Investing

The cash option for this jackpot is $497.3 million, less than half the annuitized value.
Higher interest rates are making it possible for Powerball to fund larger annuity prizes, but the lump sum is based on ticket sales, according to the game’s operator.
Both routes would result in taxes taking a big slice of the winnings.

Gene Blevins | Reuters

The jackpot for Powerball’s Monday night drawing is a whopping $1 billion.
Sort of, anyway.

The advertised number represents the pretax amount you’d get if you were to receive your windfall as an annuity spread over three decades. Yet most jackpot winners choose the upfront one-time cash payment — which, for this drawing, is less than half the annuitized amount and also is a pretax figure: $497.3 million.
The annuity option is higher than it has been, relative to the cash option, due to higher interest rates that make it possible for the game to fund larger annuitized prizes, according to the Multi-State Lottery Association, which runs Powerball. The cash option, however, is driven by ticket sales.
More from Personal Finance:How investors can keep FOMO at bayTips to help stretch your paycheckHere’s what it takes to build wealth

Almost $120 million would be shaved off the top

So what would you pay in taxes if you were to beat the odds and land the jackpot?
Assuming you were like most winners and chose the cash option, a 24% federal tax withholding would reduce the $497.3 million by $119.4 million.

Yet more would likely be due to the IRS at tax time. The top federal income tax rate is 37% and this year applies to income above $539,900 for individual tax filers and $647,850 for married couples. Next year, the top rate is imposed on income above $578,125 (individuals) and $693,750 (married couples).

This means that unless you were able to reduce your taxable income by, say, making charitable donations, another 13% — or about $64.7 million — would be due to the IRS. That would translate into $184.1 million going to federal coffers in all, leaving you with $313.2 million.
State taxes could also be due, depending on where the ticket was purchased and where you live. While some jurisdictions have no income tax — or do not tax lottery winnings — others impose a top tax rate of more than 10%.

Nevertheless, the winner would end up with more money than most people see in a lifetime or two. 
And, of course, you probably won’t need to worry about how much the jackpot really would deliver — the chance of a single ticket matching all six numbers drawn in Powerball is about 1 in 292 million.
Meanwhile, Mega Millions’ jackpot is $87 million ($42.8 million cash) for Tuesday night’s drawing. The chance of your ticket hitting the jackpot in that game is roughly 1 in 302 million.

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With midterm elections now a week away but the outcome still not in focus, does it make sense to make portfolio adjustments now?
Probably not, say most financial advisors.
“Emotional decisions in regard to investing tend to not work very well,” said certified financial planner Shaun Melby, founder of Nashville, Tennessee-based Melby Wealth Management.

Voters file down the hall as early voting begins for the midterm elections at the Citizens Service Center in Columbus, Georgia, on Oct. 17, 2022.
Cheney Orr | Reuters

Investment advisers say it’s not wise to try to time the market, but it does make sense to periodically adjust your portfolio. So with the midterm elections now a week away but the outcome still not in focus, does it make sense to make those adjustments now?
Probably not, say most financial advisors.

“Investing based on political beliefs or what you think may happen politically is an emotional decision, and emotional decisions in regard to investing tend to not work very well,” said certified financial planner Shaun Melby, founder of Nashville, Tennessee-based Melby Wealth Management.
He points to the Point Bridge America First ETF fund, which trades under the symbol MAGA and was marketed as a way to invest in companies that align with Republican beliefs. From its inception in Sept. 7, 2017 through election night of Nov. 3, 2020, MAGA returned 6.85%, while, the S&P 500 ETF SPY returned 36.10% over the same time, according to Tradeweb.
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Election impact, policy outcomes are moving targets

There’s also uncertainty in the outcome. While the polling suggests that Democrats could lose control of Congress, polls are not elections. And even if you did predict the vote outcome, you still might end up being wrong about its impact. 
“Like many market events, you can be 100% correct on the timing or outcome, but wrong about how it impacts the stock market,” said Kevin J. Brady, a CFP and a New York-based vice president at Wealthspire Advisors.  “It’s not really that important what political party is in power so much is that there’s more predictable outcomes.”

Policy outcomes are also a moving target, which makes it challenging to invest based on what you think might happen.
“Policies are pretty difficult to get put into place, so you have generally pretty good lead time to deal with whatever those policies may be,” said Taylor Sutherland, senior wealth advisor with Halbert Hargrove, ranked No. 8 on CNBC’s 2022 FA 100 list.

“Policies often change right up until they are finished,” he added, pointing to President Joe Biden’s infrastructure bill, which started as a $3 trillion proposal but ended up at $1 trillion, with many changes in the details.
Financial advisors say it’s best to adjust your portfolio based on your financial goals and not on the outcome of any event. And it’s best to consider the overall economic outlook.
Sutherland says his firm adjusted portfolios in late 2021 into early 2022 as economic signals changed and inflation started to heat up. “Those signals indicated to us it was time to get defensive,” he said. “So we traded out of stocks and into cash for a portion of our client’s portfolio, and we’ve maintained that position all year.”

The market has a ‘very distinct’ midterms pattern

Historically, stocks tend to do better after midterm elections. In 17 of the 19 midterm elections held since 1946, stocks performed better in the six months after the election than they did in the six months prior. 
“If you look at the history of this, the market has a very distinct trading pattern in midterm election years, in which the first six to nine months tends to be very rocky,” said Philip Orlando, senior vice president and chief equity market strategist at Pittsburgh-based Federated Hermes.

The party that controls the White House typically loses seats. If we have a similar result this year and there is divided government, Orlando says the stock market could stage a 15% to 20% rally into spring. But there will be time to adjust after Nov. 8 and the outcome and economic outlook are more clear. 
“That may be an interesting time to start picking up some high-quality oversold growth stocks,” said Orlando.

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Some big name stocks took a beating last week, with Alphabet, Amazon, Meta and Microsoft shedding more than $350 billion from their market cap.
While exposure to those companies may be tough to avoid, experts say there are ways to make sure your portfolio is better diversified.

marekuliasz | iStock | Getty Images

Some big names suffered large stock losses last week as they reported earnings.
Four companies — Google parent Alphabet, Amazon, Facebook parent Meta and Microsoft — collectively shed more than $350 billion from their market cap, the measure of the total value of all of their shares of stock.

Apple was a bright spot, with its stock soaring on Friday after beating expectations.
Investors who are worried about the tech sector can take comfort in the fact the current shift is not the same as the bust of 2000, according to Raymond James chief investment officer Larry Adam.
A key difference is the companies in question now are more robust, with earnings and in some cases dividends they’re increasing, he said.
As some companies take a hit to their stocks, the biggest takeaway is not to overreact, Adam said.
But it would be wise for investors to watch their exposure.

The biggest names in the pure tech sector — Apple, Microsoft and Visa — make up more than 45% of earnings in that space, according to Adam.
Alphabet and Meta, which are technically in communication services, represent 53% of the earnings in that sector. Amazon is a big player in the consumer discretionary space.
“Tech is more dynamic than it used to be,” Adam said. “It’s in different components and sectors of the economy and the equity market.”
While investors may think they are diversified by owning different funds, they may actually have a lot of duplication across those holdings — and more tech exposure than they realize, said Ryan Viktorin, vice president and financial consultant at Fidelity Investments.
“It’s always about making sure you don’t end up in a lopsided portfolio,” Viktorin said. “You want to always go back to, ‘Am I diversified for the timeline that I have, for the risk tolerance that I have and for the goals I’m trying to achieve?'”
Here’s how to do that.

Assess your true portfolio risk

Thomas Barwick

Increased volatility has prompted many clients to ask, “Am I still ok?” said Viktorin, who is a certified financial planner.
“The most important thing about an allocation or portfolio is get to a place where you can stay invested no matter what,” she said.
Each investor’s true risk may vary based on their circumstances. For example, someone who works in tech is already taking on substantial risk outside of their portfolio because their income is dependent on the sector, Viktorin said.
Ideally, you should be in an allocation diversified enough so that you can withstand a recession and successfully come out the other side, she said.

Look for value

To buy and hold for the long-term, investors should design an allocation that allows them to do that, according to Mark Hebner, president of Index Fund Advisors, an Irvine, California-based firm which was No. 66 on the 2022 CNBC Financial Advisor 100 list.
To do that, Hebner said he prefers to underweight growth stocks in favor of equities that fall under the value category.
Growth stocks are typically companies with high ratios of market value to book value. While those stocks anticipate growth, value stocks tend to outperform, according to Hebner. Notably, tech stocks have surpassed value since the Financial Crisis, but there are signs a revaluation is underway.
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Since 1928, the return of U.S. growth stocks is 9.76% versus 12.6% for value stocks. Moreover, value stocks also outperformed growth in international and emerging markets.
“You want to design an allocation of stocks that give you exposure to small value in your allocation,” Hebner said.
Funds that offer that exposure to small value indexes, through Russell in the U.S. and MSCI internationally, can help with that, Hebner said. Fund providers to look to may include iShares, Vanguard and Dimensional Fund Advisors, he said.

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The U.S. Department of Education announced on Monday sweeping new changes to the federal student loan system, including additional consumer protections for borrowers and limits on the interest that accrue on the debt.
“Today is a monumental step forward in the Biden-Harris team’s efforts to fix a broken student loan system,” said U.S. Secretary of Education Miguel Cardona, in a statement.

Chip Somodevilla | Getty Images News | Getty Images

The U.S. Department of Education announced on Monday sweeping new changes to the federal student loan system, including additional consumer protections for borrowers and limits on the amount of interest that can accrue on the debt.
“Today is a monumental step forward in the Biden-Harris team’s efforts to fix a broken student loan system and build one that’s simpler, fairer, and more accountable to borrowers,” said U.S. Secretary of Education Miguel Cardona, in a statement.

The new regulations should make it easier for students who’ve been defrauded by their schools to get their student loans canceled by the government through the borrower defense process, and allows for the Education Department to come to a determination about these requests for relief as a group, instead of requiring each borrower to individually prove that they were sufficiently harmed or misled by their school.
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Under the rules, higher education institutions that accept federal student aid will be banned from requiring borrowers to sign mandatory pre-dispute arbitration agreements or to waive their ability to participate in a class-action lawsuit over their borrower defense claim.
The Biden administration will also curb the practice of interest capitalization — in which unpaid interest is added to the borrower’s principal.
The Public Service Loan Forgiveness Program, which allows public servants and those who work for certain nonprofits to get their debt canceled after a decade, will also get an overhaul. Months that previously didn’t qualify toward a borrowers’ debt relief, including those when they were in a economic hardship deferment, will be counted. Previously ineligible late payments will also now qualify.

These changes will go into effect on July 1, 2023.
Biden administration officials described these improvements as necessary and urgent to fix a system plagued by problems.
Before the coronavirus pandemic, when the U.S. economy was enjoying one of its healthiest periods in history, only about half of borrowers were in repayment. A quarter — or more than 10 million people — were in delinquency or default, and the rest had applied for temporary relief for struggling borrowers, including deferments or forbearances. These grim figures led to comparisons with the 2008 mortgage crisis.

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To fight inflation, the Federal Reserve is expected to announce its sixth interest rate increase of the year this week.
Here’s a breakdown of how that may impact mortgages, credit cards, car loans, student debt and savings.

This week, the Federal Reserve will likely raise rates for the sixth consecutive time to combat inflation, which is still running at its fastest pace in nearly 40 years. 
The U.S. central bank has already raised its benchmark short-term rate 3 percentage points since March, including three straight 0.75 percentage point increases ahead of its upcoming policy meeting. 

“The impact of what’s been done isn’t fully reflected yet,” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business and former chief economist of the Securities and Exchange Commission. “Inflation hasn’t come down much so far, in part because these policies take a while to kick in,” he said.
In the meantime, “the impacts on the consumer have created potentially difficult economic circumstances and are likely to get considerably worse as we get more of these rate hikes kicking in,” he added.
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The next rate hike, which is widely expect to be the fourth straight 0.75 percentage point increase, will correspond with another rise in the prime rate and immediately send financing costs higher for many types of consumer loans.
“The cumulative effect of rate hikes is what is really going to have an impact on the economy and household budgets,” said Greg McBride, Bankrate.com’s chief financial analyst.

In fact, borrowing is already substantially costlier for consumers across the board. 

What a rate hike means to you

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates consumers see every day.
From your credit card and car loan to mortgage rate, student debt and savings, here’s a breakdown of some of the major ways rate increases impact you:

1. Mortgages

Although 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.
Along with the Fed’s vow to stay tough on inflation, the average interest rate on the 30-year fixed-rate mortgage is now near 7%, according to the latest data from the Mortgage Bankers Association. 
“Rates resumed their record-setting climb,” said Sam Khater, Freddie Mac’s chief economist, “with the 30-year fixed-rate mortgage reaching its highest level since April of 2002.”
As a result, “demand has completely fallen off the table,” McBride added. “Affordability was strained already from the surge in home prices, when you layer on top of that this never-before-seen pace in mortgage rates it compounds the problem.”

The increase in mortgage rates since the start of 2022 has the same impact on affordability as a 35% increase in home prices, according to McBride’s analysis. “If you had been approved for a $300,000 mortgage in the beginning of the year, that’s the equivalent of less than $200,000 today.”

Adjustable-rate mortgages and home equity lines of credit are pegged to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.3% from 4.24% earlier in the year.

2. Credit cards

A shopper uses a credit card to pay for her items at a Wal-Mart Supercenter in Denver.
Matthew Staver | Bloomberg | Getty Images

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, as well, and credit card rates follow suit.
Annual percentage rates are “closing in on 19%,” on average, up from 16.3% at the beginning of the year, according to Bankrate.
Further, households are increasingly leaning on credit cards to afford basic necessities since incomes have not kept pace with inflation, McBride said, making it even harder for borrowers to get by.

If the Fed announces a 75 basis point hike as expected, consumers with credit card debt will spend an additional $5.1 billion on interest this year alone, according to a new analysis by WalletHub.

3. Auto loans
Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans, so if you are planning to buy a car, you’ll shell out more in the months ahead.
“Car loan rates are the highest in 11 years,” McBride said. The average interest rate on a five-year new car loan is currently 5.63%, up from 3.86% at the beginning of the year and could surpass 6% with the Fed’s next move, although consumers with higher credit scores may be able to secure better loan terms.
Still, it’s not the interest rate but the sticker price of the vehicle that’s causing an affordability crunch, McBride said. “It’s the $45,000 or $50,000 people are borrowing that’s the problem.”

Paying an annual percentage rate of 6% instead of 5% would cost consumers $1,348 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

4. Student loans

Kevin Dodge | The Image Bank | Getty Images

The interest rate on federal student loans taken out for the 2022-2023 academic year already rose to 4.99%, up from 3.73% last year and 2.75% in 2020-2021. It won’t budge until next summer: Congress sets the rate for federal student loans each May for the upcoming academic year based on the 10-year Treasury rate. That new rate goes into effect in July.
Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers are also paying more in interest. How much more, however, will vary with the benchmark.

Currently, average private student loan fixed rates can range from 3.22% to 14.96% and 2.52% to 12.99% for variable rates, according to Bankrate. As with auto loans, they vary widely based on your credit score.

Of course, anyone with existing education debt should see where they stand with federal student loan forgiveness.
5. Savings accounts
On the upside, the interest rates on some savings accounts are also higher after consecutive rate hikes.
While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which have been near rock bottom during most of the Covid pandemic, are currently up to 0.21%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 3.5%, much higher than the average rate from a traditional, brick-and-mortar bank, according to Bankrate.
As the central bank continues its rate-hiking cycle, these yields will continue to rise, as well. “We’ll see 4% before the beginning of the year,” McBride said.
Still, any money earning less than the rate of inflation loses purchasing power over time. 
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Stocks ended Friday on a positive note, but an uncertain week – with a Federal Reserve meeting – looms ahead.
The three major averages notched gains for Friday’s session and were higher on the week. Nevertheless, investors are likely watching the Federal Reserve’s upcoming policy meeting to see how the central bank will proceed on interest rate hikes. That means a market shake-up could be in store.

Investors need to look past short-term market developments and pick out stocks that can withstand these uncertain times. Here are five stocks picked out by the top Wall Street professionals, according to TipRanks, a platform that ranks analysts based on their track records.

Stride

Premier K-12 education services provider Stride (LRN) is a steady company that reported an earnings miss but beat revenue expectations in its most recent quarter. Moreover, the stock quietly entered the oversold territory (with the relative strength index falling below the 30 mark), which is a sign for investors to take interest in it.
Barrington Research analyst Alexander Paris analyzed the earnings performance and studied the outlook. The coming months have several headwinds tied to the broader economy, and the analyst reduced his 2022 estimates to reflect these. Nonetheless, Paris noted that although the company has given guidance on lower margins for the year, management still “believes it may be able to offset these expected declines during the year through ongoing efficiency efforts.”
Despite the near-term challenges, Stride assured investors that it is still on track to hit its long-term (FY25) financial goals set in 2020, and that is what led Paris to reiterate a buy rating on the stock, with a price target of $50. (See Stride Blogger Opinions & Sentiment on TipRanks)
Paris holds the 207th position among around 8,000 analysts tracked on TipRanks. With 56% profitable ratings, his convictions about Stride may be worth considering. Moreover, each of his ratings has garnered an average of 14.3% returns. 

Timken

Timken (TKR) develops, manufactures and markets bearings and power transmission products. Thanks to the strong demand in the industrial market, the company has been navigating through 2022 quite well, despite the supply-chain setbacks and rising costs.
Last week, Timken handily beat Wall Street expectations in its latest quarterly results, primarily driven by its process industries unit and complemented by lower corporate and interest expense. Oppenheimer analyst Bryan Blair reiterated a buy rating and $84 price target on the stock, citing several upsides.
“Combining Timken’s operational momentum, backlog position, solid end market reads, and improved price/cost, we like the team’s prospects of achieving revised 2022 EPS guidance and driving further earnings growth next year. TKR’s valuation should also prove supportive,” said Blair.
The analyst was also buoyed by a guidance lift for 2023, which reflects the positive trends going into next year. (See Timken Company Insider Trading Activity on TipRanks)
Blair, who has a No. 302 ranking out of about 8,000 analysts on TipRanks, has a 60% ratings success rate. Moreover, each of his ratings has brought 15.5% returns on average.

Texas Instruments

Semiconductor bellwether Texas Instruments (TXN) is another stock to take note of, despite its recent downbeat guidance for the final quarter of the year. Susquehanna analyst Christopher Rolland seems to agree.
The company’s quarterly results came in higher than estimates. Management expects most end-markets (except auto) to decline sequentially in the fourth quarter, as “weakness has spread beyond Personal Electronics to affect Industrial, which to date has been resilient.” (See Texas Instruments Dividend Date & History on TipRanks)
While this may sound worrying at first, Rolland said that TXN stock is a great long-term investment, as its durable competitive edge, which has been gained through scale, far outweighs the near-term challenges.
“This scale advantage helps provide unmatched analog product breadth (a catalog of 100k parts), comprehensive service and sales support, and manufacturing prowess,” said Rolland.
Rolland, who stands at No. 62 among more than 8,000 analysts tracked on TipRanks, reduced the price target on the stock to $195 from $215, but stayed put on his buy rating on Texas Instruments. The analyst had 63% success in his ratings in the past year, with each rating bringing 19.8% average returns.

Juniper Networks

Juniper Networks (JNPR), provider of products and services for high-performance networks, recently delivered strong quarterly results and a solid outlook. The company’s pipeline of deals remains strong even through the challenges of the economy this year.
Going by what Needham analyst Alex Henderson has to say about Juniper, the stock is a resounding buy.
“Juniper delivered a strong quarter, offered a healthy, yet still Supply-constrained guide and noted confidence in its near, intermediate, and long term prospects,” said the analyst. (See Juniper Networks Stock Chart & Stock Technical Analysis on TipRanks)
Henderson said that the solid backlog provides a strong upside to Juniper’s revenue growth over the next two to three years. The analyst thinks a 10% revenue growth is possible through this timeframe.
Henderson also cites “strong cash flow, improving product line, and expansion into the Cloud and Enterprise markets over time” as upsides that can aid stock appreciation and boost the financial health of the company.
Henderson is ranked No. 144 among over 8,000 analysts followed on TipRanks. He has a 55% success rate and average returns of 17.3% per rating.

F5

Application delivery and security solutions provider F5 (FFIV) is another of Henderson’s favorite stocks for the season. The company beat top and bottom line estimates for its fiscal fourth quarter recently, despite a significant slowdown in software revenues.
The only matter Henderson is slightly concerned about is the revenue mix, which the analyst thinks is unfavorable. However, with management guiding 9% to 11% revenue growth for fiscal year 23, Henderson was prompted to raise his revenue and earnings per share estimates. (See F5 Networks Hedge Fund Trading Activity on TipRanks)
On the other hand, F5’s software business stands fragile right now and recovery is uncertain in the near-term. This issue prompted the analyst to lower the price target to $200 from $303. Nonetheless, Henderson maintained his buy rating, reflecting his long-term bullishness on the FFIV stock.
“FFIV offers a strong blend of accelerating Revenue growth, expanding GM and Operating Margin, Strong Balance Sheet with $9.05/share in Cash, over $1.2 billion worth of share repurchases authorized and free cash flow generation. We expect the positives to support a rising multiple as the stock increasingly becomes a play on Kubernetes, modern application workloads, and Security,” said Henderson.

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Supplemental Security Income was signed into law by President Richard Nixon in 1972.
Today, a lack of updates to the program leave many elderly, blind and disabled beneficiaries struggling with low incomes and little flexibility.
Now, a congressional proposal seeks to update one of the program’s key restrictions.

Fg Trade | E+ | Getty Images

A key federal program providing benefits to elderly, blind and disabled people — Supplemental Security Income — is turning 50 years old.
The program, which currently serves nearly 8 million beneficiaries, was created by legislation signed by President Richard Nixon on Oct. 30, 1972.

But even as Supplemental Security Income — called SSI for short — provides crucial income for adults and children with disabilities and elderly individuals, its benefits and requirements have gone decades without major updates.
“As we mark 50 years of this bedrock program, it’s a bittersweet anniversary to celebrate because SSI has been left to wither on the vine for nearly as long as it’s been around,” Rebecca Vallas, senior fellow and co-director of The Century Foundation’s Disability Economic Justice Collaborative, said during a recent webinar hosted by the progressive think tank.
What’s more, SSI’s eligibility criteria “have become extraordinarily restrictive, punitive, counterproductive and even outright inhumane,” Vallas said.
The outdated rules have caught the attention of certain Washington policymakers.
“We know that Washington neglected this program for too long,” Sen. Sherrod Brown, D-Ohio, said during the webcast. “We know how much needs to be done to bring SSI into the 21st century.”

SSI beneficiaries can have ‘basically no savings’

Audrey Saracco / EyeEm

Supplemental Security Income benefits were designed for people who are “subject to great inequities and considerable red tape inherent in the present system,” Nixon said at the signing of the 1972 legislation.
The first benefits were sent in 1974. The average payment was $117 per month.
Today, the size of the payments is a maximum of $841 per month for individuals and $1,261 for married couples. A record 8.7% cost-of-living adjustment for 2023 will push those totals up to $914 per month for individuals and $1,371 for couples.
Still, experts were hard-pressed to give the program a passing grade during the Century Foundation’s recent webcast, because about half of beneficiaries live in poverty, while key rules for the program have remained unchanged for decades.
That includes a $2,000 asset limit for individuals ($3,000 for couples) that has not been updated since the 1980s. The rule applies to assets held in bank accounts or anywhere else. Consequently, the program’s beneficiaries can have “basically no savings” in order to maintain their eligibility, according to Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities.
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Other outdated rules also hold the program’s beneficiaries back, experts say.
Those covered under the program are limited to how much income they can earn. The first $65 earned in a month does not count. However, for every $2 earned over that threshold, SSI benefits are reduced by $1.
There also is a marriage penalty for couples including two SSI beneficiaries. Together, they receive less money per month than if they claimed individually. Moreover, their asset limit is $3,000, compared to the $2,000 each if they claimed individually.
In addition, beneficiaries are limited to how much help they can accept from friends or family, including groceries or shelter.

Proposal takes on ‘biggest hurdle’

The rules are not only burdensome for individuals and families who rely on the program, but also expensive for the Social Security Administration to manage.
SSI represents about 80% of the administrative costs for the Social Security Administration, due in part to the means testing the program requires, noted Will Raderman, employment policy analyst at the Niskanen Center.
That’s despite the fact the population served by Social Security is eight times the size of SSI. (To be sure, some beneficiaries receive both Social Security and SSI, though their benefits are reduced for doing so.)
Some lawmakers on Capitol Hill are making a bipartisan push to update the asset limits. A bipartisan bill — the SSI Savings Penalty Elimination Act — seeks to raise the asset limits to $10,000 for individuals and $20,000 for couples, and also index them to inflation.

The proposal put forward by Brown and fellow Ohio Sen. Rob Portman, a Republican, marks the first bipartisan bill to update the program in more than 30 years.
The change would make it so beneficiaries can save money in case of an unforeseen car repair, medical bill or other unforeseen expenses.
It would be one step toward updating the program, which also has a long application process and outdated income requirements that make the program “unnecessarily and unfairly difficult,” said Sen. Ron Wyden, D-Ore., chair of the Senate Finance Committee.
“We know our work is far from over,” Wyden said.
For Dyveke Cox of Martinsville, Indiana, whose 21-year-old daughter relies on SSI, the change would be “definitely an improvement.”
“For us, the asset limits are the biggest hurdle or constant struggle we have with the program,” Cox said.
In the rural area where they live, $2,000 doesn’t leave enough room to have a reliable car and savings in the bank, she said. The rules also do not help her desire to teach her daughter to be financially responsible.
“No parent is going to tell their child, ‘If you’ve got [$2,000] in the bank, you’re good to go,'” Cox said.

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Company: Vertiv Holdings (VRT)

Business: Vertiv designs, manufactures and services critical digital infrastructure technologies and life cycle services for data centers, communication networks, and commercial and industrial environments. The company went public through a SPAC merger in the first quarter of 2020 with GS Acquisition Holdings, a SPAC co-sponsored by an affiliate of The Goldman Sachs Group and David M. Cote, CEO of GSAH and former executive chairman of the board and CEO of Honeywell. Cote currently serves as the Vertiv’s executive chairman.
Stock Market Value: $5.6B ($14.96 per share)

Activist: Starboard Value

Percentage Ownership: 7.38%
Average Cost: $11.21
Activist Commentary: Starboard is a very successful activist investor and has extensive experience helping companies focus on operational efficiency and margin improvement. Starboard has made 107 prior 13D filings and has an average return of 26.35% versus 10.82% for the S&P 500 over the same period. Only ten of these 13D filings were on companies in the industrials sector, but in those ten 13Ds, Starboard has a return of 52.55% versus 1.14% for the S&P 500 over the same period.

What’s Happening?

Behind the Scenes

Starboard sees Vertiv as a great business in a solid industry with secular tailwinds – more data is being generated every day requiring more data centers. It’s also somewhat recession proof – consumers still need to cool their data centers in recessionary environments. Vertiv is a market leader in data center equipment and services and has a leading market position in thermal and services, which are critical for compute-intensive and hyperscale data centers.

Vertiv is a collection of businesses put together by Emerson Power over many years and rebranded as Vertiv and sold to Platinum Equity in 2016 for $4 billion. Platinum Equity had a 5-year plan to fix up the company and either take it public or sell to a strategic buyer. However, during that time SPAC-mania hit the markets, and Platinum Equity took advantage by taking it public through a SPAC in the first quarter of 2020 for a $5 billion enterprise value.
After going public, Vertiv delivered solid results, which allowed management to continue to focus on revenue growth, rather than operating margins. As inflation started to rise and costs increased, the company’s peers raised prices, but Vertiv did not. This led to the company drastically missing earnings expectations in the fourth quarter of 2021, taking the stock down nearly 37% in one day. By that time, Platinum Equity had sold its 36% position down to 10.8%. Possibly the best thing to come out of the SPAC transaction is that former Honeywell chairman and CEO Dave Cote was made executive chairman of Vertiv, and he was now promising shareholders increased involvement and complete oversight of the company’s operations.
Cote has a well-founded reputation as a great operator who is focused on operational efficiency and margins over growth. He created significant value as CEO of Honeywell where he transformed margins and is a proven operator. CEO Rob Johnson had been focused on growth over operational execution leading to an operating margin of 8% to 9% versus peers like Schneider Electric and Eaton Corp. at 20%. On Oct. 3, Vertiv announced that Johnson would step down as CEO as of Dec. 31, and be replaced by Giordano Albertazzi, who currently serves as president, Americas at the company. This is obviously a decision of a board chaired by Cote, and we would expect that Albertazzi would be focused more on operational efficiency like Cote.
This is a typical situation for Starboard: a private company CEO running a public company like a private company leading to underperforming operating margins. In a case like this, Starboard would historically come in, get board seats and help find the right CEO to focus on operations with the firm supporting and overseeing management from a board level. But a lot of that has already been done here: The underperforming CEO has been removed, a more operationally focused CEO has been appointed and there is an all-star chairman at the helm – the exact type of chairman that Starboard historically would hope to nominate. Accordingly, we do not expect this to be a confrontational engagement for Starboard.
Both Starboard and Vertiv seem to be on the same page. Having said this, we would expect that Starboard would want some level of board representation to oversee margin improvements, and if management is familiar with Starboard’s history, they should welcome them onto the board. Starboard will likely work constructively with management to close the margin gap either as an active shareholder or as a director invited on to the board. If Vertiv does not extend an invitation and operating margins do not look like they are going in the right direction by March 2023 when the director nomination window closes, we can see Starboard making nominations, but we do not expect it to come to that.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies.

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