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learn more. Please stay tuned

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for important disclosure information at the

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conclusion of this episode. Here's

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what to hit on this week's

0:23

investing in sight preparing for the

0:25

next tax season starts Now Morningstar

0:27

Inks Editorial Director for Financial advice

0:30

Sure Rowley! Cheers for tips. Become

0:32

a tax efficient his best or

0:34

plus Jp Morgan Chase. is they

0:36

a steady Tesla scaling back to

0:39

what Morningstar analyst think about both

0:41

companies outlooks in their stocks and

0:43

climate change is on the proxy

0:46

ballot, details on the demand facing

0:48

Bank of America and what. It

0:50

wants shareholders to do this is investing

0:52

and sites. Walk

0:58

into investing and sites I'm your host I'd

1:00

and a Hampton. Let's get started with a

1:03

look at the Morning Star headlines. Tesla.

1:05

Is planning to lay off more

1:08

than ten percent of his workforce

1:10

according to news reports and Elite

1:12

one high level executive is leaving.

1:15

Morningstar believes the cut are consistent

1:17

with they even makers shift towards

1:19

profits as that a delivery growth

1:22

and Twenty Twenty Four Tesla has

1:24

previously hired workers door expansion or

1:26

cut staff during slowdowns and it

1:29

will likely reduce cost this year

1:31

to maximize profits following a drop

1:33

in first quarter deliveries. The

1:36

aim appears to be to stabilize

1:38

gross profit margins in the automotive

1:41

segment and improve operating profit margins

1:43

across the company. Morty start! Thanks

1:45

Tesla! Shares are worth one hundred

1:48

ninety five dollars each, and slightly

1:50

undervalued investors are encouraged to wait

1:52

for the stock price to calm

1:55

down before by. jp

1:58

morgan chase produce bubble profits in the first

2:00

quarter, but it's keeping a lid on its

2:02

outlook for the year. A $725 million

2:07

one-time charge from the FDIC tied

2:09

to last year's banking crisis reduced its

2:12

profits. The big bank's earnings per share

2:14

would have come in at $4.63, an

2:16

increase year over year. JP

2:21

Morgan left this forecast for net

2:23

interest income and card charge-offs unchanged.

2:26

Net interest income or lending profits fell

2:29

in the first quarter from the previous

2:31

one. The decline mostly

2:33

met Morningstar's expectations. JP

2:36

Morgan is out earning its typical

2:38

level of net interest income. Morningstar

2:41

cautions investors to avoid projecting

2:43

the current amount into the

2:45

future. JP Morgan's balance

2:47

sheet is more asset-sensitive than

2:49

other big banks. It

2:52

will likely experience more pressure on

2:54

net interest margins as interest rates

2:56

fall. Morningstar estimates JP

2:58

Morgan's stock is worth $168 and

3:01

slightly overvalued. We're

3:07

in the phase of proxy season

3:09

where it lines up with Earth

3:11

Week. Many investors are voting on

3:13

different climate change resolutions at companies'

3:15

annual meetings. Morningstar Sustainalytics,

3:17

Director of Stewardship Jackie Cook,

3:19

has identified a few proposals

3:22

she believes matter. Welcome

3:24

to the podcast, Jackie. Thank

3:26

you, Ivana. Nice to be here. Let's

3:29

start with what is proxy voting

3:31

and why should shareholders participate? So

3:35

proxy voting is the opportunity for shareholders

3:37

to have a say in the corporate

3:40

governance of the companies that they're invested

3:42

in. And this gives

3:44

them the rights to vote at AGM's

3:47

and also in the US and

3:49

in several developed markets, gives them

3:51

the right to file shareholder

3:54

resolutions. And this is when shareholders

3:56

actually get to set the agenda on

3:58

big issues, big corporate markets. governance

4:00

and societal issues and

4:02

put their resolutions alongside management's

4:05

resolutions on the proxy ballots. Now,

4:08

New York City pension funds have

4:11

asked several big banks to provide

4:13

financing details about the climate transition.

4:15

A vote is upcoming at Bank

4:18

of America. Can you break down

4:20

what these shareholders want and what

4:22

does Bank of America think? So

4:26

in this case, the shareholders

4:28

are asking the bank to produce a

4:31

clean energy finance ratio

4:33

and it's a metric,

4:36

a quantitative metric that they've asked six banks

4:38

for. And this is New York City pension

4:40

funds. They filed this resolution

4:42

at six large banks. Three of the banks

4:44

have already agreed to

4:47

produce this transition of

4:49

clean energy and finance ratio. And

4:51

the resolutions have

4:54

been withdrawn. And for the other

4:57

three banks, the resolution seems to be going to

4:59

a vote. What it

5:01

basically asks for is for the

5:03

banks to indicate how much financing

5:06

they've put forward for clean energy

5:08

versus how much financing is going

5:10

to fossil fuels. The

5:12

Bloomberg New Energy Finance has actually

5:15

calculated this ratio and figured out

5:17

that to be on track for a 1.5 degree

5:19

world, this has to be something like 4 to 1 by

5:22

2030. And what they calculate though is that

5:24

it's really

5:27

only about 0.73 to 1 right

5:30

now. So Bank

5:33

of America opposes this resolution

5:35

because they feel that the

5:37

methodology for calculating it isn't developing

5:40

us. And so they're concerned about

5:42

producing a metric

5:45

that may not

5:47

have a consistent

5:49

underlying methodology from bank to bank.

5:53

The proponents argue that there is a

5:55

methodology and this methodology has been... Part

6:00

of this methodology can be taken from

6:02

the Partnership for Carbon Accounting Financials. Methodology

6:05

in Bank of America is, in fact, a

6:07

member of the Partnership for Carbon Accounting

6:10

Financials, B-Banks, that are working on methodologies

6:12

for calculating finance dimensions. So

6:16

Bank of America, since they oppose, they're

6:18

telling shareholders to vote no? That's

6:21

right. Now, a

6:24

vote is coming up next month

6:26

on whether DTE Energy should publish

6:28

a climate transition plan to match

6:30

the Paris Agreement's goal of limiting

6:32

global warming. Why is DTE

6:35

against the proposal, and why do

6:37

some shareholders think the energy company

6:39

could make the transition work? So

6:43

this is another climate transition risk

6:45

resolution, which is about, you know,

6:47

is the business transitioning at a

6:51

pace that will keep

6:53

it financially viable in a

6:56

decarbonized world. And, you know,

6:58

this is the world around

7:00

you transitions, customers, regulations, technology.

7:04

So shareholders are really wanting to understand what

7:06

is DTE doing to keep

7:08

its own business viable, but also, you

7:11

know, as a large diversified energy

7:13

utility, it's instrumental,

7:15

it's critical to helping

7:19

those dependents on its energy transition

7:21

as well. In this case, the

7:23

proponent is asking the company

7:25

to disclose what its targets

7:28

are for decarbonizing its

7:32

downstream provision of natural

7:35

gas to consumers, residential,

7:38

industrial, commercial. What

7:41

it's doing to electrify

7:43

that downstream portion

7:45

of its business. And

7:48

so the company's state targets

7:50

on a lot of its emissions, its

7:52

scope one and scope two emissions, and

7:54

its upstream scope three emissions, but this

7:56

is its downstream scope three emissions. And

8:00

The targets that it has set for

8:02

these are not aligned, according to the

8:04

proponent, with the net zero

8:06

transition. And so

8:08

the proponent is also asking the company to

8:11

come up with more specific plans around how

8:13

it plans to reduce its emissions in this

8:15

portion of its business. The

8:17

plans that it has right now, the proponent argues

8:19

are not convincing, and

8:22

that they're not

8:24

based on available options. They're

8:27

based on technologies that

8:30

still have to be developed. Now,

8:34

a majority of Jack in the Box shareholders voted

8:36

in favor of the fast food chain reporting

8:38

their greenhouse gas emissions. What

8:41

does this vote signal to investors and other

8:43

companies? So

8:48

this is really, this vote here is

8:50

very well targeted. This resolution is very

8:52

well targeted. It's asking the

8:54

company to come up with a plan to

8:57

set targets and report its emissions. It

9:00

was supported by 57% of shareholders. So

9:04

that's a majority of shareholders where the

9:06

board actually asked the company, asked shareholders

9:08

to vote against the resolution. It

9:11

resonates, or it

9:14

reminds one of a resolution that

9:16

came to vote at this company in 2022, where

9:20

95% of shareholders opposed the

9:22

board's recommendation to vote against

9:24

the resolution that asked the

9:26

company to come up with an accelerated

9:28

plan for sustainable packaging. This

9:30

is a board that clearly has not got

9:33

the message that you've got to consult

9:35

with shareholder proponents and they file

9:37

a shareholder resolution. In

9:39

this case, the

9:42

shareholder resolution isn't even asking the company

9:44

for scope three targets specifically. It's saying

9:47

at the very least, set targets on your

9:49

scope one and scope two emissions. Those are

9:51

the emissions generated by your restaurants. And

9:55

the energy that they consume.

9:58

This is not even... your supply

10:00

chain emissions. And of course,

10:02

the restaurant businesses significantly exposed

10:04

to transition and physical risk

10:06

across its full value chain.

10:10

And Piers, McDonald's, for

10:12

instance, are

10:14

seeking targets on

10:17

the full scope

10:19

of their emissions and disclosing

10:21

these emissions, whereas Jack in the Box

10:25

is not disclosing its emissions.

10:28

So this is a company that's

10:30

not showing shareholders that it's climate

10:33

transition ready. It's

10:35

not showing shareholders that it's

10:38

responsive to previous votes. And this

10:40

is a big governance red

10:42

flag, if nothing else. Well,

10:45

Jackie, thank you for sharing your insights

10:47

about proxy season. My

10:49

pleasure. You

10:52

or your accountant have filed your taxes.

10:55

Did you wonder if there was a

10:57

missed opportunity to soften the tax hit?

10:59

We're going to discuss how to

11:01

make investing more tax efficient. That's

11:04

right. We're already looking ahead to

11:06

the next tax day. Cheryl

11:08

Rowley is a CPA and the

11:10

editorial director for Financial Advice for

11:12

Morningstar Inc. Welcome to the

11:14

podcast, Cheryl. Thank you

11:16

so much. So

11:18

what are some common mistakes that can

11:21

cause investors at tax time? Well,

11:24

a lot of these mistakes are things

11:27

that you could be doing

11:29

better throughout the year. And

11:32

really, I think we need to focus on those.

11:36

So let's start with asset location.

11:39

Why is it important? Asset

11:42

location sounds like it's really tough,

11:45

but we need to start

11:47

with the basics. When you

11:50

invest, there's usually three pots

11:52

of money you can put that money

11:54

into. A regular investment

11:56

account, a retirement account,

11:58

like an IRA. or 401k

12:01

or Roth IRA. Those

12:04

containers all have

12:06

different tax treatment and

12:08

if we pay attention to the

12:10

tax treatment of those containers we

12:13

can put specific types

12:15

of investments in those accounts

12:17

so that we save on

12:19

taxes. So your

12:22

regular investment account you

12:24

pay tax when you get interest or

12:26

dividends or when you make a sale

12:28

and when you make a sale it's

12:30

capital gains. So

12:33

that's one kind of account. Your

12:35

retirement account you don't pay

12:37

any tax at all while

12:40

it's in the account. So you

12:42

get a deduction when you put it in

12:45

it grows tax-free in the

12:47

account and when you take the money

12:49

out it's all tax-less

12:52

ordinary income. And then

12:54

we have the opposite case of a

12:56

Roth IRA which is not

12:58

taxable at all. So you

13:00

don't get a deduction when you put the money

13:03

in but it grows

13:05

tax-free and when you take the

13:07

money out you don't pay tax. So

13:09

there's no tax on the principal or

13:12

the earnings. So if

13:15

you think about that you want to take

13:17

advantage of those different types of

13:20

accounts and how they're treated

13:22

tax-wise. So in

13:24

your regular investment account you

13:27

want to put investments

13:30

that are going to grow because you

13:32

don't pay tax on it while it's growing

13:35

and then if you sell it

13:37

you pay capital gains tax and that's

13:39

about half of your ordinary tax. In

13:42

your retirement accounts you want to put

13:45

income type investments like bonds

13:48

because bonds are going to produce interest.

13:50

If you hold it in your regular

13:53

account you're going to pay tax on the

13:55

interest every year. If you hold

13:57

it in the IRA you don't pay tax on the

13:59

interest until you pull it out and

14:02

that's ordinary income, but it would have

14:04

been ordinary income anyway. And the

14:06

raw CIRAS, since you're never gonna pay tax,

14:09

you wanna put the highest growth investments

14:12

in there to get the biggest bank for

14:14

your buck. So if you put

14:18

high growth assets into your

14:20

IRA, eventually

14:22

when you take it out, you're gonna

14:24

pay ordinary tax. But if

14:26

you keep the growth assets in

14:29

your taxable account, eventually when you take

14:31

it out, you pay capital gains

14:33

tax, which is half as much. So

14:36

putting growth assets in your IRA

14:38

is like telling Uncle Sam, you're

14:40

okay with paying twice as much

14:42

tax. And I'm sure

14:44

no one wants to say that. So

14:46

another strategy is tax loss

14:48

harvesting. How can this strategy

14:51

help minimize taxes? Well,

14:53

I call this a way of making lemonade

14:55

out of lemon. When you

14:58

look at your investments and you see that

15:00

some of them have gone down in value,

15:03

that's not a pleasant feeling, but

15:06

you can make a tax benefit out of

15:08

it. So if you sell something

15:10

at a loss, you

15:13

can recognize the loss, that's a tax

15:15

benefit. If you

15:17

want to stay invested in whatever

15:20

it is you bought, you can

15:22

buy back right away as

15:24

long as it's not exactly the same thing

15:26

you sold. If you buy

15:28

back right away after a loss

15:32

into exactly what you sold, the

15:35

IRS says you don't get to take the loss

15:37

because you're really in the same position. But

15:39

if you buy something that's really similar,

15:42

you can take the loss, you're

15:44

still invested, and you've created a

15:47

tax benefit. So something

15:49

similar would be like

15:52

if you have a large cap growth

15:54

fund that's an index fund, maybe

15:56

you buy a large cap growth

15:59

fund that's active. managed or

16:01

you just buy a large-cap blend fund.

16:04

So as long as you don't buy

16:07

exactly what you sold then

16:09

you can stay invested and recognize

16:11

the tax benefit. And

16:14

when should a person do a Roth

16:16

IRA conversion if they're hoping to save

16:19

on taxes in the long run? Right,

16:21

well there's two different times to

16:23

think about Roth IRA. One

16:26

is when you're young and you're in

16:28

a low tax bracket and

16:30

if you're working for a company

16:33

like Morningstar that offers a Roth 401k that's

16:37

kind of the same thing as putting money

16:39

into a Roth IRA. You don't get

16:41

a deduction upfront but if you're

16:43

in a low tax bracket it's not going to

16:45

cost you very much and then all

16:47

that money is going to grow tax-free

16:49

forever. If you're

16:52

already in a position where you

16:55

have large IRAs or 401ks that

16:57

are going to be

16:59

rolled into IRAs when you retire

17:01

the best time to think about it is in the

17:05

year you retire before you

17:07

start taking required minimum distributions

17:10

and even before you start taking

17:12

Social Security. Again if you're

17:14

in a low tax bracket you can say

17:16

I want to trade some of these IRA

17:19

investments into Roth IRAs and

17:23

you have to pay tax on it when

17:25

you make that conversion but again if you're

17:27

in a low tax bracket it's not going

17:30

to cost you very much and you're going

17:32

to get the advantage of all that future

17:34

growth tax-free forever. So

17:37

knowing at which stage of life you're

17:39

in can help you on that one.

17:42

Yeah and also how much you're making and

17:44

if you're in a low tax bracket. And

17:47

how can people who donate to charity

17:50

also minimize their taxes? Okay

17:53

that's a good question. In

17:56

order to deduct what you give to

17:58

charity you have to be an the

18:00

category of itemizing deductions. So

18:03

if you take the standard deduction, you're not

18:05

going to get a benefit. But if you

18:07

know that you're itemizing, then

18:10

giving the charity can be a

18:12

really great write off. And

18:15

you don't have to just give money. You

18:18

can give stuff like

18:20

your old clothes and things like that,

18:23

as long as you track exactly what

18:25

it is and put a reasonable value

18:27

on it. You can

18:29

also contribute shares of

18:32

stock or mutual funds. And

18:34

the great thing about that is

18:37

you get a deduction for the full

18:39

fair market value, but you

18:41

don't pay tax on the game. So

18:44

it's kind of a double benefit. If you

18:46

have a charity where

18:48

you're giving significant dollars to

18:50

like your church or to

18:52

the American Cancer Society, they'll

18:55

have the ability to take shares

18:57

and you'll get again, another bigger

19:00

bang for your buck. Well,

19:03

Cheryl, thank you for your time and insights today.

19:06

Oh, it's been fun. Thank you. That

19:10

wraps up this week's episode. Thanks

19:12

for listening. If you enjoy hearing

19:14

market trends and analyst insights on

19:16

our podcast, feel free to leave

19:19

a five star review on Apple

19:21

podcast. It will help others find

19:23

us. Thanks to senior

19:25

video producer, Jake Van Crecen,

19:27

lead technical producer, Scott Halver,

19:29

and associate multimedia editor, Jessica

19:32

Bebel. I'm Ivana Hampton,

19:34

lead multimedia editor and Morningstar. Take

19:36

care. This recording is

19:38

for informational citizens only. It should

19:40

not be considered investment advice. Opinions

19:43

expressed are as of the date of

19:45

recording. Such opinions are subject to change.

19:48

If you have any opinions on this

19:50

program are not necessarily those of Morningstar

19:53

Inc. And the facility. While

19:55

this may allow you to offer products

19:57

and services, many scientists. Either

20:00

way to do this and she had not

20:02

affiliated with Money For and. Morning

20:05

so does not guarantee the i feel like

20:07

a complete lack of the date of present

20:10

recurrent. Morning Services services.

20:12

Is a subsidiary of Move.

20:14

He and his got to

20:16

get the Us Securities Exchange

20:18

Commission Morning Services services so

20:20

not responsible for any trading

20:22

decisions. Damages further losses with

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alcohol. Information

20:27

Seat analyses Virginians

20:29

whether you. Have

20:31

performed in. Their

20:45

own finances. And

20:50

decision.