Investing

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

In tumultuous markets, investors can turn to dividend-paying stocks that offer income and can help cushion a portfolio in tough times.
Given the massive universe of dividend-paying companies, selecting the right stocks can be a difficult task. To that end, investors can track the recommendations of Wall Street experts, who conduct a thorough analysis of a company’s earnings growth potential and dividend history.    

Here are three attractive dividend stocks, according to Wall Street’s top pros on TipRanks, a platform that ranks analysts based on their past performance.

IBM

This week’s first dividend pick is tech giant IBM (IBM), which announced mixed first-quarter results. The company’s earnings exceeded expectations while revenue missed estimates amid an uncertain macro backdrop. Also, IBM announced a $6.4 billion acquisition of cloud software maker HashiCorp.
IBM paid dividends of $1.5 billion in the first quarter. The company generated free cash flow of $1.9 billion in Q1 2024 and expects to deliver free cash flow of about $12 billion in the full year. IBM’s yield stands at about 4%.  
Recently, Evercore analyst Amit Daryanani reiterated a buy rating on IBM stock with a price target of $215. The analyst is positive about the company’s growth levers and expects it to benefit from several tailwinds, including generative artificial intelligence and the acceleration of consulting revenue.
“IBM sounded confident on their ability to see revenues accelerate in H2 on the consulting side from the 2% growth in Q1,” said Daryanani.

While the consulting business in Q1 2024 was hit by the impact of macro challenges on discretionary spending, the analyst noted that there are many catalysts that hint at increased growth going forward. These catalysts include generative AI ramps, backlog conversion and M&A contribution in the second half of 2024 from previously announced deals. Daryanani is also optimistic about durable growth in the mainframe business.
Daryanani ranks No. 243 among more than 8,800 analysts tracked by TipRanks. His ratings have been profitable 59% of the time, delivering an average return of 13.2%. (See IBM Stock Buybacks on TipRanks)

Hasbro

We move to toymaker Hasbro (HAS). In April, the company reported better-than-expected first-quarter earnings, thanks to its turnaround efforts. Hasbro paid dividends worth $97.2 million in Q1 2024. HAS offers a dividend yield of 4.7%.
Following meetings with Hasbro’s management at JPMorgan’s 52nd Annual TMC Conference, JPM analyst Christopher Horvers upgraded HAS stock to buy from hold while increasing the price target to $74 from $61.
The analyst stated that his estimates for Hasbro are higher than the consensus forecasts, as the Street is underestimating the company’s cost efficiency efforts and digital gaming prospects, both of which should be felt in the second half of 2024 and the first half of 2025.
Despite a shortened holiday season, Horvers is optimistic about the industry experiencing improved growth in 2024 due to recovery in low ticket and short replacement cycle product categories.
“HAS is specifically positioned better in 2H24 given the shift of Transformers to 3Q from 2Q and early benefits from improved merchandising (newness and process improvements under new management),” said the analyst.
Horvers ranks No. 769 among more than 8,800 analysts tracked by TipRanks. His ratings have been successful 60% of the time, delivering an average return of 7.2%. (See Hasbro Technical Analysis on TipRanks)

Target

Finally, let’s look at big-box retailer Target (TGT). In the first quarter of 2024, Target paid $508 million in dividends to shareholders. TGT offers a dividend yield of 2.8%.
Commenting on Target’s first-quarter results, Baird analyst Peter Benedict noted that the company slightly missed analysts’ earnings per share expectations, as higher operating expenses offset increases in gross margin.
Benedict thinks that the post-earnings selloff in TGT stock due to lower-than-expected earnings and price cuts announced by the company seems overdone. He contends that an incremental investment in value and affordability via low pricing was always a part of Target’s strategy for fiscal 2024. The analyst added that the company’s inventory continues to be in good shape.      
In particular, Benedict thinks that management’s aim to restore positive comparable sales growth seems achievable in the fiscal second quarter due to easier comparisons with the prior-year period.
The analyst also thinks that the company “continues to plan prudently given the value-conscious spending environment.”
Overall, Benedict thinks that the risk/reward profile of TGT stock looks compelling. The analyst reiterated a buy rating on Target with a price target of $190.
Benedict ranks No. 77 among more than 8,800 analysts tracked by TipRanks. His ratings have been profitable 68% of the time, delivering an average return of 15.1%. (See Target Insider Trading Activity on TipRanks) More

The National Oceanic and Atmospheric Administration predicts an 85% chance of “above-normal” hurricane activity in 2024.
NOAA forecasts four to seven major hurricanes — Category 3, 4 or 5 — with winds of 111 mph or higher.
Here are ways you can help prevent devastating storm damage to your home.

Hurricane Irma strikes Miami, Florida, in 2017.
Warren Faidley | Getty Images

Hurricane season has officially begun.
With scientists predicting yet another active year for storms, making your home hurricane resistant has become a more valuable precaution.

The National Oceanic and Atmospheric Administration said in its forecast May 23 that it expects an 85% chance of “above-normal” activity this hurricane season, which spans from June 1 to Nov. 30.
NOAA forecasts 17 to 25 total named storms with winds of 39 mph or higher. Eight to 13 are expected to spiral into hurricanes, and four to seven of those might turn into major hurricanes — Category 3, 4 or 5 — with winds reaching 111 mph or higher.
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“Severe weather and emergencies can happen at any moment, which is why individuals and communities need to be prepared today,” Erik A. Hooks, deputy administrator at the Federal Emergency Management Agency, said in a statement released with the NOAA forecast.
“Already, we are seeing storms move across the country that can bring additional hazards like tornadoes, flooding and hail,” he said. “Taking a proactive approach to our increasingly challenging climate landscape today can make a difference in how people can recover tomorrow.”

How climate change may affect storm activity and damage

Hurricanes are among the most expensive natural disasters in the U.S., and experts say the storm-related damage is likely to become more significant as storms become more severe.
NOAA said “near-record warm ocean temperatures in the Atlantic Ocean” are expected to be among the factors creating the environment for tropical storm formation.
A separate forecast from hurricane researchers at Colorado State University predicts an “extremely active” hurricane season in 2024 due to record-warm tropical and eastern subtropical Atlantic sea surface temperatures.
The water temperatures across the tropical Atlantic in 2024 on average are about 1 degree Celsius, or 1.5 to 2 degrees Fahrenheit, warmer than normal. While it doesn’t sound like much, it’s a big difference, said Phil Klotzbach, a senior research scientist at the Department of Atmospheric Science of Colorado State University.
“The tropical Atlantic right now is record warm,” he said. “That means more fuel for the storms that are trying to form.”

Now’s the time to prepare and have a plan in place.

Phil Klotzbach
a senior research scientist at the Department of Atmospheric Science of Colorado State University

While atmospheric and water conditions may change, it’s wise for residents of storm-prone areas to think about undertaking home projects sooner rather than later.
“Now’s the time to prepare and have a plan in place,” Klotzbach said. “You don’t want to be making these preparations at the last minute.”
Some of the projected effects of global warming on hurricane activity include sea level rise increasing coastal flooding, higher rainfall rates, and storms that are more intense and strengthen rapidly, according to a research overview from NOAA’s Geophysical Fluid Dynamics Laboratory.
“Warmer sea surface temperatures intensify tropical storm wind speeds, giving them the potential to deliver more damage if they make landfall,” wrote the Center for Climate and Energy Solutions, a think tank.
Projections from reinsurer Swiss Re show that since the 1970s, hurricane residential loss expectations have been on the rise, in part due to an increase in hurricane activity and changes in property value from population growth. Improvements in building standards have offset some of that increase, however.

Wind resistance is about preventing ‘pressurization’

Upgrades could help consumers protect their home, typically one of their most valuable assets, from windstorms and other natural disasters.
Making your home hurricane resistant can be a significant financial undertaking. But it’s one that has the potential to pay off as such storms become more intense due to climate change.
In 2024, the national average cost to upgrade an entire house with hurricane windows runs between $1,128 and $10,293, or $100 and $500 per window, including installation, according to home improvement site This Old House. And that’s just one project.
About $8.1 billion could be saved annually in physical damage from windstorms if homes had stronger connections between roofs and walls, or tighter nail spacing, according to a 2022 analysis on hurricane-resistant construction by the Massachusetts Institute of Technology.
Part of the challenge of making home improvements with windstorms in mind is that hurricanes are different and unpredictable, said Jeff Ostrowski, a housing analyst at Bankrate.
“You don’t know if you’re going to be dealing with storm surge, or high winds or heavy rains. You’re trying to prepare for all those things at once,” he said.

It’s like a balloon that blows up, and when it blows up so much … it pops. That’s what happens to your house when the wind comes in. 

Leslie Chapman-Henderson
president and chief executive officer of the nonprofit Federal Alliance for Safe Homes

There are two key elements in your home to help prevent wind-related damage in a hurricane, according to Leslie Chapman-Henderson, president and chief executive officer of the nonprofit Federal Alliance for Safe Homes, or FLASH. You want to:

Make sure the structural strength between the roof and the wall can withstand wind pressure and impact of debris.
Protect all the openings in your home: the doors, windows and the garage.

“What we’re working to prevent is pressurization. It’s like a balloon that blows up, and when it blows up so much … it pops,” she said. “That’s what happens to your house when the wind comes in.” 

Ways to make your home more hurricane resistant

1. Have an inspector assess your house
Having an inspector come out to see your house is a good starting point for your projects. They will provide a report of what areas in your home need to be redone or reinforced against harsh weather.
2. Reinforce your roof
The average cost to replace a roof in the U.S. is about $10,000, but the exact cost will depend on multiple factors, such as the size of your roof, according to the Department of Energy.
Fortified, a nonprofit reroofing program that helps strengthen homes against severe weather, offers guidelines to homeowners planning to replace their roofs on how to withstand challenges in their area, said Jennifer Languell, president and founder of Trifecta Construction Solutions, a sustainable consulting firm in Florida.
“It tells you what you need to do to make your roof more sturdy,” she said.
If you’re not ready to completely reroof your house, adding caulk or an adhesive to strengthen the soffits — the material connecting the roof edge to the exterior walls — will reduce the probability of wind and water gushing into your attic in a storm, said Chapman-Henderson of FLASH. Repair jobs for the soffit and fascia, a horizontal board usually outside the soffit, can cost between $600 and $6,000, according to Angi.com.
Securing the roof to the walls in an existing home with an attic can be done by installing metal clips or straps that strengthen the hold-down effect, she said. While the exact cost will depend on factors such as the size of your home and the scale of the project, such retrofitting costs span from $850 to $1,350, according to Kin, a home insurance company.

You can do all this stuff in terms of hardening the house, but you’re still kind of at the mercy of whatever storm comes.

Jeff Ostrowski
housing analyst at Bankrate

3. Secure your windows and doors
“Do you have hurricane-impact windows? If not, can you put them in?” said Melissa Cohn, regional vice president of William Raveis Mortgage.
If installing new hurricane windows isn’t in the budget, shutters are lower-cost options to protect windows and other openings, said Chapman-Henderson.
Shutters vary by material, installation and price. Removable galvanized storm panels made of steel are $5 to $6 per square foot, making them the most affordable option, according to information compiled by FLASH.
It may be worth installing shutters as an extra layer of protection, even with impact-proof windows, said Trifecta Construction Solutions’ Languell.
Meanwhile, garage doors are the “largest and weakest opening,” said Chapman-Henderson. Replacing the entire garage door for a wind-rated or impact-resistant version can span from $2,000 to $9,000, according to FLASH.
Emergency bracings can be a lower-cost solution: temporary 2-by-4 wood braces can reinforce your nonwind-resistant door for approximately $150 for materials and installation. A garage door storm kit can run up to $750, FLASH data found.
“You can do all this stuff in terms of hardening the house, but you’re still kind of at the mercy of whatever storm comes,” said Bankrate’s Ostrowski.
4. Talk to your insurer about possible discounts
Strengthening your home against disasters may help lower your insurance cost.
Insurers typically factor in natural-disaster risks when deciding what properties to underwrite and at what cost. That’s why some are pulling back in high-risk areas, or raising prices significantly.
Insurance costs also tend to be higher for existing homes than newly built ones, because many older homes were constructed under less stringent building codes.

Once you have an inspector visit your house and recommend projects to make your home more hurricane resistant, talk to your insurance agent about which suggestions are most likely to reduce your premium, Ostrowski said.
Keep in mind that each state is different in terms of what premium reductions are available and to what extent, and it depends on the risks, the company’s exposure and the regulatory environment, said Loretta Worters, a spokeswoman for the Insurance Information Institute.
Homeowners’ insurance premium rates are based on measurable risk, and while mitigation efforts might help reduce the risk, the scientific measurement of catastrophe risk and mitigation efforts is still evolving, she said.
“All analysis of premium pricing related to mitigation efforts is a question of degree of risk, and not removal of risk entirely from the policy,” Worters said.

Grants, financing can help mitigate costs

If the cost of preparing your home against hurricanes is daunting, there may be grants, tax credits and other programs to help lessen the burden.
Some states have set up matching grant programs for disaster retrofits, said Chapman-Henderson.
In Florida, residents may be eligible to apply for grants up to a $10,000 dollar-for-dollar match for approved upgrades such as shutters, roofing, or strengthening a garage door or roof-to-wall connections, she said. There are similar programs in Alabama and Louisiana.
To find out more, homeowners can search for loans, grants or tax credits available in their state through dsireusa.org, which lists all the funding opportunities and incentives for hardening your home against disasters, Languell said.

For people with poor credit or who live in states that don’t have matching-dollar programs, Property Assessed Clean Energy programs allow a homeowner to finance upfront costs of eligible improvements on a property and pay the costs over time through the property tax bill, said Chapman-Henderson.
Energy-efficient mortgages, also referred to as green mortgages, may also be worth exploring. These loans are meant to help homeowners finance eco-friendly home upgrades or outright buy homes that help reduce energy consumption and lower utility bills, although they often have strict loan limits and require additional information during your application, according to LendingTree.
Depending on your hurricane-resistance project, that might be a fit: Sometimes, energy efficiency goes hand-in-hand with durability, Languell said.
“Sealing the underside of your roof sheathing would also help you from an energy standpoint because it’s sealing all the cracks and crevices,” she said, as this repair both keeps your roof on your house and helps avoid water or air leaks.
The same goes for window replacements: “If you are going to replace your windows from a single-pane window to an impact window that has a better energy performance, it’s saving you on energy,” Languell said.
In this new series, CNBC will examine what climate change means for your money, from retirement savings to insurance costs to career outlook. More

The Texas Instruments Inc. logo is seen on scientific calculator packages in Tiskilwa, Illinois.
Daniel Acker | Bloomberg | Getty Images

Company: Texas Instruments (TXN)

Business: Texas Instruments is a global semiconductor company. The company designs, manufactures, tests and sells analog and embedded processing chips for markets, including industrial, automotive and personal electronics. Texas Instruments’ segments include Analog and Embedded Processing. Analog’s product lines include Power and Signal Chain. Power includes products that help customers manage power in electronic systems. Signal Chain includes products that sense, condition and measure real-world signals to allow information to be transferred or converted for further processing and control. The Embedded Processing segment includes microcontrollers, digital signal processors and applications processors. Texas Instruments also offers DLP products, which are primarily used to project high-definition images, as well as calculators and certain custom semiconductors known as application-specific integrated circuits.
Stock Market Value: $177.55B ($195.01 per share)

Stock chart icon

Texas Instruments’ 2024 performance

Activist: Elliott Investment Management

Percentage Ownership:  1.4%
Average Cost: n/a
Activist Commentary: Elliott is a very successful and astute activist investor. The firm’s team includes analysts from leading tech private equity firms, engineers, operating partners – former technology CEOs and COOs. When evaluating an investment, the firm also hires specialty and general management consultants, expert cost analysts and industry specialists. Elliott often watches companies for many years before investing and has an extensive stable of impressive board candidates. The firm has historically focused on strategic activism in the technology sector and has been very successful with that tactic. Over the past several years, its activism group has grown. The firm has been doing a lot more governance-oriented activism, creating value from a board level at a much larger breadth of companies.

What’s happening

On May 28, Elliott announced that it has taken a $2.5 billion position in Texas Instruments. It is calling on the company to adopt a dynamic capacity-management strategy and introduce a free cash flow per share target of $9.00+ in 2026.

Behind the scenes

Texas Instruments is one of the most iconic semiconductor companies in the world, with a history dating back nearly a century. It was a pioneering company that invented numerous pillars of modern technology, including the integrated circuit in 1958, the handheld electronic calculator in 1967 and the digital signal processor in 1978. Today, Texas Instruments offers approximately 80,000 unique products in support of more than 100,000 customers with a portfolio of analog and embedded semiconductor offerings. The company positioned itself as a strategic and operational leader following decades of thoughtful strategic decisions and focusing on high-performance analog, one of the stickiest and highest-margin markets in semiconductors. 

Over the years, Texas Instruments has differentiated itself with a commitment to manufacturing as a core competitive advantage. It was the first analog semiconductor company to invest in 300-mm wafer production technology more than 15 years ago, which gave them a 40% cost-per-chip advantage relative to legacy 200-mm production. Today, Texas Instruments sources 80% of wafers internally, of which 40% are cost-advantaged 300-mm wafers. This investment in 300-mm technology resulted in gross margin expansion from 54% in 2010 to 63% in 2023. Additionally, the company has the world’s biggest footprint of geopolitically dependable 300-mm analog manufacturing capacity, with 47% of global capacity outside of China and Taiwan and 85% of capacity in the U.S.
Even though Texas Instruments has the No. 1 position in analog semiconductors, 74% exposure to the most attractive end markets (automotive and industrial), software-like margins (approximately 60% gross margins and approximately 40% operating margins), geopolitical security and company-owned manufacturing capacity, it has significantly underperformed peers in recent years.
Elliott points the finger at the one metric that Texas Instruments has focused on for years as the best indicator of value and management performance – free cash flow per share.
Elliott points out that the company’s history supports this core principle: It grew free cash flow per share at an annual rate of 17% from 2006 to 2019 while the stock generated a roughly 440% total return, outperforming the S&P 500 by about 200% and analog semiconductor peers by around 135% during the period.
During this time, prior to 2021, Texas Instruments spent an average of about $650 million per year in capex over the preceding decade, representing 5% of revenue. Then, the firm spent $2.5+ billion per year in 2021 and 2022. In 2022, the company announced that it would expand its manufacturing capacity with a plan that ultimately called for six new 300-mm fabrication facilities in the U.S. This plan calls for spending $5 billion per year through 2026 and several billion dollars annually thereafter, equating to 23% of revenue, and would nearly triple Texas Instruments’ internal manufacturing capacity by 2030. What did this do to free cash flow per share? Last year, the company generated only $1.47 per share in free cash flow – 77% lower than the prior year and 76% lower than five years ago. It’s also below the free cash flow per share generated at the depths of the 2008-2009 financial crisis, when Texas Instruments’ revenue was 40% below what it is today. 
Elliott does not have a problem with the company increasing capex to accommodate future growth and the 2022 plan, when announced, was not necessarily wrong. However, in 2022, consensus expectations for 2026 revenue were $26 billion. Today, expectations have declined by 24% to $20 billion, which has Texas Instruments now spending billions of dollars to build to a 50% excess capacity. Elliott is asking for the company to do what it had done for years and what the industry does and what economic logic dictates – to modulate capex spend based on demand. Elliott does not even take credit for this plan; the firm uses the company’s own history as a blueprint. In 2003, Texas Instruments chose a site in Richardson, Texas to build the world’s first 300-mm analog fab, known as RFAB 1, in the midst of a semiconductor industry downturn. The company said that it would initially build the facility’s shell and then gradually outfit the facility with equipment in accordance with customer demand, as the equipment is 80% of the cost of the plant and a shell building could be fully equipped within six months to meet demand. RFAB 1 largely sat dormant for the next roughly five years and shipped its first products for revenue from in 2010, with Texas Instruments’ management frequently saying that RFAB “will ramp up consistent with demand.”
Elliott suggests that the company adopt a dynamic capacity-management strategy and introduce a free cash flow per share target of $9.00+ in 2026, representing a level that is about 40% above current investor expectations. The firm thinks that a commitment to prudent capital discipline will restore investors’ confidence, while providing Texas Instruments with flexibility to achieve this target through a combination of strong organic growth, market share gains and sensible capacity management. Elliott is not asking the company to cut 2024 or 2025 capex. The firm simply recommends that the company decrease 2026 capex to $2.75 billion if there is no increase in consensus revenue projections or keep it at $5.0 billion if Texas Instruments can increase its market share by 250 basis points. In either case, Elliott thinks the company can achieve $9.01 of free cash flow per share.
The company’s capex plan has decimated free cash flow per share and is building to a 50% excess capacity. Elliott’s plan restores the free cash flow per share growth and still builds to a 30% or 39% excess capacity. The company might argue that Elliott is being a “short-term minded activist,” but Elliott’s plan creates short-term value without sacrificing any long-term opportunities or value. It arguably creates more long-term value than the company’s plan. Texas Instruments’ performance and capex plan is exacerbated by its poor market communication. Free cash flow is down 77% due to an aggressive capex plan, and the company has not publicly laid out a detailed plan or made a case as to why they need 50% excess capacity.
This is such an easy ask, one has to wonder why Elliott has not worked this out with management before having to resort to a public letter. The firm supports the company’s strategy. It supports management, and it supports capex for 2024 and 2025, but there is no evidence that Elliott requested a meeting with management prior to sending this letter. Sometimes the process is as important as the content, and Elliott would have a much better chance of persuading management had it approached the company privately.
A proxy fight at a company like this would be a Herculean task for any activist, but if there is any activist with the resources and conviction to do it, it is Elliott. Given the firm’s reasonable ask and its support for management outside of this one inexplicable capex decision, we would expect this to settle amicably. We do not see Elliott getting one of their people on this board, but it could use some independent industry executives. Elliott does not go into a situation like this without a Rolodex of industry professionals with whom it consults and who would be available for board duty. If the company thinks it can ignore Elliott, it would be mistaken. But if Texas Instruments needs any additional evidence of Elliott’s conviction outside of the firm’s history, Elliott has built a $2.5 billion position here, which is big by even the firm’s standards.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. More

Roth individual retirement accounts offer tax-free growth and other benefits, but some investors earn too much for direct contributions.
Higher earners can bypass the income limits with mega backdoor Roth conversions, which shift after-tax 401(k) contributions to a Roth account.
However, you need to understand plan restrictions and other rules first.

Getty Images

If you’re a higher earner and looking to boost tax-free retirement savings, there’s a lesser-known strategy that could be worth considering.
While Roth individual retirement accounts offer tax-free growth and other benefits, some investors earn too much for direct contributions. For 2024, the adjusted gross income limits for Roth IRA contributions are $161,000 for single filers or $240,000 for married couples filing jointly.

However, so-called mega backdoor Roth conversions — which shift after-tax 401(k) contributions to a Roth account — can sidestep Roth IRA income limits for contributions.
It’s a “no-brainer” after maximizing other tax-advantaged options, assuming you don’t need the cash for other goals, said certified financial planner Brian Schmehil, managing director of wealth management at The Mather Group in Chicago.  
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A mega backdoor Roth conversion makes sense for higher earners who otherwise would have invested their extra money in a brokerage account, which is subject to yearly taxes on capital gains and dividend distributions, Schmehil said.

How mega backdoor Roth conversions work

Generally, mega backdoor Roth conversions are for investors who have already maxed out their pretax 401(k), according to CFP Ashton Lawrence, director at Mariner Wealth Advisors in Greenville, South Carolina. 

For 2024, the pretax or Roth 401(k) deferral limit is $23,000, plus an extra $7,500 for savers aged 50 and older.
Some employees can make after-tax 401(k) contributions above the yearly deferral limits and transfer those funds to a Roth account to kickstart tax-free growth. The max 401(k) limit is $69,000 for 2024, which includes deferrals, employer matches, profit sharing and other deposits.
“It can be huge for a high-income earner,” Lawrence said.
However, not all 401(k) plans allow this strategy. At the end of 2023, only about 11% of 401(k) plans permitted mega backdoor Roth conversions, according to data from Fidelity Investments.
Before making after-tax contributions, experts recommend reviewing your 401(k) documents to understand your plan’s features and restrictions.
While you won’t owe taxes on converted after-tax contributions, there could be levies on growth.

Watch for taxes on after-tax growth

One of the differences between Roth and after-tax 401(k) contributions is the tax treatment of growth. While Roth contributions grow tax-free, after-tax investments are tax-deferred, which means you’ll owe regular income taxes on withdrawals in retirement.
Experts recommend converting after-tax funds regularly to minimize upfront taxes on the conversion. Otherwise, you’ll need to plan for taxes on after-tax growth.
“By doing this right, you can essentially avoid taxation on all growth,” CFP Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts, previously told CNBC. “And that’s where the magic is.” More

A major case for bitcoin ETFs was that financial advisors needed them to direct their clients to invest in the cryptocurrency. Almost six months in, the advisors are sitting out.
We surveyed the CNBC Advisor Council about why that may be — for many, it comes down to time in the market and regulation.
Advisors who never liked bitcoin’s high-risk and speculative nature remain averse to the crypto, but others are preparing to make recommendations one day, with some calling it inevitable.

Omer Taha Cetin | Anadolu | Getty Images

A major thesis around bitcoin ETFs was that financial advisors needed regulated funds like them to direct their wealthy clients to invest in bitcoin.
Almost six months after the launch of those ETFs, there are few signs that advisors are clamoring for the funds. Many remain just as averse to bitcoin now as they were before. That doesn’t mean the ETFs were a failed experiment, however. For one, bitcoin ETFs have been hailed as the most successful ETF launches in history, with BlackRock’s iShares Bitcoin Trust (IBIT) reaching $20 billion in assets under management this week, even with advisors sitting out.

“It’s something I’m researching because I think eventually I will recommend it, I’m just not there yet,” Lee Baker, founder and president of Apex Financial Services in Atlanta, said in an interview. “For myself and other advisors, if we get more of a track record, it increases the likelihood that it ends up in the client portfolios.”
CNBC spoke with a dozen members of CNBC’s Advisor Council, which includes Baker, to learn why so many financial planners are still down on bitcoin and bitcoin ETFs, and what could cause them to change their tune. It comes down to two main things: time in the market and regulatory compliance.
“When [bitcoin] gets more regulated, you will see more adoption,” said Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta. “That being said, even if there isn’t regulation, if over time this can prove to be as stable of an asset as a technology firm would be — because my viewpoint on this is it’s early technology more than it is money — you’ll see more adoption.”

Most of the advisors said they’re neither initiating conversations nor fielding client inquiries about the ETFs – and most don’t have more than one client who has made an allocation to the funds. Of those advisors, some are proactively educating themselves about bitcoin investing, while others — often those with an older, more traditional and conservative client base — are more dismissive.
Some of these advisors work with younger clients who have a greater appetite for risk and a longer investment time horizon. They say that their clients were already interested and educated in crypto exposure before this year, and that the arrival of ETFs hasn’t motivated them to jump in.

Performance review
At 15 years old, bitcoin is in a maturity phase comparable to that of a teenager — it has big potential but still comes with a lot of volatility. Bitcoin is up more than 59% this year, and about 230% from its 2022 low that deepened during the collapse of FTX. In the past three, five and 10 years the cryptocurrency has gained 85%, 704% and 10,854%, respectively. It’s also suffered several 70% drawdowns over the years, which not all investors could stomach.
Many hope consistent flows into bitcoin ETFs over the years can lower that volatility, but for now, it’s still a deterrent for some.
“Financial advisors now have a way to give clients access [to bitcoin] that’s safe, reliable and regulated,” said Bradley Klontz, managing principal of YMW Advisors in Boulder, Colorado. “I love it … that it’s a tool in our toolbox for clients who want it. I just don’t see, right now, most firms recommending it because they’re not recommending any asset class, or any particular asset, that has that much volatility.”
Rianka Dorsainvil, co-founder and co-CEO of 2050 Wealth Partners, said that most of her clients prioritize stability and long-term growth over high-risk opportunities, and that the “relatively early stage of bitcoin ETFs in the financial landscape and the ongoing volatility associated with bitcoin” are primary factors keeping bitcoin ETFs out of her investment strategies.
Cathy Curtis, founder of Curtis Financial Planning in Oakland, California, said that she doesn’t know if bitcoin will ever be a stable asset class but that she would consider adding it to client portfolios if it showed stable returns over at least 15 years.
“If it proved itself to be a true diversifier along equities, for example, maybe,” she said. “The history of that asset has not shown me that.”
Apex Financial’s Baker pointed out that investors have decades of software and tools to show them how a certain percentage of a given bond, ETF or other asset in a portfolio might enhance returns or increase volatility and more.

“As a group, we’re fairly conservative and somewhat risk averse,” Baker said. “We are so accustomed to pulling up charts and [asking] how did this thing perform and through what kinds of markets — it’s almost the way we’re wired.”
With a few more years on the market, investors may be able to do similar modeling with bitcoin, he added, which will help advisors warm to the funds. He also said advisors’ embrace is a matter of when and not if.
“At this juncture … everybody should be convinced that [bitcoin’s] here to stay, [they’re] just not understanding some of the metrics in similar terms to how we can look at and value stocks or bonds,” he said. “We just don’t have that underpinning, and that’s an additional reason why the uptake is slow.”
“My guess would be it will be a slow adoption,” he added. “I wholeheartedly believe we will begin to see an uptick or increase in an advisor use somewhere in the next two to three years.”
Not regulated enough
Even though bitcoin ETFs exist in the U.S. now as a regulated investment vehicle, it still isn’t always clear if or when advisors can recommend them, according to Douglas Boneparth, founder and president of Bone Fide Wealth in New York City.
“A lot of this still has to do with compliance offices and what broker-dealer is going to allow what when it comes to advisors and offering ETFs,” he said. “Just because the ETF came out doesn’t mean the floodgates were open or that the ability for them to allocate to it is easy.”
Jenkin said some broker-dealers have approved the purchase of bitcoin ETFs, but restrict how much of it can be bought, and other firms don’t allow advisors to sell bitcoin ETFs at all.
Some say that’s due to crypto’s notorious reputation for fraud, scandal and crime — a situation that gets cleaned up a little bit more every year but no doubt has left a scar on the industry. More point to the industry’s lack of regulation, which increases the chances of consumer complaints, potential lawsuits against broker-dealers and potentially fines from the Financial Industry Regulatory Authority, or FINRA.
“Part of why this still isn’t popular is you’ve got heavy-duty compliance issues within the industry,” Jenkin said. “A lot of firms are very nervous about the communications that financial advisors are having with their clients on digital assets, and none of them want to have violations with FINRA.”
“Most broker-dealers are risk mitigators,” he added. “They want to allow advisors to do things for clients, but they certainly don’t want to have a spotlight shined on them to carry more risk. That’s why you’re seeing there’s such a slow uptake on this.”
Building confidence
Bitcoin and its ETFs need more time in the market to gain trust and adoption by big players like Vanguard, which famously said earlier this year that it doesn’t plan to offer them and won’t shift its stance unless the asset changes to become less speculative.
“That’s coming,” Boneparth said of client confidence. It’ll come with “more time — getting out of the early days into more of the mature days. We’re coming off of years where exchanges have failed – that’s not Bitcoin failing, but it muddies the water [and] people’s trust.”
Until then, the best position advisors can be in is one where they educate their clients, he added.
“Even though bitcoin ETFs fundamentally may present a less risky and more regulated way to invest in digital assets … the association with bitcoin still tends to deter [clients],” Dorsainvil said.
Advisors are likely to be even more deterred by ether ETFs, given the additional complexity of that cryptocurrency’s use cases and functionality. Last week the Securities and Exchange Commission gave U.S. exchanges the green light to list spot ether ETFs, which many investors predict will also have success, but perhaps a fraction of what bitcoin ETFs have enjoyed.
“The ETFs have made it very easy for institutions, from pensions to large funds,” Boneparth said. “That’s really where we’re seeing the bulk of the flows going into these bitcoin ETFs. … It’s still pretty cumbersome at the retail advisor client level.”

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The IRS will expand Direct File, its free tax filing program, nationwide starting in 2025, the agency and the U.S. Department of the Treasury announced on Thursday.
More than 140,000 users successfully filed returns using Direct File during the 2024 season and the pilot saved an estimated $5.6 million in tax preparation fees, the agencies announced in April.
“Direct File is an additional option to filing federal tax returns,” and the agency remains committed to other partners, such as Free File, IRS Commissioner Danny Werfel told reporters Thursday on a press call. 

IRS Commissioner Danny Werfel testifies before the House Appropriations Committee in Washington, D.C., on May 7, 2024.
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The IRS will expand Direct File, its free tax filing program, nationwide starting in 2025, the agency and the U.S. Department of the Treasury announced on Thursday.
“After a successful pilot, we are making Direct File permanent and inviting all 50 states to offer this free filing option to their residents,” U.S. Secretary of the Treasury Janet Yellen said in a statement. “The Treasury Department and IRS look forward to working with states to expand Direct File to Americans across the country.”

Direct File was available to limited taxpayers in 12 states during the 2024 filing season. More than 140,000 users successfully filed returns using Direct File and the pilot saved an estimated $5.6 million in tax preparation fees, the agencies announced in April. More from Personal Finance:37% of Americans paid a late fee in the last 12 months, report findsHiring stays strong for low earners, Vanguard findsWhy it may be time to break up with your financial advisor — and how to do it
“We are also exploring ways to make additional taxpayers eligible to use the system next year and beyond,” IRS Commissioner Danny Werfel told reporters Thursday on a press call. “Over the coming years, our goal is to gradually expand the scope of Direct File to support the most common situations, focusing in particular on tax situations that impact working families.” 

How the Direct File pilot worked

For 2024, the Direct File pilot included Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.
The pilot focused on simple filings, including taxpayers with Form W-2 wages, Social Security retirement income, unemployment earnings and interest of $1,500 or less. However, this excluded taxpayers with contract income reported via Form 1099-NEC, gig economy workers and self-employed filers.
Plus, filers had to claim the standard deduction, which was $13,850 for single filers and $27,700 for married couples filing jointly for 2023.

Werfel said the agency will share more details about the expanded scope of Direct File for 2025, including which states respond to the invitation and join, later this year.   

Direct File is an ‘additional option’ for taxpayers

The news about the Direct File expansion comes roughly one week after the IRS announced plans to extend Free File, the agency’s partnership with a coalition of private tax software companies that allow many Americans to file federal taxes for free. 
Free File processed 2.9 million returns through May 11, a 7.3% increase compared to the previous year, according to the IRS.”Direct File is an additional option to filing federal tax returns,” Werfel said on Thursday. “It is not meant to replace other important options by commercial providers who are critical partners with the IRS in delivering a successful tax system for the nation.”   More

Older workers who are still carrying student loan debt may have a harder time saving toward retirement.
The bottom 50% of older earners owe the highest average student loan debts, research finds.

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For most Americans, living well in retirement depends on how much they can save in their working years.
But for millions of older individuals, unpaid student loan debts may put that goal out of reach, according to new research from the Schwartz Center for Economic Policy Analysis at the New School for Social Research.

The research evaluated more than 2.2 million people over age 55 with outstanding student loans, according to the Federal Reserve Board’s 2022 Survey of Consumer Finance.
That includes more than 1.4 million workers and more than 820,000 unemployed people aged 55 and over who had taken student loan balances for themselves or their spouses. The data does not include older Americans who have taken on student loan debt on behalf of their children.
Half of the borrowers over 55 and still working were earning less than $54,600 — a “major financial vulnerability,” the research finds.
Those who had not completed their degrees were more likely to be at financial risk since their incomplete education likely did not increase their earning power. That includes about 14.9% of workers aged 55 to 64 and 17.3% of workers aged 65 and over, according to the research.
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The bottom 50% of older earners — with incomes less than $54,600 — owe the highest average debt of $58,823.
The middle 40% of earners — with incomes between $54,600 and $192,000 — owe an average debt of $48,174.
The top 10% — earning more than $192,000 — owe an average of $33,000.
“Lower-income and middle-income or older workers have the largest amount of debt and are then faced with difficult decisions about whether to reduce their retirement savings, or to work longer and delay retirement to repay their student loans,” said Karthik Manickam, a research associate at the Retirement Equity Lab at the Schwartz Center for Economic Policy Analysis.
For older workers aged 55 to 64, it may take an average of 11 years to pay off their student loans, according to the research. Workers 65 and up may need 3.5 years.
“Older workers do not have decades of future potential work that younger workers have to repay their loans,” Manickam said.

How policy changes can help older borrowers

Older Americans with student loans may not be able to save as much toward retirement if they have a high level of debt relative to their income. Moreover, Social Security benefits might be garnished if a debtor defaults on their student loan.
The research suggests certain policies, such as forgiving student debt; making debt repayment easier; and preventing the garnishment of Social Security benefits to repay student loans, can help reduce the negative consequences of older Americans’ student loan burden.
One plan — the Saving on a Valuable Education, or SAVE, plan, which President Joe Biden introduced last year — may help address the first two goals.
Under that new income-driven repayment plan, federal student loan borrowers may be eligible to forgo making payments or pay reduced monthly sums, depending on their incomes. After a certain period, loans may be forgiven.

Student loan forgiveness has critics who argue that students choose to take on those balances while forgiving debts would shift the burden to the federal government.
Additionally, the Schwartz Center research suggests ending the garnishment of Social Security benefits to repay federal student loans to help protect older Americans’ income.
Social Security beneficiaries who fall behind on their federal student loan payments may see about $2,500 taken from their benefits annually on average, according to the Center for Retirement Research at Boston College.
In March, more than 30 Congressional lawmakers called for ending that practice. It remains to be seen whether that proposal will gain traction.

Workers who are tempted to take on student loan debt they may carry into their later years should carefully consider whether that investment will pay off.
“Pursuing any education, whether it’s later in life or going to college for the first time after high school, has to be about whether or not you can get a return on your investment,” said Douglas Boneparth, a certified financial planner and president of Bone Fide Wealth in New York City.
Prospective students should weigh not only whether they will be able to make their monthly student loan payments, but also whether the education will enable them to increase their earning power.
“If you can’t figure out how that’s going to happen, maybe it’s not a great idea,” said Boneparth, who is a member of the CNBC FA Council. More

The Delaware College of Art and Design announced it will no longer offer classes or confer degrees starting this fall.
Issues with the new FAFSA contributed to a “problem of too few students,” DCAD’s president said, underscoring how important the awarding of federal student financial aid is to driving college enrollment.

Delaware College of Art and Design in Wilmington, Delaware.
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The Delaware College of Art and Design announced on May 23 that it’s set to close, citing low enrollment numbers for the upcoming school year, due in part to issues with the new Free Application for Federal Student Aid.
Experts have continuously warned that ongoing problems with the new FAFSA form have resulted in fewer students applying for financial aid, which could contribute to already declining enrollment.

“Like many independent art and design schools, DCAD faces long-standing challenges related to declining enrollment, a shrinking pool of college-age students, rising costs, and unexpected issues with the rollout of the new Free Application for Federal Student Aid (FAFSA),” the college’s president Jean Dahlgren said in the announcement. The original webpage with the announcement was not accessible Wednesday but can still be viewed through the Internet Archive.
Enrollment at DCAD fell to 129 students, a loss of nearly 10%, between 2017 and 2022, according to federal data.
“The Board of Trustees has worked diligently to find other funding solutions, but none allow us to overcome the longer-term problem of too few students,” Dahlgren added.
More from Personal Finance:Education Department announces highest student loan ratesIncoming college students may owe $37,000 by graduationStudents are still waiting on financial aid amid FAFSA issues
The 27-year-old art and design school in Wilmington, Delaware, will no longer offer classes or confer degrees for the 2024-25 academic year, the school said.

Many colleges are under financial strain

Fewer students today are interested in pursuing any sort of degree after high school, and the population of college-aged students is also shrinking, a trend referred to as the “enrollment cliff.”
The consequences of fewer students and less tuition revenue have put many colleges under financial pressure.
In recent years, inflation and rising costs have also hit small, private institutions especially hard, as more students opted for less expensive public schools or alternatives to a degree altogether, such as trade programs or apprenticeships.
Among those smaller schools, this may be the first college to close that directly referenced the added pressure from the rocky FAFSA rollout, but likely not the last, according to higher education expert Mark Kantrowitz.

Given the current status of FAFSA submissions, the Department of Education is on track to see 1.5 million to 1.8 million fewer FAFSAs submitted this year, Kantrowitz estimated.
This shortfall could cause a potential impending enrollment decline even greater than the one experienced at the height of the Covid-19 pandemic, he said, when college attendance notched the largest two-year drop in 50 years.
Kantrowitz added that college revenue will be broadly impacted, “from tuition, fees, room and board, not just a decrease in financial aid funding.”
For colleges teetering on the brink of insolvency, “even a modest decline in college enrollment could push them over the edge of a financial cliff,” Kantrowitz said.

Further, long-term consequences might still be felt in the years ahead.
“If the students aren’t just taking a gap year or shifting enrollment to community colleges, but instead opting out of college entirely due to the uncertainty surrounding college affordability, the impact may last for four years,” Kantrowitz said.
“It is severe enough that it may cause some four-year colleges to close permanently,” he added.
The Department of Education said providing support to colleges and universities to make sure they have the resources they need to process student records as efficiently as possible, make aid offers to students and encourage enrollment in higher education has been “a top priority,” according to a department spokesperson.
“The department will continue to leave no stone unturned in making sure schools have the support they need and that every student can access the life-changing potential of higher education,” the spokesperson said.
Meanwhile, the Delaware College of Art and Design said it will work with incoming first-year students and the 50 rising second-year students to help them transfer to partner schools, including the Pennsylvania College of Art and Design and the Moore College of Art and Design.
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