotten over 4.3% and is in fact trending down again. So as businesses demanded that workers return to their desks, their threats of pink slips have been met with two-week notices. As a result, the bosses’ requests to start coming into the office went largely unheeded. They then said that it was OK if you worked from home on a hybrid schedule, but you had to come in one, two, three or four days a week depending on the company. A lot of employees didn’t go for it, according to a Stanford University study, and experienced little in the way of repercussions. More than half of the policy violators either faced no consequences or received only a verbal reprimand.

No amount of get-to-know-you games, happy hours, bring-your-pet days, scavenger hunts or other return-to-work gimmicks – and there are dozens – will fix this. Even so, the pendulum is swinging back in the bosses’ direction, and the average American office worker is now remote only 1.7 days per week. At the moment, though, the hybrid model seems to be sticking, and five-days-per-week in the office remains a hard sell.

The great reveal

So why are companies so keen to keep their people on-premises? “Efficiency!” is the thunderous reply from the corner office. That is, to say the least, contestable. During the 2020-21 shutdown, a spate of research suggested that WFH could be more productive. That was followed by a spate that found the opposite to be true. A more nuanced academic study suggests that dull tasks are better performed at the office, but creative ones are better performed at home. Considering how inefficient employees are in general, the difference is insignificant. Everyone pretends not to know this, but the average employee functions only three out of every eight hours. So, no. If the return-to-office movement puts any money at all in the CEO’s pocket, it won’t be enough to notice. Who, then, benefits from return-to-office? The people who own the office buildings.

Our conspiracy theory – and that’s all the credit we’re giving it – is this: The developers who own commercial real estate don’t want their business model to change, even if that means creating a demand for their service that the pandemic has already revealed to be overblown.

According to Moody’s, office vacancy rates hovered around 16% before the pandemic, which even then was considered higher than healthy for the commercial real estate market. Covid then drove it up to around 18.5%. Vacancy dipped toward the end of 2021 but has since surged to a cyclical high above 20%. That is, if you work in a 25-floor office building, five of them are probably in mothballs. One analyst reckons that the current excess space equals the entire square footage of the Atlanta office market.
Office space has been overbuilt for decades but, at the same time, the residential market is as tight as it has ever been. Millions of households need a new place to live. The answer seems simple, right? Refit the offices into apartments. In Dallas, for example, developer Jonas Woods is doing exactly that for Bryan Tower and Santander Tower. He’s not the only one in Dallas, certainly not the only one across the country.

But this hasn’t worked at scale for a couple of reasons. First of all, repurposing a 500-foot high skyscraper is a difficult design and construction challenge. You probably want more daylight shining into your apartment than into your cubicle, so the whole structure of the building has to be rejiggered. Living spaces have far different requirements for plumbing, electricity and mechanical systems than workspaces. This is all difficult, time-consuming, material-intensive, costly work.
But that’s the lesser reason. After all, the more we do such renovations, the more streamlined and thus less expensive the process becomes. And as we noted, there are millions of people willing to hand over the money today for a center-city apartment.

The more insidious reason is the layers of perverse, non-market incentives driving the commercial real estate racket. This started on the federal level in 1981.
“In a bid to boost the economy, the Reagan administration allowed investors to depreciate commercial real estate much more quickly than before, among other changes, lowering their tax bills,” according to the Wall Street Journal.

But the cities themselves greatly aggravate the situation by their short-sighted tax policies. Some taxing districts provide abatements for unoccupied or under-occupied buildings, and these abatements might be more valuable than the rent the landlords could extract from new tenants. The owners of 7 Times Square in New York, for example, get $22.9 million per year in forbearance from the city for not renting space out, so why bother working hard to maybe break even? Better to wait until the market corrects and they can charge higher rates – even if that takes decades.

Connecting the dots

One string is still dangling off our conspiracy wall, though. What’s the connection between the landlord and the boss? As it turns out, that’ll take two strings.
The first one goes directly from one party to the other. Another Wall Street Journal article calls out the widespread practice of real estate firms charging above-market rates for rents, then kicking back cash to the lessees. This works out well for both sides.

“Landlords are showering tenants with tens of millions of dollars and months of free rent,” according to the Journal. “Paying money to inflate rents helps keep building prices high despite the rise of remote work, meaning landlords can expect to profit when they sell a building or take out a mortgage. That is because banks and investors calculate property values, in part, based on a building’s rents.”

The Journal goes on to say – and this dovetails nicely with our final point – that “[h]igh rents also create confidence in the broader property market, boosting publicly traded companies’ share prices and attracting investors.”
That second string is a long one and it goes clear around the board. The entire economy is interconnected. And in a market economy such as ours, that connection often comes via the institutional investors.

You know how we always tell you to diversify your portfolio – to make sure you hold stocks and bonds … and real estate? We didn’t think of that ourselves. That’s how BlackRock, Vanguard, State Street and the rest of the white-shoe firms roll. So, it’s not unlikely that the employer you work for and the group that manages the office you work in both report up to the same owners.
You can look it up yourself. The Securities & Exchange Commission requires all companies that sell securities to the public to publish a proxy statement, Form DEF 14A, at least once per year. Proxy statements list every entity that owns at least 5% of the company. Compare your company’s proxy statement with that of the company managing your office building.
Still, this has just been a thought exercise. Certainly, there must be other explanations as to why people are being ordered back to the office whether it makes sense or not. There has to be some degree of natural demand for office space, or it wouldn’t have existed for so many millennia. Consider this nothing more than a conversation starter between you and one of our Wealth Advisors.

With over 15,000 Registered Investment Advisory Firms across the country to choose from, we know this award from Forbes signifies more than just an accolade – it’s a testament to our dedication to growing, preserving, and transferring wealth in ways that secure our clients’ futures. The Forbes Top RIA Firms for 2024 recognition underlines our commitment to delivering top-tier financial planning, investment management, and a proprietary standard of care that supports our clients in reaching their goals.

“We are extremely proud to be recognized by Forbes for another year. Our team’s unwavering dedication to instilling peace of mind for our clients through a holistic approach to financial planning and fiduciary excellence has once again earned our firm this prestigious acknowledgment,” said Steve Anglin, one of Smith Anglin’s Managing Partners. “Our team remains focused on building strong partnerships with our clients and on helping them achieve their financial goals. Being recognized for these efforts highlights the exceptional work we do every day.” 

The Forbes ranking considers various elements such as assets under management, industry expertise, leadership, and client-first service. As a fiduciary, Smith Anglin prioritizes clients’ needs above all else, delivering care, counsel, and expertise with integrity. Our fiduciary duty is not just a legal standard to be held to, it serves as the foundation of our client relationships. 

Thank you to our clients and dedicated team for making this achievement—being one of the top RIA firms in the US—possible. Together, we look forward to continued success and to helping secure a prosperous future for all those we serve. 

About Smith Anglin Financial 

Founded in 1967 and headquartered in Dallas, Texas, Smith Anglin is a premier wealth advisory and wealth management firm. Serving a select group of pilots, families, individuals, and business owners in 48 states, as well as internationally, the firm manages more than $1.9 billion in client assets. We are distinguished by our deep roots in tax planning, accounting, and aviation retirement readiness, with a mission to support our clients’ financial well-being throughout their lives. 

About the Forbes Top RIA Firms 2024 Ranking  

 The Forbes ranking of America’s Top RIA Firms, developed by SHOOK Research, is based on an algorithm of qualitative criteria, mostly gained through telephone, virtual and in-person due diligence interviews, and quantitative data. The algorithm weighs factors like revenue trends, assets under management, compliance records, industry experience and those that encompass best practices and approach to working with clients. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK receive a fee in exchange for rankings. 

But we’ve been wondering: What about those VCs who decided they didn’t need opera tickets, and who expect to walk away from a $40-a-plate meal with a full belly?

We did find some venture capital strategies. The next question, then, is how being a three-hour flight away from Menlo Park or Greenwich affects their investment decisions. What country smarts are they bringing to the game?

The venture capitalist next door

None of these rival Andreessen Horowitz, the $35 billion fund that sits atop the Silicon Valley pyramid but, in VC, there’s plenty of opportunity for everyone. When Andreessen says no, a founder can just go down to the next name on the list. The very, very long list. So don’t consider these examples to be the only early-stage investors between the Rockies and the Appalachians.

• TechStars, established in Boulder, Colo., in 2006, has around $110 million invested in more than 4,000 companies. It runs incubators across the nation – in New York and California of course, but also in Chicago; Denver; Atlanta; Minneapolis; Austin, Texas; Lehi, Utah; Sarasota, Fla.; Ann Arbor, Mich., and other places you wouldn’t expect mentors to parachute into. Their middle-American portfolio includes baby monitor maker Owlet and wind farm manager Skyspecs.
• Foundry Group splintered off from TechStars and is also based in Boulder. Foundry has a piece of at least 65 companies, about one-third of which are based well away from the coasts – from Quiq in Bozeman, Mont., to GigPro in Charleston, S.C., they’ve managed to find investment opportunities without paying bridge tolls. Quiq makes AI-assisted customer service chatbots, and GigPro is basically TaskRabbit for hospitality workers.
• Austin Ventures was founded in 1979, when VC was new and Austin was still part of Texas. It has raised around $4 billion and invested it back in the Lone Star State, mainly in companies focused on health care, logistics and non-bank financials.
• Cottonwood Technologies of Santa Fe, N.M., focuses on “patent-based hard science,” by which they mean photonics, nanotech and robotics, not fintech, AI and crypto. It has around 30 portfolio companies, including eco-friendly fabric maker Green Theme Technologies, electric motor designer Infinitum and diagnostic wearables creator Reyedar.
• Lightbank, of Chicago, holds a portfolio of almost 90 companies and has almost $300 million in the bank to buy more. It supports such Midwestern businesses as medical AI firm Tempus and health payment account platform Paytient.

Capital intro

You’d think that being closer geographically to the industries than to the money would give these firms a different perspective, allow them to spot winners early. We weren’t able to find data to consistently support that, though. When non-coastal VCs do spot something early, it’s usually because they’re close to such smaller but still relevant data hubs as Denver or Austin.

That’s not to say there are no examples of Heartland capital building Heartland businesses to be found in CrunchBase. When these startup VC firms act as lead investors, that’s when they introduce their portfolio companies to a broader range of funding options.

MacroFab, a precision manufacturing company in Houston, was midwifed by TechStars, and Foundry led later rounds.

Austin Ventures brought along an array of smaller Central Time Zone players to fuel the expansion of Austin-based Ambiq Micro, which finds ways of making AI more energy-efficient.

Lightbank serves the Great Lakes region well as a lead investor. It introduced capital to such companies as Chicago’s Blueprint, which makes AI assistants for mental health, or Bedford, Ohio-based Aropha, which innovates test lab equipment.

Invest locally?

Investing in VC funds is risky, and not a good idea for most people. We’d all go to jail if we told you otherwise.

Still, if you are an accredited investor and you’re willing to roll the dice, it’s nice to know that you don’t have to fly into JFK or SFO to take a meeting.

Your first meeting, though, should be with an experienced financial professional who can maybe talk you out of it. Should you choose to pursue your non-coastal VC dreams, the advice you get out of that session is very likely to pay off.

To Team Momentum we say, “Yes. Absolutely. Except …”

Current high-yield bond yields remain elevated by historical standards, meaning they’re still providing solid returns to their holders. That’s despite the half-percentage point cut in target interest rates the Federal Reserve announced last month, and the further cut we all expect it to announce next month.

What do we mean by “bond yields,” and what are they? Which bonds? When we use the term, it’s usually shorthand for the yield of the 10-year Treasury security which, technically speaking, is a note rather than a bond. (Bonds are longer-term.) It also assumes constant maturity, which means that it’s not an official number but rather an estimate of the annual return of what the last person to buy a 10-year Treasury note on the secondary market should get.

The whole discussion ignores not only shorter and longer-term federally issued debt securities, but also all those bond and notes issued by municipal or corporate entities.

So, it’s probably time to cut loose some of your fixed-income holdings, but you shouldn’t be dumping the whole asset class all at once.

Whither bonds?

Just a year ago, we wrote about “What not to do when both stocks and bonds falter”.

“Don’t panic,” was our advice at the time and we bet you’re glad you took it. We now have froth in both the equities and debt markets, and that’s a nice problem to have.

Still, 10-year Treasury yields seem to be defying gravity. The lower Fed funds rate means that banks can charge each other less interest, but that doesn’t affect Treasurys directly. Over time, lower bank rates work their way into lower bond yields, but it takes a while.

The shorter-term securities generally see movement first, and that’s the case this time around too. The bills – with maturities of a year or less – have already seen a drop. Just like they do in the stock market, fixed-income buyers act on the rumor, not the announcement, so the yield on the shortest-term bill dropped from 5.5% in late August to 4.9% shortly after the Fed’s announcement. You can expect it to fall further because it’s been as low as 3.4% post-pandemic and been darn near zero for most of this millennium.

Let’s take a quick look at the two-year note. That typically yields a couple ticks above zero, because you should be rewarded for committing capital for two years instead of one month. But that hasn’t been the case lately. While the current 3.7% is as high as it has been since the 2008 financial crash, it is still low when compared to the almost-cash-equivalent one-month bill.

Here’s why that’s important: If you have certificates of deposit (CDs), your bank basically buys a bunch of short-term Treasurys, then pays you a rate that’s a little lower for the loan of your money. So, look carefully at the cardboard cutout at the front of the branch and don’t be surprised if the shorter-term CDs pay higher interest than the longer ones.

But the bonds and longer-term bills have a lot more to unpack. Like the shorter-term instruments, the 10-year has dropped from a peak of around 4.6% in April to around 3.7% at last reading. It’s likely to go lower, but it won’t be in a hurry. That’s because there is more to consider than today’s cost of capital. Long-term buyers concern themselves with expectations for not only interest rates but also exchange rates and inflation over the lifetime of the instrument. And of course, there’s good old supply and demand; it takes time to unwind positions in longer-term instruments. Bond buyers eventually become bond sellers and, when that happens, they’ll probably be willing to shave a few points off just to unload them. The issuer – that’s the U.S. government – would then be able to save money by ratcheting down the yield for new instruments to the effective level of those trading in the secondary market.

Whither stocks?

Eventually, though, fixed-income supply and demand will balance out. The Treasury yield curve will – has already begun to – revert to its normal state of rewarding long-term commitment over short-term investment.

Then Treasury yields should trend lower. That, though, is an opportunity for other financial instruments to shine. Stocks and ETFs, sure. Commodities? Always helps to have a hand in. But what about other debt securities? This might be a golden hour for them. Whether you’re considering the higher yields of corporate paper – which is riskier than Treasuries but varies widely by how much – or the additional tax shields of municipal bonds, you have a lot of alternatives to consider.

But let’s get back to stocks. And we should start by calling out one wildly erroneous misconception that has become so ingrained in the “common knowledge” of American finance that we have all blindly accepted it. That includes the editors of this newsletter. We see no malign intent behind this falsehood, but falsehood it is:

“Soft landings are very rare.”

We looked at the data. No, they happen almost as frequently as hard landings. To define our terms, “soft” means that an overactive economy slowed down to the point of sustainable growth. “Hard” means that the economy actually got smaller – it went into either a short contraction or a full-blown recession. If you continue to refine that definition, you’re left with what one economist tells us: that there’s been only a single soft landing in living memory: 1994-95. Others beg to differ.

According to BMO, an economics consultancy, the U.S. has seen four soft landings in the past 60 years. If you count the one we’re going through today – and we do – that’s five, compared with eight recessions. The Fed governors didn’t do such a great job at this in old-timey days but, over the past 30 years, they are batting .500.

This is important to us because, if we’re going to start picking stocks, it helps to know where we are in the economic cycle. We’re not in a contraction, even though a lot of very smart people thought that was exactly where we’d be today. Did we also skip the recovery phase because there’s nothing to recover from? If so, then we might want to look at such expansion-friendly sectors as Information Technology or Industrials. If not, then rebound stocks in the Consumer Discretionary or Financial sectors might be more appealing.

But we never know precisely where we are in the economic cycle, just where we were – and that often requires a few months’ reflection.  Which is why Smith Anglin’s Investment Planning Committee is constantly monitoring the markets and your accounts.

The damage is done. Prevention is an afterthought at this point. Now is the time to focus on minimizing the impact.

National Public Data makes the nation’s data public

The biggest data breach of the year – so far, that we know about – involves a little-known, privately-owned, Florida-based company called National Public Data. It’s a data broker, which means it collects data about you from your search history, purchase history, online agreements and other publicly available sources. It then aggregates your data into a profile and sells it to third parties.

Whether this is legal or not is a matter of where the data lives. If a data broker is operating in Europe, then every individual it’s spying on needs to give explicit permission for every 1 or 0. In the U.S., though, grabbing everybody’s personal data and selling it to anyone willing to pay is as legal as lemonade at a church picnic. It’s considered a state-by-state issue here and, so far, only California has enacted a privacy law that puts limits on how your data can be collected and distributed.

According to a class-action suit filed last month in the U.S. District Court for the Southern District of Florida, “a  cybercriminal  group  by  the  name  of USDoD gained access to [NPD’s] network prior to April 2024 and was able to exfiltrate the unencrypted [personal information] of billions  of individuals … [which] was published, offered for sale and sold on the Dark Web by cybercriminals.” The plaintiffs allege NPD advertised that it had the data of 2.9 billion people – that is, one-third of the whole world – and it could be yours for the low, low price of $3.5 million.

Maybe you’ve already picked up on this, but the point is important enough to spell out: The breach was in April. We found out about it in August, and the only reason we learned about it then is because NPD got sued. Someone literally had to make a federal case out of it. And the only reason the lead plaintiff knew was because he happens to live in the one state in the Union that has a law requiring notification.

As a privately owned company, NPD isn’t accountable to the investor community and so it doesn’t have to report such shenanigans to the Securities and Exchange Commission (SEC). (NPD finally posted this to their website.) Public companies like AT&T and UnitedHealth, who each had their own massive breaches this year, were compelled to self-report.

So, this isn’t a one-off event. TicketMaster, Change Healthcare and Dell are among the victims of the now infamous “Snowflake” attack, which was just one of thousands of data breaches that occurred so far this year – and we’re running just a bit ahead of 2023. The average breach costs a company in the industrial sector almost $1 million.

The stakes

According to data security firm McAfee, data brokers routinely trade in individuals’:

• Names
• Genders
• Birthdates
• Contact information
• Current and past home addresses
• Marital status and family situation, including children
• Social Security numbers
• Levels of education
• Assets
• Jobs
• Purchase habits
• Interests and hobbies
• Criminal records
• Political preferences
• Medical history

There are plenty of legitimate reasons to collect and disseminate this information. Employers and landlords need to be able to run background checks. You can’t build a credit report without at least some of these data points.

But legitimate companies like Intellius and Equifax don’t have to muck around on the dark web for their fodder. This is the domain of drug dealers, fraudsters and black-hat hackers. And if this is where your data ends up, that’s still not the absolute worst that can happen. One market for such private information is foreign governments – both real ones like Russia or Iran, and wannabes like Al-Qaida and Hezbollah. Even so, system penetration to facilitate ransomware attacks or other types of extortion is still by far the biggest motivation for stealing data.

What you can do if your data is breached

Even if the damage is already done, you still have options for data breach recovery. One way or another, the bad guys have your data. But there are still things you can do to mitigate the damage:

• Get an inventory of which of your personal data was taken through sites such as NPDBreach.com or NPD.pentester.com.
• Freeze your credit score and report by visiting the freeze option pages of Equifax, Experian, and TransUnion (notice the use of “and”, not “or”), which will prevent identity thieves from taking out loans and establishing credit cards in your name.
• While you’re visiting the credit bureaus, get a copy of your current credit report to make sure you recognize all the listed accounts.

Going forward, here’s how you can limit your data exposure:

• Don’t overshare personal information on social media and avoid online quizzes.
• Use a virtual private network or VPN.
• Ditch Chrome in favor of an anonymized browser such as Tor Project or The Invisible Internet Project.
• Limit your exposure to telemarketers via OptOutPrescreen.com, DMAchoice and the National Do Not Call Registry.

And of course, remain vigilant. Don’t fall for any scams. We know that’s easier said than done, but start with disbelieving anyone who claims to be from the government – especially the IRS, Social Security or Medicare. Also, if someone from a bank or online financial services provider reaches out to you to “check on a fraudulent charge,” don’t give them any information until you look at that account summary online. If what a stranger says on the phone or in an email doesn’t match what your app is telling you, trust the app, not the stranger. And if you just can’t tell if something is real or fake, you can always reach out to Smith Anglin.

This is all part of the new Advanced Air Mobility niche we discussed here in May. Use cases include urban, regional, public transit, cargo and recreational niches.

We’ll tell you more about this, but can we ask a favor first? If you buy one, please land it in front of a high-end restaurant, flip the keys to the valet, then send us a snapshot of his expression.

Alef aloft

For years, we’ve all been asking: “Where’s my flying car?” Fact is, any number of challenges needed to be overcome.

At the top of that list is power. Battery performance, range and payload capacity were the critical factors. The engineers also had to figure out how to configure the wings so that your flying car could also function as a … car.

These issues have each been addressed, and we now know of at least three flying car models that have been approved by the U.S. Federal Aviation Authority for personal use. (At least five Europeans are also in the mix, as is at least one Chinese firm.) Joby Aviation (NYSE:JOBY), Beta Technologies, Volocopter and other designers are even farther ahead with their models, but theirs are aircraft-only without the ability to pull into a suburban garage.

The Alef Model A, a road-drivable, electric, vertical-takeoff-and-landing flying car, is backed by Tim Draper, the Silicon Valley investors who bankrolled Elon Musk. According to eVTOL News, Alef will deliver preorders of the two-passenger aircraft in time for Christmas 2025. (How do you explain to the kids all the reindeer parts on the lawn? We got nothing.)

While it can park in a standard parking space, it can only crawl along at around 25 mph on the road; its cruising speed is not yet published, but it has to be faster than that. That said, it can only fly about 110 miles on a charge with two people and 200 pounds of payload, while it can drive 200 miles.

The Alef Model A boasts a choice of powertrain: electric or hydrogen.While this sounds like an environmentally driven decision, it’s mainly a matter of force vs. mass. We’ve reached the point where these energy sources – as heavy as they are – have become lighter than a more complex internal-combustion system with a full tank of carbon-based fuel.

Alef’s was the first flying car to win FAA approval for flight testing and, now that the door has been unsealed, others are coming up behind.

The Doroni H1-X is scheduled for delivery in 2026. The prototype has already been flight-tested and Doroni says the commercial model will go wheels-up (technically, wheels-sideways) by the end of this year.

Aska is another flying car ready for vertical takeoff. Its A5 model boasts a 250-mile range, but is still in the tethered flight stage, so that’s entirely hypothetical.

Flight regulations are in flight

Regulatory concerns include noise pollution and other environmental impacts, as well as such obvious questions as “Who’s allowed to fly these?” and “How are we going to manage a whole new class of air traffic?”

A lot of this will be addressed by the FAA’s pending MOSAIC rule, which should be finalized next year. An acronym for “Modernization of Special Airworthiness Certification,” it would more than double the allowable weight of a light sport aircraft. That’s been 1,320 pounds, up from zero pounds 20 years ago because LSAs didn’t exist prior to 2004.

That’s also when they invented the LSA pilot, who must meet these stringent conditions:

• Be at least 16 years old,
• Speak and read English, and
• Be healthy enough to qualify for a state driver’s license.

At least, that’s all you need to get started. Now you have to pass a written test, spend around $10,000 and 30 hours on lessons, then take the practical.

Doroni told Flying magazine’s Jack Daleo that the H1-X is “so intuitive that a four-year-old could fly it.” A ton-and-a-half block of plastic and lithium hurtling thousands of miles above the earth in excess of 100 mph? Maybe we need to wait until the kids prove they can be trusted with their cell phones first.

What MOSAIC does is expand the LSA class – which includes balloons and powered parachutes as well as gyroplanes and simplified-control aircraft – to include personal eVTOLs.

Lessons to learn – and teach

A lot of very rich kids are going to want to fly their dates to the prom next year and, if the FAA starts granting airworthiness certificates, the hardware will be available. The Prom King and his court will need help getting their LSA licenses, though. That’s where some entrepreneurs will find an opportunity. They’d need to get specific-model training first but that won’t take long, and then they’ll be able to open up LSA schools.

And to pay off their first flying car, they could do what everyone else does to pay off their new ground transportation: hire out as a rideshare. Such cities as New York, Chicago, and Los Angeles can’t wait for these, because they’re quieter and less polluting than helicopters. They might even beat Uber to the market.

Of course, the air traffic control kinks need to be worked out, but people will probably be able to fly their personal eVTOL flying car anywhere that corporate helicopters are allowed. After that, we’re in uncharted territory. It’s hard enough to get drivers to look left and right before pulling into traffic – how are we going to make them look up and down as well now too?

The next question is: Where can you drive it? At least three states – New York, Pennsylvania, and Minnesota – are looking to pass legislation that would license them as if they were any other class of street-legal vehicle.

If you’re not inclined to open your own LSA academy, you can still benefit from the eVTOL flying car craze through passive investment. Every one of the companies mentioned here is looking for direct funding, and it’s only a matter of time before publicly traded companies or SPACs acquire them. Joby, backed by Uber, is already on the Big Board as a publicly traded stock. It’s hard to keep your eye on the sky and your ear to the ground, so you might want to discuss investment opportunities with a trusted financial advisor.

Small stocks, as measured by the Russell 2000 index, have struggled for years to keep up with the S&P 500, its better-known, large-cap counterpart. Over the past five years, the S&P returned more than 80% to investors, while the Russell eked out less than half of that.

But if we zero in just on the month of July …

… we see a most dissimilar picture. Small-caps gained more than 10% in a month, while large-caps actually lost a little ground, not assuming dividends.

Both indices have given back a little in the volatile first week of August, but still: Why all of a sudden are small caps roaring? And how long will it last?

The same, only different

According to CME Group, the two stock averages tend to correlate over time but diverge over the course of an economic cycle. That is, if you’d put $1,000 in an S&P index fund and another $1,000 in a Russell index fund 40 years ago, your results would be comparable. But if you put all of it into the S&P as the economy expanded then rotated it into the Russell when a recession was looming, you might look like a stock-picking genius.

Small-caps outperformed during the unsettled times in the late 1970s and early 1980s, then during the 1990-91 recession, and again during the turbulent first decade of the 21^st century, when we got hit with shock after shock: the dotcom implosion, 9/11, the financial crisis and whatever else. The Russell also had a moment during the Covid pandemic but, oddly enough, not during the recessionary part of it. From October 2020 through March 2021, as things started to get back to normal, small-caps surged but, by the end of the year, the large-caps caught up.

Maybe we’re focused too much on raw returns, though, when we ought to be considering the risk of investing in small stocks as well. Small-cap stocks are inherently riskier than large-caps, so investors should expect to be awarded with superior rather than equal returns. And that’s one major reason why hedge funds and institutional investors tend to ignore the Russell components.

The case for small-caps today

Another reason that Russell stocks had been underperforming is that they tend to be low-tech. The Industrial, Financial Services, Health Care and Consumer Discretionary sectors comprise more than half of the index’s value. Barely 10% of it is invested in Information Technology.

But now that investors are rotating out of Tech, the ball is bouncing toward the Russell.

And of course, there’s that macroeconomic specter that casts a shadow over every company in the market: interest rates. Big companies have much easier access to bank financing and can float fixed-income bonds if they need even more money. As a result, large-caps’ capital stacks are heavily weighted toward fixed-income debt. Small caps, though, don’t have that luxury.

“Approximately 1/3 of the Russell 2000 are financed with floating rates, compared to only 6% of companies in the S&P 500,” according to BlackRock.

With interest rates on the cusp of dropping – quickly, many believe – the capital access playing field might be leveling off and the degree of risk for investing in small-caps might be dialing down.

Time to play small-ball?

Predictions about where the Russell 2000 goes from here are all over the place. Well, not all over the place. For instance, we won’t make any here. Still, there are indicators that the outlook for small-caps hasn’t been this good in years.

“For small cap stocks to significantly rally, a couple of things are needed in the coming weeks and months: continued U.S. economic growth and Federal Reserve interest rate cuts,” according to Benzinga, a financial news website. “With these in place, investors could enter the market at attractive valuations.”

Those are also the two elements of a soft landing, which we may be experiencing right now.

Energy isn’t it anymore – it was for a while, but those prices are declining now. Auto repair is getting up there, but you don’t take your car into the shop every week.

No, we’re talking about going out to eat. Even as the price of groceries has stabilized, the cost of dining away from home continues to climb more than 4% per year. And we think we know why: Tipping culture in America has gotten out of hand.

Tipping point

If you still believe 15% is a standard tip, we have one question for you: Where have you been going for fried clams since Howard Johnson’s closed?

The expected gratuity has inched up over the years. Today, if you live in a big city where hospitality is a major part of the economy, you’ll get an eyeroll if you leave anything less than 18%. Not long ago, 20% was considered the upper limit – what you gave for truly exceptional service. Now it’s as-you-do.

Part of this is a result of the Covid-19 pandemic. When we were all locked down, we found out who the essential workers were, and they weren’t always who we thought. Healthcare and public utility workers, sure, but it also turns out the people who brought us our food were suddenly having a moment. They were taking risks to sustain us and, when the restrictions were lifted and we could go back into restaurants, we were all just so happy to see each other that we were inspired to put that extra dollar or two in the till.

That was four years ago. We’re long since back to business-as-usual, but we’ve learned our lesson about how important food service is to the economy and our own sense of wellbeing. Sadly though, public policy has not kept up with public awareness. Americans who work for tips have a minimum wage of $2.13 per hour, compared to $7.25 per hour for everyone else, according to federal guidelines. (The wage is higher under most states’ laws.)

The 20% bonus – as well as the sub-minimum wage – is a distinctly American thing. The French term for a tip is pourbois. The German is Trinkgeld. Neither translates directly as “gratuity”. Rather, they mean “for a drink” and “drink money”. The implication is, “Thank you for being such an attentive host to my dining companions and me. Please let me treat you to a cocktail after work.” And so it’s a round-up to the next number ending in a zero rather than a calculated percentage. It also suggests an equality of social status between the server and the served rather than the big-spender American vibe, which is more akin to, “I’m the head honcho, and here’s how I reward you for catering to my whims.”

There’s no law

Can we all agree that, if you’re seated at a full-service restaurant where someone has already set your table and filled your water glass, you should leave a tip? Then let’s talk about what other situations do or don’t call for such generosity.

Our personal rule of thumb – and we don’t all have to agree on this – is: No tipping across a counter. Convenience store? Coffee to go? Pick-up orders? Sorry-not-sorry.

Is someone delivering the meal to our home? Sure, but that’s more of a pourbois. If we’re using our own plates and silverware and cleaning up after ourselves, then thanks for getting the food to us while it’s still warm.

But it’s not just food service workers with their hands out. If you don’t tip barbers, cabbies or hotel housekeepers, you might want to rethink that. But there are also plenty of service providers you shouldn’t have to tip: the wi-fi installer, the plumber, the electrician. They already make a decent wage.

That leaves a gap in the middle, though: What about the guys who deliver furniture or major appliances? While you wouldn’t even think of tipping the UPS, FedEx or Amazon driver, don’t you tip the U.S. Postal Service letter carrier every Christmas – so maybe you should. We’re not sold on the practice – just offering a thought exercise.

Check, please

When we first discussed the idea of an article on tipping culture in America, everyone on the Zoom call had exactly the same shake-my-head story: We’re each standing at the register at Starbucks with the price of our order already entered in, when the barista turns the reader around so that we can select an 18%, 20%, 22% or “Other” tip. Whatever we select, though, everyone else in line can see just how big a spender we are … or aren’t. That kind of social engineering is exactly why America needs to reexamine its tipping culture, and maybe the result will be a lowering of inflation in meals away from home.

Time magazine has an excellent history of tipping culture in America, and why we haven’t yet joined the rest of the world in just paying wait staff what they’re worth.

Ultimately, there’s little we as individual consumers can do about the status quo. You could choose to patronize no-tip restaurants, but they’re hard to find. We went online searching for a national directory of these, but the closest we came was a Google Sheets file nested in a sub-Reddit.

Another way of addressing the issue is to support legislation that erases the distinction between minimum wages for tipped and non-tipped employees. Seven states have already passed such laws, according to Workforce.com, while 15 others have taken meaningful measures to reduce the gap. You might want to check your state’s current policy and, if you don’t like it, see if any relevant bills are percolating in the assembly.

And while it’s tempting to stop tipping just to take a stand against the practice, remember that the gracious, attentive server who complimented your wine selection and laughed at your jokes might be making as little as $2.13 per hour without gratuities. No need to take your moral umbrage out on them.

The best revenge, as you’ve often heard, is living well. Maybe the only way out of the tipping dilemma is to rise above it. Tip the barista or not? Tip the wait staff 18% or 20? Get yourself into a situation where you can answer such questions with a hearty “Who cares?”

To that end, consider contacting Smith Anglin to schedule an appointment with an experienced, knowledgeable – and non-tipped – financial professional.

Rather than rely on our own, carbon-based faculties, we decided to let OpenAI’s ChatGPT have a whack at it.

“Write a 1,000-word article on how to select stocks based on their exposure to AI,” we asked its Stock-Market Analyst GPT module. “Without recommending particular securities, present investment themes related to both first and second-order effects.”

It complied, and the article it slapped together was accurate and informative, if a bit repetitive and too deep in the weeds. So we asked it, “How good a job do you think you did?”

“Overall, the article is structured to offer a balanced perspective, combining investment themes, evaluation criteria and risk considerations,” it replied. “If there are specific areas you think could be improved or if there are additional points you’d like to see covered, please let me know!”

At least it didn’t attempt to flirt. (Here’s the full text ChatGPT sent back to us.)

It’s still early days for generative AI, the type which produces content in response to prompts. The summary it gave us helped structure our analysis of second-order effects, but that’s about it. The only source it relied on was Investopedia, so we had to go back and do all the research anyway.

We can’t deny, though, that AI – generative and otherwise – is going to be making a big splash in the world economy, and the ripples from that splash might never stop. Even so, throwing money at every name ending in “.ai” would likely result in the same kind of bust that buying anything ending in “.com” did a generation ago. So let’s take a look at how AI might realistically affect your investment choices.

First-order effects

Some industries are going to benefit immediately from the AI boom. Technology companies are top-of-list.

But there are different kinds of tech companies. They might be focused on hardware, software or facilities. The hardware companies make the AI-specific semiconductors and other components for processing or storing data. Nvidia, of course, plays in this space, but it has its competitors. This group also includes the foundational levels of operating systems and management software that connects the applications to the bare metal.

Then there are actual AI platforms. OpenAI, the private company that started the generative AI boom with its free Chat GPT offering, is one example. There are other cloud-based, so-called “AI-as-a-Service” (AIaaS) platforms out there but for now they’re all pre-IPO according to eWeek.

That doesn’t mean you can’t buy into AI at all. Such mega-cap players as IBM, Amazon, Microsoft and Google have infused AI into their offerings already and are funding much of the research. Apple is playing catch-up, but they’ve never put much stock into being first-to-market. Amazon, Microsoft and to a lesser degree IBM all play in the cloud hosting market, renting out their data center space as well as their computing and storage power to companies. Demand for this service could likely increase with the AI market.

Separately, such enterprise software developers as ServiceNow, Salesforce or Oracle imbue their products with AI. Motley Fool also points to such cybersecurity companies as CrowdStrike and Palantir which are directly exposed to the machine learning space.

You might want to go back to our March article on tech stocks to learn a little more about some of these names. And, if you go back another month, you’ll see what we had to say about self-driving cars – which are basically AI on wheels.

Second-order effects

“Several industries are being revolutionized by AI, leading to significant operational improvements and cost reductions,” according to our disembodied friend. It lists three sectors in particular that could benefit most from AI as it becomes more pervasive:

1. Healthcare,
2. Financial Services and
3. Manufacturing.

The top AI use case for the Healthcare sector revolves around medical imaging analysis.

“With AI-powered systems, medical professionals can enjoy the benefits of an automated system for recording medical documents, streamlining the administrative aspects of their work,” according to software developer Glorium Technologies. “Moreover, AI assists in making more accurate diagnoses by analyzing large volumes of data at high speed and comparing it with other studies of the same patient.”

Glorium also cites diagnosis and treatment, patient data processing, remote patient assistance and drug development as important use cases.

You can assume that every major Healthcare company actively incorporates AI in its processes. Nasdaq’s blog highlights six names in the sector that serve as “under-the-radar” paths to investing in AI.

Additionally, a few domestic, publicly traded Information Technology players specialize in serving them. Butterfly Network (NYSE:BFLY), Augmedix (Nasdaq:AUGX), and GE HealthCare (Nasdaq:GEHC)  are among those listed by Medical Futurist, but please don’t take any of these references to be recommendations. The Medical Futurist article is loaded with dead links, so these are just the survivors. So far.

Turning to Financial Services, how an enterprise might use AI depends on which end of the business it’s in. For banks, AI helps most in fighting financial crime and improving online access to branch services, according to Intel. Capital markets players benefit from AI-assisted algorithmic trading or risk management. Meantime, AI helps insurers with claims management, fraud detection and curating recommendations for follow-on sales.

Technology-first companies that augment – or displace – legacy institutions are generally called “fintechs” or, if they specifically disrupt banks, “neobanks”. Some of the best-known fintechs include PayPal (Nasdaq:PYPL), Upstart (Nasdaq:UPST), SoFi (Nasdaq:SOFI) and Block (NYSE:SQ). You might also consider an array of ETFs that follow this niche.

The Manufacturing sector has been the leading market for technological innovation since the Industrial Revolution. In the current era, according to TechTarget, there are no fewer than 10 distinct use cases for AI on the shop floor. You can read them for yourself, but here are some of the cooler ones:

• Co-worker robots, or “cobots” that can learn new tasks as they function alongside humans;
• Digital twins, virtual models of real-world objects, such as airplane engines, that may then be studied for how environmental factors and regular wear-and-tear can affect performance; and
• Machine-vision cameras that spot defects which human eyes can’t.

As you might gather, the automotive, electronics and aerospace industries are leading the charge and, as we noted earlier, the pharmaceutical industry is also an early AI adopter. Surprisingly, though, the food-and-beverage and consumer packaged goods industries are also keen to take advantage of this new tech. The Wall Street Journal reports that PepsiCo (NYSE:PEP), Colgate-Palmolive (NYSE:CL) and Hershey (NYSE:HSY) are fully onboard.

Should AI stand for ‘all in’?

Of course, we could probably do one of these roundups for every industry in every sector. AI is likely to wriggle into all of them eventually. Both the retail and entertainment industries deserve more attention than we have space to give them here.

Wherever you choose to focus your capital, though, the chatbot has this advice for you:

“Investors should focus on companies with a clear strategic vision for AI, strong financial health, and a commitment to innovation,” it scraped from somebody else. “By considering first-order effects, such as technology and software firms, and second-order effects, like industry transformation and consumer goods, investors can build a diversified portfolio poised to capitalize on the AI revolution.”

We would go one step further and remind you that no machine has any incentive to make sure you optimize your portfolio. So seek out a trusted advisor with a pulse rather than a clock speed.