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The Great Divide – Economy and Markets

jim Economy, Financial advisor, financial plan, Financial Planning, invest, Investing, investment strategy, Market Brief, Market Commentary, Market Outlook, Retirement Planning, Stock Market, wealth management August 17, 2020August 17, 2020financial advisor, Investing, investment strategy, market brief, Market Review, Stock Market, stocks, wealth management

The Dog Days are here! School is back in session, some in-person, some virtual. The virus continues to be present and the economy slowly is rebuilding while the markets continue to climb. Last week indexes finished slightly up. The Dow up 1.8%, S&P up 0.64%, and Nasdaq up 0.08%. The S&P began the week rising for it’s 7th straight session in the green and briefly passed the all-time high on Wednesday. The flat performance was a result of uncertainty with economic data, the latest virus patterns, and a second fiscal stimulus package that never was.

Last Week

The S&P 500 index is close to record territory once again. The economy and the stock market seem far off. Thursday marked the 100th day since the market lows on March 23. The markets have rebounded 50% since then. A strong recovery for investors, while millions have lost jobs and over 160,000 Americans have lost their lives. Management reports on earnings calls have been surprised at the speed and scale of the demand rebound. Many companies expected a short lived drop, followed by a gradual recovery. Not so much the “snap-back” experienced.

It is encouraging that the U.S. has added back millions of jobs lost during the first wave. Last Thursday marked the first jobless claims report under 1 million since March. Also, from earnings calls, consensus views are pointing towards record breaking earnings next year. Strongly supported by interest rates, which continue to be favorable for the foreseeable future. Investor fears over companies falling into financial distress are offset by the Feds support of buying bonds and Congress spending on relief. Retail sales also rose in July 1.2% higher than June, setting a new all-time high, and another sign of recovery.

The Week Ahead

The equity markets will have their eyes on Washington in hopes of a new stimulus. On Thursday, unemployment claims will be reported and the hope is that a under 1 million trend goes on. Continuing unemployment claims are still above 15 million, however, this is much lower than the 25 million in May. Stress for parents remains as school openings have created more unrest than security. How the school year unfolds for parents will no doubt impact the workforce productivity. Some areas of the country have already started so watching closely for signs that reopening in person can be done safely is key.

At the end of the day, it is clear the markets and the economy are not one in the same. Very different directions, as reflected in year-to-date index performance; Dow down 2.1%, S&P up 4.4%, and Nasdaq up 22.8% through the close on Friday.

Have a safe week!

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This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Retirement Planning Options – 401k or IRA – Which is Best?

jim 401k, Financial advisor, financial plan, Financial Planning, Investing Strategy, investment strategy, qualified account, qualified plan, retirement, Retirement Planning, Roth IRA, tax savings, Traditional IRA April 9, 2020April 9, 2020401K, retirement, retirement accounts, retirement planning, retirement plans, traditional IRA

Amid the recent market turmoil, lots of questions have risen around the best ways to save money for retirement. There are multiple retirement planning options for the individual saver. Now is a great time to re-evaluate your plan and strategy moving forward. Below I have highlighted a few of the basic accounts for retirement savings.

Similarities and Differences

The following discusses two popular retirement accounts, the 401k and the Traditional IRA. 401k’s and Traditional IRA’s are great accounts to save money for retirement. Both are similar in that the accounts grow on a tax deferred basis. Meaning once contributions are made into the account, growth and capital gains are not taxed. Another similarity is the taxation on withdrawals. When it is time to withdraw the money from the accounts, all the money taken out is taxed at ordinary income rates.

Schedule a call for a review of your retirement plan and targeted goals.

Differences between the accounts include contribution levels. With a 401k, in 2020, an individual under the age of 50 can contribute up to $19,500. With a Traditional IRA, the max contribution amount for savers under the age of 50 is $6,000. Another difference is that with a 401k, all the contributions are eligible for a tax deduction.

With a Traditional IRA, depending on your income, you may not qualify for the deduction. The “catch-up” provision allows for savers over the age of 50 to contribute more to their accounts. In 2020, the catch-up for 401k accounts is $6,500 and $1,000 for Traditional IRA’s. The deduction amount for a Traditional IRA depends on whether you already have an employer sponsored plan, your income level, and tax filing status. So be sure to discuss available options in detail with your tax and financial professional.

Another IRA option is a Roth IRA. The Roth IRA provides tax free growth in the account, as well as, tax free withdrawals after the account owner is 59 1/2. The contribution levels are the same as the Traditional IRA, however, income levels for making contributions are much lower. For example, a “single” tax filing status in 2020, the modified adjusted gross income must be below $124,000.

Pro’s and Con’s

The pro’s of owning a 401k are the big annual contribution limits, along with the tax deduction on your contributions and tax deferred growth. The downside of a 401k account is the limited investment choices within the employer plan. Also, the entire amount of withdrawals will be taxable. The pro’s of a Traditional IRA is that you may qualify for a deduction of contributions, tax deferred growth, and the investment options are fairly wide open to most investment choices in the marketplaces within the IRS guidelines.

The downsides of Traditional IRA’s include the small contribution amount and that all withdrawals are taxable. Another downside for both 401k plans and Traditional IRA’s is that they fall under the Required Minimum Distribution guidelines of the IRS. The RMD rules require money in these accounts to be withdrawn once the account owner turns 72 years old. Without a hardship, both accounts incur a penalty tax when withdrawals are made before age 59 1/2.

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The Roth Option

The Roth IRA option provides the biggest advantage at the withdrawal phase. Money withdrawn is tax free after age 59 1/2. The downside to the Roth IRA is that there is no tax advantage with contributions. All the contributions made with after tax dollars. Another advantage to the Roth IRA is that Required Minimum Distributions do not apply. Therefore, the IRS does not force the account owner to withdraw funds at anytime.

When it comes to Retirement Planning, there are good options for individuals. I hope you learned something from this post. If you still have a question, connect with us here. Call today if you need help, want to discuss options further, or want to review your current plan alongside your goals.

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

Positive Investing News

jim family wealth, family wealth management, invest, Investing, Investing Strategy, investment manager, investment strategy, retirement, Retirement Planning, wealth management, wealth planning strategies March 26, 2020March 26, 2020family wealth, family wealth management, invest, Investing, Investing Strategy, investment planning, investment strategy, Investments, strategic wealth management, wealth management

Finding good news right now can be tough. The Q&A below highlights some of the positive investing news that can result from a crisis.

What is the one positive that you see coming out of this crisis
that is least expected?

Buying opportunity! Valuations have soared during the bull market run following the 2008-2009 recession, individuals interested in long-term investment growth should consider this as one of the best discount sales in recent years. Many people I speak to wish they could go back to the 2008-2009 time period and buy stocks. Today, some quality companies are down 30-80% year-to-date.

What new businesses will break into the marketplace, as a result of this crisis, that no one expected to grow so fast?

Technology has proven to be the winner. The S&P 500 Info Tech sector index has greatly outperformed the market. Included in this index are businesses supporting those working from home, such as, video conferencing and e-document companies.

What existing industries do you feel will rebound the fastest
as things begin to return to normal?

The travel industry is taking an enormous hit. This will not last. Consider how many people will need a vacation after being stuck in their homes for a month (or longer). Or even had their trips postponed. Hotels, airlines, cruises, they are beaten down right now but will bounce back as the virus is contained. The stimulus will also aid, to some extent, discretionary spending for some. Travel is a huge component of discretionary spending.

Click here if you would like to learn more about our thoughts on Positive Investing News. Also, to discuss options and if we can assist you with your wealth management, investment, and retirement planning.

Portfolio Management Perspective

jim family wealth, family wealth management, Financial advisor, Investing Strategy, investment manager, investment strategy, Market Commentary, money manager, Retirement Planning, wealth management, wealth planning strategies March 13, 2020March 26, 2020financial advisor, financial planning, investment planning, investment strategy, Market Commentary, retirement planning, wealth management

Review of Benchmarks, Strategy, Risk, and Performance – Perspective from one of our Portfolio Manager’s – March 13, 2020

Whenever the topic of investing is discussed we are conditioned to think first of the New York Stock Exchange opening bell and Wall St. bankers in Brioni suits. And why shouldn’t we? Over the past 200 years, stocks have arguably been the most powerful generator of wealth.

That rosy conventional wisdom has the benefit of a perpetual time-horizon and an ambivalence towards risk. As we all know, stocks might be notorious for rising over time, but they also can produce nasty results if improperly managed. Very few of us are fortunate enough to be ambivalent towards risk or the trajectory of our investments – if we were, being 100% invested in the DOW or S&P 500 would be a fine strategy. That is where financial planning and asset management comes in.

As a conservative asset manager, we are tasked with two main objectives a) produce a rate of return that achieves an objective (generally retirement/self-sufficiency) and b) protect against downside and volatility. Our definition of success in both goals is directly related to the specifics of your financial situation.

Since the inception of our Total Return strategy in 2004, we’ve employed a mix of equities (stocks), commodities, fixed income, and cash to achieve the objectives stated above for clients. At any given point, we may be more dependent on one asset class or another to provide upside thrust or downside support for our clients’ portfolios. As you might expect, this asset mix is largely dependent on (among other things) the outlook for the economy, interest rates, and the inclination for risk in the markets.

In some environments, such as 2017, the stock market and high-quality individual equities genuinely are the best option for capital appreciation. In other periods such as late 2018 and 2019, a choppy market and unclear fundamental prospects warranted a higher concentration in traditionally less economically sensitive asset classes like bonds, gold, and cash. No matter the environment, we are continually assessing our outlook and corresponding exposures.

In the client updates over the past week, we noted how our conservative positioning at the outset of this decline was yielding promising results. That remains the case, and when we evaluate client performance relative to equity benchmarks (DOW, S&P 500, NASDAQ), we are heartened by the fact that client accounts have a) declined substantially less than the benchmarks and b) exceeded the results previously experienced in similar periods of stress.

Since our inception, having a trained eye on risk management has allowed clients to generally experience asymmetric rates of upside and downside participation vs. equity benchmarks. In other words, we’ve consistently achieved more upside than downside through the course of market trends.

Finally, we understand that the personal nature of the virus and the corresponding downside reaction in markets can be especially anxiety provoking. And while this is everybody’s first time managing through a true pandemic, it is far from our first time managing through a panicked market. We will get through this turbulent time and be prepared to deploy the capital we’ve preserved throughout the episode.

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Roth IRA Advantages

jim Financial Planning, Investing Strategy, investment strategy, qualified plan, Retirement Planning, Roth IRA, tax savings May 22, 2018October 20, 2022financial planning, Investing Strategy, investment strategy, qualified plan, retirement planning, Roth IRA, tax savings

We have a special blog post tonight from the one and only Senor Frog, one of our biggest fans, submitting this question through the website contact form – What are the advantages to setting up a Roth IRA plan? Great question Senor, thanks for writing us! First, a Roth IRA is a retirement account for individuals. The contributions (money you put in each year) grow tax free, and then when you pull the money out it is also tax free! Pretty nice right? Does this sound to good to be true? All these tax advantages, there must be a catch, and there are, a few anyway…

Roth IRA

Income Limits – not everyone can open a Roth IRA, you have to be below a “Modified AGI” (Adjusted Gross Income) amount each year. In 2018, the amount for married couples filing jointly to make full contribution amounts is $189,000, and single/head of household tax filings the max modified AGI is $120,000. If you file married but filing separately, contact your tax specialist for plan details.
Contributions Limits – with tax advantages who wouldn’t want to put all the money they can into this plan, this includes me, what’s the maximum each year? In 2018, the maximum contribution to a Roth IRA is $5,500, or your total taxable compensation amount for the year, if your compensation was less than $5,500. Bonus for the 50+ crowd, if you are age 50 or older, the maximum contribution amount is $6,500. This additional amount is often referred to as the “catch-up” provision.
Tax Limits – what tax limits, in the intro of this post there was nothing but tax advantages! With a Roth IRA, there is no income tax deduction on the contribution amounts. This is also the reason when you withdraw the funds it is tax free, because you already paid taxes on the money you put in! Also, unlike a non-qualified brokerage account, if you have a loss in the account there is no tax write-off for the losses incurred.
Withdrawal Limits – if you satisfy the requirements, qualified distributions are tax free. The basic qualified distribution would be pulling money out of this plan after age 59 1/2. However, if the account has grown and you are under the age of 59 1/2 you are penalized if the withdrawal includes contributions and gains. In this scenario, the gains are taxable and penalized.

Hmmm, not sure this plan sounds so great anymore, read on, it gets better! The advantages of the Roth IRA plan are:

It’s a savings plan often used alongside a 401(k) or other retirement plan to mix tax strategies in retirement.
The contributions made into the plan grow tax free. Compounding tax free growth adds up to a lot of money over 10, 15, 20, or even 30+ years.
If you still have earned income, you can make contributions to this plan beyond age 70 1/2. People are living longer, and working longer, this may be a bigger advantage than people think.
There are not RMD’s (Required Minimum Distributions) with this plan. Unlike a IRA/401(k), at 70 1/2 nobody (IRS) is demanding you take a certain amount each year. This is very important during market corrections or downturns.
And finally, tax free withdrawals! Wouldn’t it be nice after paying 30 or 40 years of taxes to receive tax free income.

Summary: It’s not a perfect plan, those don’t exist. But this plan offers tremendous tax savings opportunity. To grow a retirement account over a working period of time, whether its 40 years or 5 years. If you would like to speak with one of our advisors regarding how you can take advantage of a Roth IRA, contact us today.

For more information on individual retirement planning, follow this link.