The first quarter of 2025 has been a period of dynamic shifts in global financial markets, marked by evolving economic policies, heightened uncertainty, and increased volatility equity markets. In this edition of Market Pulse, we analyze key investment trends, including the broad rotation from growth to value stocks, the resurgence of international equities, and the stabilizing role of fixed income markets.

Despite market volatility, history reminds us that corrections are a natural and expected part of long-term investing. The recent pullback in the S&P 500, while significant, aligns with historical trends, reinforcing the importance of diversification and disciplined investment strategies. International markets, buoyed by fiscal stimulus measures, have provided investors with new opportunities, while fixed income markets have continued their recovery.

Looking ahead to the second quarter, trade and fiscal policy developments will remain critical factors shaping investor sentiment. By maintaining a strategic and diversified approach focused on their objectives, investors can navigate uncertainty and capitalize on emerging opportunities. On behalf of Confluence Financial Partners, we thank you for your continued trust and confidence.

Bill Winkeler, CFA, CFP®
Chief Investment Officer

For many business owners, their company represents more than just a source of income—it is a legacy built through years of dedication and perseverance. Ensuring the continuity of that legacy requires careful, strategic planning. Business succession planning is the structured process of transitioning ownership and leadership, helping to secure long-term stability and success for future generations.

However, succession planning is not merely about selecting a successor. It involves developing a comprehensive strategy that mitigates risks, maximizes business value, and lays out a seamless transition path. Without a well-defined plan, companies may face uncertainty, internal conflict, or disruptions that could negatively impact operations. A thoughtfully executed succession plan can help business owners to retire with confidence, knowing their company is in capable hands.

Establishing a Business with Long-Term Vision

One of the most important decisions a business owner can make is whether they are building their company for longevity or positioning it for sale. This fundamental choice can influence leadership development, financial planning, and operational strategy.

When a business is designed solely with an eventual sale in mind, decision-making tends to prioritize short-term gains over long-term stability. Cost-cutting may take precedence over investing in innovation, employee growth, and customer relationships. While this may enhance financial performance in the short term, it can leave the business fragile and ill-prepared for a smooth transition of ownership.

Conversely, a company built with the future in mind can be better positioned to withstand the challenges of leadership transitions. Owners who focus on long-term success tend to make strategic investments in their workforce, establish strong corporate values, and implement scalable systems that help ensure adaptability in a changing market. These efforts can not only help strengthen the business but also can enhance its appeal to potential successors, whether they are internal leaders or external buyers. Ultimately, businesses with a legacy-driven approach are better positioned to thrive across generations.

Key Components of a Successful Business Exit Strategy

Ultimately, a business owner will likely want to exit the business through a well-thought out plan. If the business is going to survive into the future, the business exit strategy should carefully examine all aspects of the transition.  Here are a few key components:

1. Determine Exit Options – Whether transitioning to a family member, a trusted employee, or an external buyer, determining the best exit option is critical. This process should involve evaluating potential successors based on competency, leadership qualities, and alignment with the business’s long-term vision.
2. Financial Considerations – A successful business succession plan requires a thorough evaluation of both personal and business finances. Ensuring the company remains financially viable post-transition is essential, while also aligning the owner’s personal financial goals, such as retirement planning and wealth preservation, to secure long-term success.
3. Tax and Legal Considerations – Transferring ownership could come with complex tax and legal implications. A well-structured plan can help minimize tax liabilities and avoid potential legal pitfalls.
4. Leadership Transition – Preparing the next generation of leaders should include a structured transition period, during which the successor is trained and gradually assumes leadership responsibilities.
5. Contingency Planning – Unexpected events can arise, so having contingency plans in place helps the business continue operating smoothly under unforeseen circumstances.

The Role of a Wealth Management Firm in Business Succession Planning

Navigating the complexities of business succession planning often requires professional guidance. Partnering with a wealth management firm like Confluence Financial Partners can be invaluable in creating a smooth transition. Our team of financial professionals can assist with various aspects of the process, including:

• Comprehensive Financial Planning – Guiding a business owner in determining a sale price that makes sense and allows them to reach their financial goals. A wealth manager can also assist in the owner’s financial life post sale by developing strategies to protect and grow wealth.
• Working with Other Professionals – Collaborating with legal, tax, and financial experts to structure the transition in a way that minimizes tax burdens, maximizes financial efficiency, and helps ensure a seamless ownership transfer.
• Investment Management – Developing a strategic investment plan to help business owners grow and protect their wealth, and helping to ensure financial security both before and after their exit.

Securing Your Legacy for Future Generations

Business succession planning is not a task to be postponed. Proactively creating a structured exit strategy can help enable a seamless transition, safeguard your company’s legacy, and provide financial security for both you and your successors. Working with a trusted wealth management firm can also simplify the process and help ensure that your business remains strong for generations to come.

If you are considering business succession planning, we encourage you to take the first step. Contact Confluence Financial Partners today to discuss crafting a customized succession planning strategy tailored to your unique business needs.

Investing can be a powerful tool for building wealth and helping to secure financial stability, but to maximize its benefits, it should be aligned with your personal financial goals. A Financial Plan, supported by the professional guidance of a Wealth Management firm, such as Confluence Financial Partners, can help your portfolio reflect your long-term aspirations. Here are a few key steps to help make sure your financial plan drives your investing decisions.

1. Define Your Financial Goals

Before diving into investing or reassessing your current investments, it is best to establish clear financial objectives. Are you investing for retirement, a major purchase, or perhaps even leaving a legacy for your children? Whatever your objectives are, you should evaluate your existing investments to ensure they still align. A Certified Financial Planner (CFP) or Financial Advisor can help you set realistic, time-bound goals that serve as a foundation for your investment strategy.

2. Develop a Financial Plan

A well-crafted financial plan can serve as the foundation of a successful investment strategy. It starts with a clear understanding of your financial goals, risk tolerance, and time horizon. A comprehensive plan should incorporate key elements such as budgeting, debt management, savings, and insurance to establish a strong financial footing. It should also define both short-term and long-term objectives, providing a structured roadmap for building and preserving wealth. By thoroughly evaluating your current financial situation and anticipating future needs, a strategic plan can empower you to make informed investment decisions that support your overall financial well-being.

Confluence Financial Partners takes a holistic approach to financial planning and can help provide you with actionable steps to integrate the aspects of your financial life seamlessly. Rather than viewing investments in isolation, Confluence works to align them with cash flow management, tax strategies, estate planning, and risk mitigation to create a cohesive and strategic path toward your goals. This coordinated approach can help maximize wealth accumulation and long-term financial security, give you clarity and confidence in your decisions. With a well-defined plan in place, you can move forward with greater confidence that your financial future is built on a solid, strategic foundation.

3. Optimize for Tax Efficiency

An essential component of financial planning is optimizing for tax efficiency. Tax considerations can significantly impact investment returns, and working with a Certified Financial Planner (CFP) or Financial Advisor can help minimize tax burdens through strategies such as tax-loss harvesting, asset location planning, and retirement account maximization. By integrating these tax-efficient approaches, after-tax returns could increase and more of your wealth can be put to work toward your financial future.

4. Review, Monitor, and Adjust Your Investments Regularly

Beyond initial planning, continuous review and monitoring of investments can be critical to long-term success. As your life and goals change, your investment strategies should also adapt. Regularly assessing your portfolio in light of your plan can help it remain aligned with your financial objectives. Whether you’re starting fresh or reevaluating existing investments, partnering with a wealth management firm can provide professional oversight, helping to navigate market fluctuations and build a portfolio to help you live the life you want to live. With a proactive approach and professional guidance, you can more confidently pursue financial security and long-term prosperity.

5. Work with a Wealth Management Firm

Confluence Financial Partners is committed to a disciplined approach, guided by five key principles, to shape effective investing strategies. We manage investments to achieve individual client goals, not to beat arbitrary benchmarks. Our objective approach combines active and passive strategies, strategic planning, and tax-efficient solutions to help maximize returns and minimize long-term costs.

The Five Principles of Investing at Confluence Financial Partners

1. Objective-Based
   We believe clients are best served by focusing on how their investments serve their long-term goals rather than outperforming industry benchmarks.
2. Unbiased
   We take an unbiased approach in selecting investment types—active or passive—while maintaining transparency and prioritizing objectivity in the decision-making process for a sound investment strategy.
3. Strategic
   We use a balanced approach that combines strategic planning with carefully selected opportunities to align client investment portfolios with their specific goals.
4. Tax-Efficient
   For taxable accounts, we believe outcomes should be optimized not just for what the investments return, but for what the investments return after taxes.
5. Cost-Effective
   We believe optimizing the spend of client investment dollars on investment expenses is a key determinant of long-term success.

Confluence Financial Partners offers professional guidance in investment planning, risk management, and long-term financial strategy, providing clients with confidence and clarity in their financial journey. By leveraging the knowledge of experienced professionals, we can help develop a structured approach to investing that aligns with your financial aspirations and adapts to changing economic landscapes.

Final Thoughts

Investing is more than just buying securities—it’s about strategically growing your wealth in alignment with your personal financial goals. It’s about helping make sure that you aren’t just saving for saving’s sake, but rather you are building wealth while maximizing both your life and legacy. With the guidance of a Certified Financial Planner (CFP) or Financial Advisor, you will have someone to assist you with your investment decision as you work towards the life that you want. Working with Confluence Financial Partners provides access to our dedicated team that offers strategic insight, thoughtful guidance, and tailored solutions which can help turn your financial aspirations into reality.

Month in Review

• After a positive start to 2025, equity markets were choppy in February following mixed economic data and increasing uncertainty.
• In February, large cap stocks (S&P 500 TR Index) fell -1.30%, dragged slightly lower by large cap growth stocks (-3.59%, Russell 1000 Growth TR Index). Small cap stocks in the US also fell, with the Russell 2000 TR Index declining -5.35% in February.
• Stock and bond markets were led by core bonds (+2.20%, Bloomberg US Aggregate Bond TR Index), developed international stocks (+1.94%, MSCI EAFE NR Index), and large cap value (+0.41%, Russell 1000 Value TR Index) during the month.

Broadening Participation in the Bull Market

With two months in the books, early in 2025 investors have seen signs of broadening participation in the bull market that started in October 2022. From an asset class lens, developed international stocks (MSCI EAFE NR Index) are off to a strong start this year, rising +7.30%, compared to +1.44% for the S&P 500 TR Index. Value stocks are also leading growth stocks in 2025, with the Russell 1000 Value TR Index rising +5.05% versus large cap growth (Russell 1000 Growth TR Index) falling -1.69%.

Early in the year, investors can also see a shift within the S&P 500 Index itself. After being responsible for over 50% of the calendar year returns in 2024, 2023, and 2022, the so-called “Magnificent 7” stocks are trailing the rest of the index. In 2025, the S&P 500 excluding the Magnificent 7 stocks is up +3.2% YTD, and the average stock in the index is up +2.87% (S&P 500 Equal Weight TR Index), ahead of the overall index. One reason for this shift is the trade-off between the high valuations of the Magnificent 7 and the leveling-off of their earnings growth.

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. The top 10 S&P 500 companies are based on the 10 largest index constituents at the beginning of each quarter. As of 2/28/2025, the top 10 companies in the index were AAPL (7.2%), NVDA (6.1%), MSFT (5.9%), AMZN (3.9%), GOOGL/GOOG (3.6%), META (2.9%), BRK.B (1.9%), AVGO (1.8%), TSLA (1.6%), and JPM (1.5%). The remaining stocks represent the rest of the 492 companies in the S&P 500.

The largest companies in the S&P 500 are still expensive relative to their history at 27.3x forward earnings, even after seeing their valuations fall in 2025. Investors have started the year favoring opportunities with cheaper valuations, a trend that has helped diversified investors. 

What’s on Deck for January?

• As of February 28^th, 97% of the S&P 500 had reported earnings for 4Q2024. Roughly 75% of the companies beat their earnings estimate and 63% exceeded their revenue estimates. Earnings growth for the quarter was a strong +18.2% year-over-year.
• Investors will be watching for more certainty around the new trade policies being rolled out by the Trump administration.

When it comes to financial planning and investment management, selecting the right advisor is one of the most critical decisions you can make. One term you may frequently encounter is “RIA,” which stands for Registered Investment Advisor. But what does that really mean, and why is it important for those seeking professional financial guidance?

Understanding an RIA

An RIA is a firm or individual registered with the Securities and Exchange Commission (SEC) or a state regulatory agency, depending on the assets under management. RIAs provide financial advice and investment management services while adhering to strict regulatory requirements designed to protect investors.

At Confluence Financial Partners, being a Registered Investment Advisory means that we are committed to transparency, personalized service, and, most importantly, acting in our clients’ best interests.

The Fiduciary Standard: Acting in Your Best Interest

One of the most significant distinctions of an RIA is the fiduciary duty it upholds. As fiduciaries, RIAs are legally and ethically required to prioritize their clients’ financial well-being above all else. This obligation includes:

We are excited to share the inaugural version of Confluence Financial Partner’s Market Pulse: A Quarterly Review of Investment Trends and Insights. We aim to succinctly recap key investment trends and events on a quarterly basis, while providing insightful and actionable outlooks for the coming months. 

Q4 2024 Insights: Three Key Takeaways

Policy Shift: 2024 saw the Federal Reserve shift gears and lower interest rates, ending the rate hiking cycle that began in June 2022 and featured 9 rate hikes.

Mega Leadership: Mega cap stocks, the largest companies in the US, pulled the S&P 500 to a second consecutive +25% annual gain, outpacing smaller stocks, international stocks, and bonds.

High Concentration: The mega cap leadership resulted in a very narrow market by historical standards: the top 10 stocks in the S&P 500 represent over 38% of the index (highest in over 40 years).

As we enter the new year, don’t wait to implement tax strategies that could improve your financial situation. For investors, smart tax strategies can mean keeping more of what you earn and maximizing the value of your portfolio. Here are some key approaches to consider as you plan for 2025:

1. Maximize Tax-Advantaged Accounts*

Contributing to tax-advantaged accounts like 401(k)s, IRAs, and Health Savings Accounts (HSAs) can reduce your taxable income. For 2025, the 401(k) contribution limit is $23,500 for those under 50, with an additional $7,500 catch-up contribution for those 50 and older. A new provision allows individuals aged 60 to 63 to make an enhanced catch-up contribution of $3,750 in addition to the traditional catch-up contribution, providing a significant opportunity to boost retirement savings during those critical pre-retirement years.

Traditional IRAs also allow for tax-deferred growth, and contributions may be deductible depending on your income and retirement plan coverage.

Roth accounts, while funded with after-tax dollars, offer tax-free withdrawals in retirement—a great option if you expect to be in a higher tax bracket later.

2. Utilize Qualified Charitable Distributions (QCDs)**

If you’re 70½ or older, a Qualified Charitable Distribution (QCD) allows you to donate up to $108,000 directly from your IRA to a qualified charity. This strategy not only satisfies your Required Minimum Distribution (RMD) but also reduces your taxable income. By directing funds straight to the charity, you avoid having the distribution counted as part of your Adjusted Gross Income (AGI), which can help minimize taxes on Social Security benefits or Medicare premiums. This approach is particularly advantageous for retirees who wish to support charitable causes while managing their tax liabilities efficiently.

3. Gift Appreciated Securities

Instead of donating cash or selling investments to give proceeds, consider gifting appreciated stocks or mutual fund shares directly to family members or charities. By gifting to family members in lower tax brackets, they may pay significantly lower taxes on the capital gains, or possibly none at all, depending on their income level. For charitable donations, you can deduct the fair market value of the securities while avoiding the capital gains tax you’d incur if you sold them. This dual benefit maximizes the impact of your gift while offering meaningful tax savings. It’s a smart way to reduce the tax burden on highly appreciated assets.

4. Be Strategic with Municipal Bonds

Municipal bonds, often referred to as “munis,” offer a reliable source of tax-free interest income at the federal level. If you purchase bonds issued by your home state, you may also avoid state and local taxes. For high-income earners, the tax-equivalent yield of municipal bonds can be more attractive than taxable bonds, especially if you’re in the highest federal income tax brackets. Additionally, municipal bonds are generally considered lower-risk investments, providing steady income without increasing your taxable income—a win-win for those seeking both stability and tax efficiency. Whether you should own taxable or tax-free bonds, however, is unique to each individual and should be analyzed as such.

5. Stay Informed on Tax Law Changes*

Tax laws are dynamic, and staying informed helps ensures you’re prepared to adapt your strategy to new opportunities or avoid pitfalls. The individual tax cuts introduced under the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025 unless new legislation extends them. This includes potential increases in individual income tax rates, a reduction in the standard deduction, and a lower threshold for estate tax exemptions, which may revert to pre-2018 levels—around $7 million per individual instead of the current $14 million. By monitoring legislation, you can adjust your portfolio and tax strategies proactively.

Take Action Now

The key to effective tax planning is proactive management. By leveraging these strategies, you may be able to reduce your tax bill and keep more of your income in 2025. Don’t wait until the end of the year to start planning! Schedule a consultation with one of our experienced wealth managers today to discuss personalized strategies that align with your financial goals.

Sources:

*https://www.morningstar.com/personal-finance/your-tax-fact-sheet-calendar

**https://www.schwab.com/learn/story/reducing-rmds-with-qcds#:~:text=What%20are%20the%20QCD%20limits,charitable%20gift%20annuity%20(CGA).

Confluence Financial Partners does not provide tax advice. You should consult your own tax advisors before engaging in any transaction.

When it comes to estate planning, your beneficiary designations are one of the most critical yet often overlooked components. These designations determine how your assets—such as retirement accounts, life insurance policies, and annuities—are distributed upon your passing. Beneficiary designations often supersede other estate documents, making it essential to ensure they are accurate and up to date.

Understanding the Key Difference: Per Capita vs. Per Stirpes
When naming individual beneficiaries, two terms that frequently come up in this context are “per stirpes” and “per capita”. While these terms may seem similar, they represent very different ways of dividing an inheritance among your heirs.

What is “Per Stirpes”?
The term per stirpes translates to “by branch” and refers to dividing an estate among the branches of a family. This method ensures that if an heir predeceases you, their share will be passed on to their descendants. In other words, per stirpes keeps the inheritance within a specific family line.

Example: If you have three children, but one of them passes away before you, the deceased child’s share would be divided equally among their children (your grandchildren). The remaining two children would each receive their full share, and the deceased child’s share would be inherited by their descendants.