3rd Quarter 2025 Market Review

Highland Investment Advisors continues to grow, and we’re seeking a Client Experience Associate to join our Brookfield office. If someone in your network would thrive in a collaborative, client-focused environment, we’d love an introduction. You may apply on LinkedIn, here: https://www.linkedin.com/jobs/view/4314659935/

By: Adam Stoeckler, CFP® Investment Advisor Representative September 25, 2025 Roth conversions are grabbing headlines in the world of retirement planning, and for good reason. The concept is simple: move money from a traditional retirement account, like an IRA or 401(k), into a Roth IRA, pay taxes now, and enjoy tax-free growth and withdrawals later. Sounds great, right? While Roth conversions can be a powerful strategy, there are potential “landmines” that you should keep in mind and plan for if you are considering converting traditional IRA funds to Roth. Here are five key risks to be aware of. As always, you should consult with your financial advisor in coordination with a tax professional before making a move. 1. A Big Tax Bill Now When you convert money to a Roth IRA, the converted amount is added to your taxable income for the year. For example, if you convert $100,000 in a single year, that money could push you into a higher tax bracket and result in a substantial tax bill. • Why it matters: Paying this tax upfront can reduce the amount of money actually growing in your Roth. Using retirement funds to cover the tax further diminishes the benefit of the conversion. • Consideration: Spread conversions over multiple years to manage the tax impact and avoid jumping into a higher bracket all at once. Consider using non-qualified dollars outside the IRA to pay the tax bill. 2. Higher Medicare Premiums Medicare Part B and Part D premiums are tied to your income. A large Roth conversion can temporarily raise your Modified Adjusted Gross Income (MAGI), triggering higher premiums that would take effect in the second year after the conversion. • Example: A couple with moderate income who does a $100,000 conversion could see Part B premiums increase by hundreds of dollars per month, totaling thousands over time. • Why it matters: Unexpectedly higher Medicare premiums can offset some of the tax-free growth benefit of the Roth. Planning conversions carefully around anticipated income levels is essential. 3. Reduced Health Insurance Subsidies If you purchase private insurance through the Affordable Care Act and qualify for premium subsidies, a Roth conversion counts as income. • Impact: The extra income can reduce or eliminate subsidies, leading to higher monthly premiums or even a repayment at tax time. • Example: Someone expecting a $3,000 premium credit could see it reduced to $1,000, effectively adding $2,000 in health costs due to the conversion. • Planning tip: Coordinate Roth conversions with health insurance planning to avoid unexpected costs. 4. Estate Planning Considerations Roth IRAs are often touted for their tax-free growth and ability to leave money to heirs. However, in some cases, keeping money in pre-tax accounts may be more efficient. • Why it matters: If your heirs are expected to be in lower tax brackets than you, leaving pre-tax accounts for them may minimize overall taxes. • Additional factor: Some estate strategies involve intentionally deferring conversions to optimize the tax impact across generations. Consulting an advisor can help determine the best approach for your situation. 5. Liquidity and Cash Flow Concerns Paying taxes on a Roth conversion is ideally done from outside retirement funds (see #1, above), so that the full converted amount grows tax-free. • Potential problem: If you don’t have the cash available, using retirement funds to pay taxes reduces the long-term growth potential. • Why it matters: For retirees on a fixed income, a large conversion could strain cash flow or force difficult trade-offs with other expenses. Planning conversions in manageable amounts over several years can mitigate this risk. Bottom Line Roth conversions can be a smart way to secure tax-free growth, but they come with trade-offs. Understanding the implications for taxes, Medicare premiums, health insurance subsidies, estate planning, and cash flow is essential before making a move. If you’d like a detailed Roth conversion plan tailored to your specific situation, contact us today. Our team of financial advisors can help you weigh the benefits, minimize the risks, and create a strategy that works for your retirement goals. Disclosures: Advisory services are offered through Highland Investment Advisors, LLC a SEC Investment Advisor. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than where legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital. The opinions expressed in the sources above do not necessarily reflect those of Highland Investment Advisors, LLC and are subject to change without notice.

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🎉Nineteen years ago today, our founder, Ken Karr, submitted the paperwork to form Highland Investment Advisors, LLC, and the journey began. Since then, we’ve grown from a solo practice to a dedicated team of ten serving clients across the country. Along the way, we’ve celebrated successes, learned from challenges, and stayed true to our mission: promoting prosperity and protecting peace of mind. As we look ahead, we’re excited for the next chapter of continuing to innovate, serve, and make a positive impact for our clients and communities. Here’s to the next 19 years! 🤝 -Adam Drake

Below is a summary of the second-quarter 2025 market performance and economic commentary. The full market performance report (PDF) , including commentary and charts, can be found here . Market Performance 📈The US equity market posted positive returns for the quarter and underperformed both non-US developed and emerging markets. Value underperformed growth and small caps underperformed large caps . 📉US REIT ( real estate investment trusts) indices underperformed equity market indices, but International REITs outperformed. 📈 Within the US Treasury market, long term interest rates generally increased and short term rates decreased during the quarter. The yield on the 10-Year US Treasury Note increased 0.01% to 4.24%. 📉The Bloomberg Commodity Total Return Index returned -3.08% for the second quarter of 2025.

One of the most common opportunities we uncover at Highland Investment Advisors when working with new families is that they’re holding too much cash and earning too little on it. Fortunately, that’s a good problem to have and an easy one to fix. Clients often ask us questions like, “My emergency savings is earning X% at the bank, and I was offered a CD (or money market) at Y%. Is that good?” Since our team actively monitors the fixed income landscape, we’re well equipped to answer that and offer alternatives. Before we dive in, let’s acknowledge an obvious question: Is this the right amount of cash to be holding in the first place? Could some of it be working harder in a longer-term portfolio? That’s absolutely a conversation worth having. But for the purposes of this article, we’ll set that aside and focus on optimizing the cash you do plan to keep liquid. This article outlines the main vehicles available to help you earn more on your excess cash. Checking Accounts Frequently, cash accumulates in a family’s primary checking account at the bank. Unfortunately, most checking accounts do not pay interest, or if they do, they may come with other fees or minimum balance requirements. This is a significant source of profit for banks. Savings Accounts Sometimes families transfer cash to a savings account, which typically does not offer check-writing or online payments. At the mega-banks, interest is offered, but usually at a negligible rate (think fractions of a percent, like 0.01%). Rates may be slightly higher if the account holds a larger balance. Smaller banks or credit unions often offer better rates. Savings accounts are generally FDIC-insured up to $250,000, providing protection against bank failure. Bank Money Market The next step up the ladder is money market accounts. Most banks offer a money market account that can be linked to a family’s checking and savings accounts, simplifying transfers. Again, interest rates on bank-sponsored money markets tend to be low, though smaller institutions frequently offer higher yields than the mega-banks. Most money market deposit accounts are FDIC-insured. Certificates of Deposit (“CDs”) In exchange for locking up cash for a few months to several years, certificates of deposit often offer a higher interest rate than the bank’s money market account. CDs pay a fixed interest rate for the term, which protects investors if rates fall—but offers no benefit if rates rise. While typically more competitive than money markets, CD rates can vary based on the issuing bank’s credit quality. Most CDs are FDIC-insured. If the money is withdrawn before maturity, early withdrawal penalties will reduce the overall return. Certificates of Deposit Ladders One technique to manage the illiquidity of a CD is to create a ladder: investing in multiple CDs with staggered maturities. For example, one might mature in three months, another in six months, then nine months, and finally one year. This increases liquidity, but it also means the family must reinvest maturing CDs on a rolling basis. High Yield Savings Accounts Some families opt for high-yield savings accounts offered by online-only banks. These banks have lower overhead and can therefore offer higher interest rates. Many of these accounts have no monthly fees, and reasonable minimums. However, the absence of physical locations can make some transactions less convenient. Like traditional savings accounts, the interest rate will fluctuate with market conditions. Riskier banks may offer higher yields, so it’s important to verify FDIC insurance. Brokerage Money Markets Funds Brokerage firms offer money market mutual funds within both taxable and retirement accounts. These funds invest in highly liquid, short-term debt securities. Retail investors are typically offered “stable NAV” funds, which aim to maintain a $1.00 per share price. Yields fluctuate daily based on market conditions but are often higher than those from bank savings accounts. Interest accrues daily and is usually paid monthly in the form of additional shares. There are three main types of brokerage money market funds, each with different risk and tax considerations: Government Money Market Funds These are considered the safest, investing only in U.S. government-related securities such as Treasury bills, agency securities (like Fannie Mae or Freddie Mac), or repurchase agreements backed by government assets. Interest earned from Treasuries is exempt from state income tax. Prime Money Market Funds These funds carry slightly more risk by investing in short-term corporate debt, which is inherently riskier than government securities. In return, prime funds may offer slightly higher yields. Municipal Money Market Funds These funds invest primarily in short-term municipal securities issued by state and local governments. The interest is typically exempt from federal income tax, making them potentially attractive for families in higher tax brackets. With interest rates having risen meaningfully over the past few years, there’s no reason to let your cash sit idle. Whether you're holding funds for emergencies, upcoming expenses, or just peace of mind, there are smarter ways to earn more while keeping your money safe and accessible. If you'd like a second opinion on your current cash, or want help navigating the many options available, reach out to us. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Opinions expressed herein are solely those of Highland Investment Advisors, LLC and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual adviser prior to implementation. Advisory services are offered by Highland Investment Advisors, LLC a SEC Investment Advisor.

Recent market volatility had the S&P 500 flirting with Bear Market territory. At one point intraday, the S&P 500 was down by -20% from the all-time high. What is a Bear Market? The term dates back to the 18th century to describe a market that has declined by at least -20% from the previous peak. The official definition requires the market to have finished the day down by at least -20%. So, while the S&P 500 is not technically in a Bear Market (as we write this on April 23rd, 2025), it is exhibiting the symptoms of a Bear Market. What typically happens during Bear Markets? Bear Markets are characterized by extremely high volatility with big swings in price, in both directions. Bear Markets have produced the largest single-day losses as well as the biggest single-day gains. It can get very confusing. It is possible the economy will subsequently experience a recession, but it is not a requirement for a Bear Market. For example, during the 2022 Bear Market, the U.S. economy did not contract to the point of recession. Bear Markets without recessions have historically been shallower declines with a faster recovery. It is also possible that a Bear Market is what causes a recession due to negative wealth effects causing businesses and consumers to cut spending, contracting the economy. Weird things can happen in Bear Markets. Historical relationships between various assets can change. Bonds had offered stability in portfolios when stocks were down—until the 2022 Bear Market when both lost a significant amount of value. In the 2008 Bear Market, frequently referred to as the Global Financial Crisis, real estate prices fell across the United States, which had never happened before. “Things” frequently “break” in Bear Markets due to the wide swings in price and lower liquidity. Financial markets may not function as expected. During the 2020 COVID Bear Market, futures contracts for West Texas Intermediate crude oil briefly traded at a negative price. In the 2008 Bear Market, previously safe money market funds lost enough to break the buck and fall below $1.00. In Bear Markets, it is common for someone to say that “It’s different this time” and then point to the weird and broken things as justification. Claims are made that buy-and-hold investing no longer works, or that diversification doesn’t provide benefits, or that markets will take 40 years to recover, or it’s now a stock picker's market because passive investing is dead. It’s never different. What should you do in a Bear Market? Below is our guide to both prepare for and survive a Bear Market. 1. Be prepared. Your portfolio should have enough risk to meet your financial goals, but not so much risk that a Bear Market causes you to lose sleep. Prepare ahead of time with an investment allocation that includes assets other than stocks. 2. Acknowledge your emotions. The “pain” from losses feels worse than the “joy” from gains. “Fight or flight” is a natural reaction to quickly make portfolio changes to “stop the bleeding.” When markets are volatile, try not to overreact in either direction. The fear of missing out (FOMO) can turn an investor into a trader. 3. Avoid mistakes. In volatile markets, the possibility for a “mistake” increases. Big mistakes, like selling into a crash, can easily be avoided. But opportunities for small mistakes are more prevalent when markets are changing quickly with large percentage daily swings in price. 4. Understand the irony of markets. The possibility of a drop in price, ironically, is highest when markets are richly priced at all-time highs. After a -20% decline, markets have de-risked. 5. Don’t think you are smarter than the market. Markets move too fast and in unpredictable ways during a Bear Market. Trying to get out and get back into the market has been shown to be a fool’s game. Missing the market’s best days has a dramatic impact on long-term results. And most of the market’s best days occur within Bear Markets. 6. Realize the difference in time horizon. Wall Street is focused on today, tomorrow, and this quarter. Their decisions are made within this short-term framework. Your investment horizon is next year, five years, and 25 years. Your long-term time horizon can allow you to take advantage of Wall Street’s shortsightedness. 7. Accept that nobody knows. Last week, on April 9th, Goldman Sachs called for a recession as their “base case” economic forecast. Seventy-three minutes later, they reversed their call, downgrading their projections of a recession. That same day, on April 9th, the S&P 500 gained 9.5% over the course of four hours. Either the long-term fundamental value improved by $4.5 trillion, or nobody really knows. 8. Realize that nobody rings a bell at the bottom. You won’t know that was “it” until much later. Concede that investment decisions take time to reach maturity and may go down before they go back up. 9. Bear Markets have tended to be shorter than bull markets. The average Bear Market typically lasts 11 months from top to bottom. However, the time it takes to recover from losses varies based on the severity of the Bear Market. The 2020 COVID Bear Market took five months to recover. The 2000 Dot-Com Bear Market took seven years. 10. Turn the TV off. Television, financial news, and social media are all designed to drive engagement. They do not have your best interest in mind. 11. Know where your cash is. Line up cash to meet your spending needs for the next year or two. This creates peace of mind to avoid having to raise cash in the midst of a downturn and de-risks the portfolio. 12. Stay diversified. Different assets respond differently in Bear Markets, reducing dramatic swings in the value of the overall portfolio. 13. Watch your allocations. Wide swings in values will move your portfolio out of line with the targeted allocations. Rebalancing keeps your risk in line with targets. Consider smaller, more frequent rebalancing to minimize the risk of bad timing. 14. Dollar cost average. This is the process of investing a certain amount of money at regular intervals, regardless of the market price. If you are in the Accumulation phase, Bear Markets provide an opportunity to purchase more shares at a lower cost. This same principle can be applied when withdrawing funds from the portfolio through portfolio sales occurring at regular intervals, regardless of the market price. 15. Tax loss harvesting. Sell a position for a tax loss, use the loss to first offset gains generated elsewhere in the portfolio, then deduct up to $3,000 against other income. Additional losses can be used in future years. Use the proceeds from the sale to replace the original position in something different that still provides market exposure. Watch out for the Wash Sale Rules. 16. IRA to Roth conversions. Converting a Traditional IRA into a Roth IRA in a down market lowers the tax cost of the conversion and shifts gains from a market recovery into the Roth account to grow tax-free. 17. Super fund 529 plans. You can fund five years’ worth of gifts into a 529 plan for education all at once, without concern of incurring gift tax, by electing to treat the contribution as if it were spread over five years. The hope is a recovery in investment markets accrues to beneficiaries. 18. Front load your 401(k) contributions. Pulling forward contributions into your 401(k) plan that you would have normally made throughout the year allows you to invest more in a market with depressed prices. But before you do, double-check how the company matching works to avoid missing out. 19. Take advantage of the dislocation. Time is the only variable you cannot control when compounding money. Time waits for no one. But Bear Markets are like a time machine, offering opportunities to make investments at prices you wish you had years ago, before the start of the last bull market. If you made it to the end of this article, thank you! If our thoughts above resonated with you, but it sounds like something a professional should be handling for you, get in touch with us to discuss how Highland can help you. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Opinions expressed herein are solely those of Highland Investment Advisors, LLC and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual adviser prior to implementation. Advisory services are offered by Highland Investment Advisors, LLC a SEC Investment Advisor.

Below is a summary of the first-quarter 2025 market performance and economic commentary. The full market performance report (PDF) , including commentary and charts, can be found here . Market Performance 📉The US equity market posted negative returns for the quarter and underperformed both non-US developed and emerging markets. Value outperformed growth and small caps underperformed large caps . 📈REIT ( real estate investment trusts) indices outperformed equity market indices. 📉 Within the US Treasury market, interest rates generally decreased during the quarter. The yield on the 10-Year US Treasury Note decreased 0.35% to 4.23%. 📈The Bloomberg Commodity Total Return Index returned +8.88% for the first quarter of 2025.

Warren Buffett famously said, "Price is what you pay, value is what you get." Yet, too often, decisions are made with price as the only factor, overlooking the real value behind a choice. We recently had a prospective client call us with only one question: how much are our fees? Unwilling to engage further in a conversation to understand what we offer, they simply stated, “Your fees are higher than the other firm, I’ll go with them.” It’s understandable that people want to compare costs, but a decision based solely on price can overlook critical factors. I suspect the prospective client may have had bad experiences with pushy salespeople in the past—perhaps even financial advisors—which is unfortunate. But making decisions about your financial future requires more than a surface-level comparison. Choosing a financial advisor isn’t like picking out a refrigerator at an appliance store. If you end up with the second-best fridge, your life won’t be significantly impacted. But selecting the wrong steward for your capital could have far-reaching consequences. The cost of fixing bad advice can be higher than the additional cost of good advice. The time spent researching and interviewing financial professionals should reflect the gravity of the decision. While some of the value of financial advice can be measured in dollars, much of it not economic. There is value in the peace of mind that comes from someone who can help you better understand the alternatives available, and the risks involved. The Decision Tradeoff: Price, Features, and Importance When making a decision, we often weigh three key factors: price, features, and importance. The right balance depends on what you value most. But another critical element is time spent researching—because at a certain point, additional analysis leads to diminishing returns. Below is a framework for thinking through decisions based on these factors. The 80/20 Rule in Decision Making A useful guideline is the 80/20 rule: 80% of the value in a decision comes from the most important 20% of factors. When evaluating financial advisors, that 20% likely includes trust, expertise, alignment with your goals, and fit for you—not just cost. Ask yourself if you can work with this person for the long-run. If 80% of your confidence in a decision can be reached with reasonable effort, stop researching and commit. But if you're making a high-stakes decision, investing extra time to ensure you’re choosing wisely is well worth it. Ultimately, choosing an advisor should be based on a holistic evaluation, not just a number. The best decisions are made when you balance cost, value, and the importance of getting it right.