Things are getting pretty ridiculous. The inexperience of professional money managers is showing now. Sadly, I suppose that the money managers who are older than me are starting to retire and younger ones are filling their shoes. Well, something happened along the way. These younger money managers do not know what they are doing apparently. They get scared easy.
Sell. Sell. Sell. This must be the new mantra of young money managers. A few short months ago, they were all claiming that stocks were overvalued. Now, they are undervalued yet, they continue to sell. They are making the classic investing mistake of overselling.
The problem with selling stocks is that this raises cash and that cash needs to be put back to work at some point. When is that? When is the bottom in the stock market? When is the right time to go back in? Most money managers have no clue. They are just guessing. However, when they sell, at least it makes them feel better like they have done something to protect client assets. Odds are that they will sell at an inopportune time and buy back in at another inopportune time.
It is usually good to sell if you plan to make a sector replacement. Like sell Technology and buy Utiliities, for example.
Well, you may be asking, "What did you do Mr. Smarty Pants?" On November 28th, I sold out of Sovereign Bonds, half of my Intermediate Corporate Bonds positions and all of my Technology positions and raised about 18 - 20% in cash . The bonds have come back some since then, but trust me, they will roll back over to the downside starting tomorrow most likely after the Fed raises interest rates. Technology is off about 7% since I sold it. Of course, nobody will ever give me credit for that decision.
I have some other thoughts on putting the 18 - 20% cash back to work, but with these young, inexperienced money managers making dumb December decisions (DDD), I think I might wait until January. I'm pretty sure that these young money managers will get all their selling done before year end. They are pretty predictable in their ignorance. 👍
Tuesday, December 18, 2018
Tuesday, December 11, 2018
Marco Polo Johnson
It is tough when you lose a family member. Dogs, for most people, are considered family members and that was certainly the case for our family. December is a tough month for our family every year anyway, because my first son Reese died on December 6th and my brother David died on December 12th, late at night. This past Sunday, December 9th, our Rat Terrier, Marco Polo, who was 16 and 1/2 years old, passed away from complications related to a stroke.
It had been a long time for me since I personally lost a dog. The last time was my Old English Sheepdog named Bogie who died when I was in my 20's. It was really traumatic back then in the 1980's when Bogie died and even more so this week when Marco Polo Johnson died. You never want to see animals suffer, but you accept that this is the circle of life. You can only give thanks to God that you were blessed with this little guy for so long.
My wife and I are very sad to see him go as is my son and daughter. In dog years, he lived a long 115 1/2 years and trust me, he was in complete control for most of his days. He was crazy about my wife and kids, but he didn't like it if I hugged my wife. He would get jealous and bark at me! I loved him. The little stinker. We all did.
It had been a long time for me since I personally lost a dog. The last time was my Old English Sheepdog named Bogie who died when I was in my 20's. It was really traumatic back then in the 1980's when Bogie died and even more so this week when Marco Polo Johnson died. You never want to see animals suffer, but you accept that this is the circle of life. You can only give thanks to God that you were blessed with this little guy for so long.
My wife and I are very sad to see him go as is my son and daughter. In dog years, he lived a long 115 1/2 years and trust me, he was in complete control for most of his days. He was crazy about my wife and kids, but he didn't like it if I hugged my wife. He would get jealous and bark at me! I loved him. The little stinker. We all did.
Wednesday, November 21, 2018
Failed Thinking of The Federal Reserve
Investing is really about looking into the future and trying to determine the direction of the markets in the short and long term. The Federal Reserve does this along with individual investors. There are a couple of reasons as to why things have changed as far as the global markets are concerned. One reason is that the Federal Reserve is no longer buying bonds on the open market which was commonly considered stimulus to the U.S. economy. Instead, the Federal Reserve has quit buying bonds on the open market and let the bonds that they bought previously just mature in a normal and orderly schedule. This action by the Fed causes significantly less demand for bonds and with less demand comes higher interest rates. They have over four trillion to unwind from their balance sheet. That is close to 20% of the U.S. debt.
The second reason why things have changed is because the Federal Reserve has been raising interest rates. The failed thinking of the Federal Reserve Board of Governors is that "this is the way it has always been done." They justify raising rates to keep a lid on inflation, because this is the way it has always been done. In the Fed's mind, inflation is a bigger risk than the U.S. debt.
When you add these two reasons together, then you kind of have a double whammy on the economy that will stifle growth.
As I look back in my lifetime, I can remember Paul Volcker, Alan Greenspan, Ben Bernanke, Janet Yellen and now Jerome Powell. Did any of these people do their jobs in an exceptional manner? In my opinion, no. It is a fallacy to believe that the Federal Reserve Chairman or Chairwoman can actually control the United States economy like the CEO of a business. They all made the same mistakes. They continued the failed policies of their predecessors with a "this is the way it has always been done" mentality.
My question would be this. If we owe close to 22 trillion in debt and the Federal Reserve raises interest rates on that debt, then wouldn't that increase the total debt at a faster clip? The answer of course is yes.
Let's take the reverse of this thinking. What if we let the economy grow at 4% for an extended period of time? In reality, it will never grow at 4% for an extended period of time, because eventually consumers will get tapped out and the economy will slow down. However, let's assume we let the economy grow at 4% for an extended period of time. If the economy is growing, then that is better than if it is not growing. You don't have to be too smart to figure that out. A growing economy is good. A shrinking economy (recession) is bad.
If consumers' incomes are rising, then they will spend more and pay more in taxes. If consumers are spending more, then corporations are making profits. If corporations are making profits, then they are paying more in taxes. If they are paying more in taxes, then the deficit will come down. Do we want the deficit to come down? Apparently, no one at the Federal Reserve cares about the deficit coming down.
Look it is not that complicated. The Federal Reserve's convoluted way of thinking is that inflation is a killer and because of Jimmy Carter days, we have to get a handle on it and keep it in check. Otherwise, these Fed Governors think we will see a repeat of 18% interest rates. This is so idiotic it is not even funny. We are never going to see 18% interest rates again. That was an anomaly.
The Fed believes it is better to kill economic growth, because we cannot have 18% interest rates again. This is such a stupid way of thinking! The Fed would rather increase interest rates and thus increase our deficit.
If the economy were allowed to grow, it would reduce the deficit and burn itself back down. By that I mean, if you got a raise and bought a new house, then bought new furniture and a new car, then you are tapped out. Six months from now, you are not going to move to a new bigger house, buy more new furniture and trade in your six month old car for a new more expensive one. The Fed thinking is that yes you will do all that and they want to stop you by raising interest rates. This is stupid thinking. The economy will slow down on its own, because people will slow their spending at some point. Specifically, after they have purchased their new house, their new furniture and their new car. Mortgage rates will have to come down to attract buyers. Furniture companies will have to offer deals to get you to buy new furniture and appliances. Car dealers will have to offer incentives like lower interest rates to get you to trade in that car you bought six months ago.
Don't you see? We are never going to see 18% interest rates again. Consumers will stop it before it ever happens. Economic growth is a good thing and it will make things better for all of us. Too bad the Federal Reserve is stuck with the failed thinking of "that's the way it has always been done."
The second reason why things have changed is because the Federal Reserve has been raising interest rates. The failed thinking of the Federal Reserve Board of Governors is that "this is the way it has always been done." They justify raising rates to keep a lid on inflation, because this is the way it has always been done. In the Fed's mind, inflation is a bigger risk than the U.S. debt.
When you add these two reasons together, then you kind of have a double whammy on the economy that will stifle growth.
As I look back in my lifetime, I can remember Paul Volcker, Alan Greenspan, Ben Bernanke, Janet Yellen and now Jerome Powell. Did any of these people do their jobs in an exceptional manner? In my opinion, no. It is a fallacy to believe that the Federal Reserve Chairman or Chairwoman can actually control the United States economy like the CEO of a business. They all made the same mistakes. They continued the failed policies of their predecessors with a "this is the way it has always been done" mentality.
My question would be this. If we owe close to 22 trillion in debt and the Federal Reserve raises interest rates on that debt, then wouldn't that increase the total debt at a faster clip? The answer of course is yes.
Let's take the reverse of this thinking. What if we let the economy grow at 4% for an extended period of time? In reality, it will never grow at 4% for an extended period of time, because eventually consumers will get tapped out and the economy will slow down. However, let's assume we let the economy grow at 4% for an extended period of time. If the economy is growing, then that is better than if it is not growing. You don't have to be too smart to figure that out. A growing economy is good. A shrinking economy (recession) is bad.
If consumers' incomes are rising, then they will spend more and pay more in taxes. If consumers are spending more, then corporations are making profits. If corporations are making profits, then they are paying more in taxes. If they are paying more in taxes, then the deficit will come down. Do we want the deficit to come down? Apparently, no one at the Federal Reserve cares about the deficit coming down.
Look it is not that complicated. The Federal Reserve's convoluted way of thinking is that inflation is a killer and because of Jimmy Carter days, we have to get a handle on it and keep it in check. Otherwise, these Fed Governors think we will see a repeat of 18% interest rates. This is so idiotic it is not even funny. We are never going to see 18% interest rates again. That was an anomaly.
The Fed believes it is better to kill economic growth, because we cannot have 18% interest rates again. This is such a stupid way of thinking! The Fed would rather increase interest rates and thus increase our deficit.
If the economy were allowed to grow, it would reduce the deficit and burn itself back down. By that I mean, if you got a raise and bought a new house, then bought new furniture and a new car, then you are tapped out. Six months from now, you are not going to move to a new bigger house, buy more new furniture and trade in your six month old car for a new more expensive one. The Fed thinking is that yes you will do all that and they want to stop you by raising interest rates. This is stupid thinking. The economy will slow down on its own, because people will slow their spending at some point. Specifically, after they have purchased their new house, their new furniture and their new car. Mortgage rates will have to come down to attract buyers. Furniture companies will have to offer deals to get you to buy new furniture and appliances. Car dealers will have to offer incentives like lower interest rates to get you to trade in that car you bought six months ago.
Don't you see? We are never going to see 18% interest rates again. Consumers will stop it before it ever happens. Economic growth is a good thing and it will make things better for all of us. Too bad the Federal Reserve is stuck with the failed thinking of "that's the way it has always been done."
Tuesday, September 25, 2018
Diversification Does Not Work
This is one of those times where it is tempting to conclude that diversification does not work. Most diversified portfolios are kind of flat to slightly up on the year 2018. It makes you think you are doing something wrong. However, you would be wrong about that. Diversification does work. The people who conclude that it does not work are only looking at the upside and not the potential downside risk. Over a normal period of time when the markets are up and down, the diversified portfolio will typically win out most all of the time or at a minimum be close in performance to a higher risk portfolio.
Let's look at an example case. For simplification purposes, let's assume Investor A invested 100% in the stock market and made 12%, 15% and 20% for the last three years. Assuming $100,000 invested, Investor A's account would have grown to $154,560. In year 4, the market drops 20% and now Investor A ends up with $123,648.
Investor B is diversified and invests the same $100,000 and earns 8.4%, 10.5% and 14%. At the end of three years, Investor B's account would have only grown to $136,551.48. However, because Investor B is diversified, he/she is not as affected in a market decline. With a 14% decline because Investor B is only taking 70% of the risk of Investor A, Investor B ends up with $117,434.27.
Well, Investor A wins right? Maybe, maybe not. What does every investor do when they look at their accounts? They remember how high their accounts were. Investor A will remember that their account was $154,560 and it lost $30,912 in one year! Thirty thousand, almost thirty one thousand dollars! This is what they will focus on. Then they will look at their financial advisor like he or she is an idiot for losing nearly thirty-one thousand dollars and look for another financial advisor and repeat the same process all over again. Or, perhaps, they will be an even worse fool and think they can invest it better themselves.
Investor B's account only dropped $19,120.21 which is 14% when the overall market lost 20%. They will feel as though they made out better than the overall stock market and they will be glad that they were diversified. They will thank their financial advisor for keeping them diversified and on track towards their financial goals. Investor B also knows that if the following year, the market goes down again, then they will be close to the performance of Investor A without all the headaches.
The problem with diversification is that everyone wants immediate gratification. They assume that the stock market is always going to go straight up and never go sideways or down. Plus, when they do comparisons, they make faulty assumptions about the future direction of the stock market.
The truth is that investing needs to incorporate both up and down markets and there is really only two ways to do this. One is to try and jump in and out of the markets which is a fools errand. The other is to be diversified and sacrifice a little return in exchange for having a plan, a process and a professional, my three P's of investing.
You never thought about diversification this way, did you? Perhaps you should.
Let's look at an example case. For simplification purposes, let's assume Investor A invested 100% in the stock market and made 12%, 15% and 20% for the last three years. Assuming $100,000 invested, Investor A's account would have grown to $154,560. In year 4, the market drops 20% and now Investor A ends up with $123,648.
Investor B is diversified and invests the same $100,000 and earns 8.4%, 10.5% and 14%. At the end of three years, Investor B's account would have only grown to $136,551.48. However, because Investor B is diversified, he/she is not as affected in a market decline. With a 14% decline because Investor B is only taking 70% of the risk of Investor A, Investor B ends up with $117,434.27.
Well, Investor A wins right? Maybe, maybe not. What does every investor do when they look at their accounts? They remember how high their accounts were. Investor A will remember that their account was $154,560 and it lost $30,912 in one year! Thirty thousand, almost thirty one thousand dollars! This is what they will focus on. Then they will look at their financial advisor like he or she is an idiot for losing nearly thirty-one thousand dollars and look for another financial advisor and repeat the same process all over again. Or, perhaps, they will be an even worse fool and think they can invest it better themselves.
Investor B's account only dropped $19,120.21 which is 14% when the overall market lost 20%. They will feel as though they made out better than the overall stock market and they will be glad that they were diversified. They will thank their financial advisor for keeping them diversified and on track towards their financial goals. Investor B also knows that if the following year, the market goes down again, then they will be close to the performance of Investor A without all the headaches.
The problem with diversification is that everyone wants immediate gratification. They assume that the stock market is always going to go straight up and never go sideways or down. Plus, when they do comparisons, they make faulty assumptions about the future direction of the stock market.
The truth is that investing needs to incorporate both up and down markets and there is really only two ways to do this. One is to try and jump in and out of the markets which is a fools errand. The other is to be diversified and sacrifice a little return in exchange for having a plan, a process and a professional, my three P's of investing.
You never thought about diversification this way, did you? Perhaps you should.
Tuesday, August 21, 2018
Account Aggregation Will Force A Change in Financial Advisors
If your financial advisor is not using Account Aggregation, then you might want to consider a change. What is Account Aggregation? It is something that you are probably already using but may not realize it. If you use Quicken, Mint, or your own bank's web site to keep up with all your myriad of accounts, then this is Account Aggregation.
Account Aggregation has been around for a while, but clients are sometimes a bit hesitant to use it. They fear that they are putting their information "out there" for hackers to steal. However, the reality is that if you log into any bank, credit union, brokerage firm or other financial institution, then you are already putting your information "out there" for hackers to steal. But, each of these firms have security protocols to protect you and most protect you against hackers. If your bank account was hacked for example, then in all likelihood, the bank will reimburse you if a hacker found a loophole in their system. So, the risk is really close to nil.
Financial planning software can now utilize Account Aggregation to your advantage. You have to follow my logic here. If I am a hacker, am I going to go after a financial planning web site with a limited number of clients, or am I going to go after a bank web site with millions of clients? Where is their more opportunity to make money from a hacker's standpoint? The bank. Most hackers do not even know what a financial planning software firm does, much less that they have Account Aggregation. Plus add to the fact that a bank has a ton more customers than a financial planning software firm, then you can see the stark contrast.
I use Right Capital's financial planning program. How it works is you link your accounts by putting in your login and password for your bank, for example, one time, then it remembers it from that point forward. When the information comes across to Right Capital, the accounts numbers are hidden. So, your accounts numbers cannot be hacked if they are not in the Right Capital system! In addition, I can do this without a need for your Social Security number. At First Coast Planning, LLC, it is optional to open an account for most clients. I would only need your Social Security number if you were to open a brokerage account. If you don't then, I don't need it.
I have been a Certified Financial Planner for over 25 years, and I have to let you in on a little secret. Most people do not have financial plans. Although, I am a big believer in them, it has been a struggle to get clients to taken advantage of this service. Primarily, it has been a struggle because of the old way of doing things. The old way is to make copies of all your statements, bring them to your financial planner and then he or she looks them over and determines that you brought old statements and he or she needs more up-to-date statements. This causes delays with incomplete information. It is not a very good process.
Fast forward to today, there is no need to copy anything. All you need to do is log into your financial planning site and link your accounts to it, one by one. You link your bank, your mortgage, your credit cards, your student loans, personal loans, investments and retirement accounts. Once linked, then your financial planner has everything they need to work on your financial plan without delays. The beauty of Account Aggregation and financial planning software together is everything is in one place after everything is linked up.
Look at the alternative. How much do you owe on your mortgage, or home equity loan? How do you find out? How much is in your 401k today? What do you have to do to find out? How much is in your checking account? Savings account? IRA? Roth? The only way to find out is to do what? Log into all the financial institutions holding these accounts. How much time does that take? Let me tell you. A lot. Don't you see how inefficient this process of keeping up with your entire financial picture is?
Financial planning software with Account Aggregation is a huge time saver for you. It is one place where you can log on and see everything you own and owe in one place. How powerful is that?
Can your financial advisor do that? If not, then you might want to take a gander at www.firstcoastplanning.com and scroll down to the Keynote Presentation. It will make more sense to you if you do this. Or, you could just continue to use a financial advisor without Account Aggregation and log onto a myriad of web sites each month and probably build an Excel or Numbers spreadsheet to try and keep up with it all. It is not that tough of a decision once you think about it critically.
Account Aggregation has been around for a while, but clients are sometimes a bit hesitant to use it. They fear that they are putting their information "out there" for hackers to steal. However, the reality is that if you log into any bank, credit union, brokerage firm or other financial institution, then you are already putting your information "out there" for hackers to steal. But, each of these firms have security protocols to protect you and most protect you against hackers. If your bank account was hacked for example, then in all likelihood, the bank will reimburse you if a hacker found a loophole in their system. So, the risk is really close to nil.
Financial planning software can now utilize Account Aggregation to your advantage. You have to follow my logic here. If I am a hacker, am I going to go after a financial planning web site with a limited number of clients, or am I going to go after a bank web site with millions of clients? Where is their more opportunity to make money from a hacker's standpoint? The bank. Most hackers do not even know what a financial planning software firm does, much less that they have Account Aggregation. Plus add to the fact that a bank has a ton more customers than a financial planning software firm, then you can see the stark contrast.
I use Right Capital's financial planning program. How it works is you link your accounts by putting in your login and password for your bank, for example, one time, then it remembers it from that point forward. When the information comes across to Right Capital, the accounts numbers are hidden. So, your accounts numbers cannot be hacked if they are not in the Right Capital system! In addition, I can do this without a need for your Social Security number. At First Coast Planning, LLC, it is optional to open an account for most clients. I would only need your Social Security number if you were to open a brokerage account. If you don't then, I don't need it.
I have been a Certified Financial Planner for over 25 years, and I have to let you in on a little secret. Most people do not have financial plans. Although, I am a big believer in them, it has been a struggle to get clients to taken advantage of this service. Primarily, it has been a struggle because of the old way of doing things. The old way is to make copies of all your statements, bring them to your financial planner and then he or she looks them over and determines that you brought old statements and he or she needs more up-to-date statements. This causes delays with incomplete information. It is not a very good process.
Fast forward to today, there is no need to copy anything. All you need to do is log into your financial planning site and link your accounts to it, one by one. You link your bank, your mortgage, your credit cards, your student loans, personal loans, investments and retirement accounts. Once linked, then your financial planner has everything they need to work on your financial plan without delays. The beauty of Account Aggregation and financial planning software together is everything is in one place after everything is linked up.
Look at the alternative. How much do you owe on your mortgage, or home equity loan? How do you find out? How much is in your 401k today? What do you have to do to find out? How much is in your checking account? Savings account? IRA? Roth? The only way to find out is to do what? Log into all the financial institutions holding these accounts. How much time does that take? Let me tell you. A lot. Don't you see how inefficient this process of keeping up with your entire financial picture is?
Financial planning software with Account Aggregation is a huge time saver for you. It is one place where you can log on and see everything you own and owe in one place. How powerful is that?
Can your financial advisor do that? If not, then you might want to take a gander at www.firstcoastplanning.com and scroll down to the Keynote Presentation. It will make more sense to you if you do this. Or, you could just continue to use a financial advisor without Account Aggregation and log onto a myriad of web sites each month and probably build an Excel or Numbers spreadsheet to try and keep up with it all. It is not that tough of a decision once you think about it critically.
Monday, August 13, 2018
Turkey - Another Reason to be Diversified
Do you try and time the markets? Do you make sector bets? Do you buy the U.S. Dollar or sell it? What about country specific investing? Do you try and pick countries that you think will outperform like Turkey? What about bonds in a rising interest rate environment? Or, in a declining interest rate environment? What do you do?
How about what the President is doing? How do you invest around that?
Of course, do not forget the Federal Reserve and what they decide to do with interest rates. Where are you investing when they are raising rates?
This is just a very small tidbit of questions that you should ask yourself, if you are one of the people out there who thinks they can manage money on their own. You have to know what to do in all of the above situations and be right about it more times than not. Have you been consistently right? Because, one wrong decision can cost you plenty.
Doesn't it make a whole lot more sense to hire a professional money manager who shoulders the burden for you? We are all on this earth for a limited time, so why on earth do you want to spend it doing your own money management? It just doesn't make any sense to me.
What is your time worth? Take your salary or your last salary and divide it up by 365 days per year. Break it down to an hourly rate. After you have done that, then take an honest assessment of the hours you spend watching CNBC, Bloomberg, or Fox Business. Then, keep going and assess how much time you spend on the Internet researching investments. Of course, do not forget the Wall Street Journal, Barron's and the investment newsletters that you subscribe to either. Take on some more time with reviewing emails and statements from your brokerage firm. Don't forget about taking the time to trade, because you have to slow down and make sure you do not make any mistakes when you trade. Also, you need to factor in your conversations with friends, or going to free lunch seminars with other financial advisors to see if you can get some free advice.
All in all, how many hours are you spending managing your own money? When you put the pencil to it, if you are honest with yourself, then the amount of time spent or wasted on these activities will probably surprise you. Don't forget about the fact that you are a rank amateur either. When you make the wrong decision, then it can cost you plenty.
Did you go to cash in 2008, or just ride it out? If you went to cash, then when did you get back in? You see, there are two decisions when you go to cash. One to get out and the other to get back in. It is easy to get out, but much harder to know when to strategically get back into the market. Keeping in mind of course, that you may need a whole new portfolio at that point. After all, the one that you got out of obviously wasn't working or you would not have gotten out of it in the first place. This means that you will need to do a whole lot more research, doesn't it? Not really, because researching investments is something that you can constantly do and it will probably will not make a hill of beans in your performance. You see, the asset classes that you choose to invest in will be what really matters.
Investing is challenging, even for professionals. Professionals have a whole lot more tools at their disposal than you ever will have. Think about computer algorithms, for example. Do you really think your decision making skills is going to out fox a computer algorithm that can make trades in a split second?
The best thing you can do as an investor is hire a professional money manager. Spend time doing the things that you love to do and with those who you care about. You will be much better off. There is a light at the end of the tunnel for all of us. It is best to spend your time wisely.
How about what the President is doing? How do you invest around that?
Of course, do not forget the Federal Reserve and what they decide to do with interest rates. Where are you investing when they are raising rates?
This is just a very small tidbit of questions that you should ask yourself, if you are one of the people out there who thinks they can manage money on their own. You have to know what to do in all of the above situations and be right about it more times than not. Have you been consistently right? Because, one wrong decision can cost you plenty.
Doesn't it make a whole lot more sense to hire a professional money manager who shoulders the burden for you? We are all on this earth for a limited time, so why on earth do you want to spend it doing your own money management? It just doesn't make any sense to me.
What is your time worth? Take your salary or your last salary and divide it up by 365 days per year. Break it down to an hourly rate. After you have done that, then take an honest assessment of the hours you spend watching CNBC, Bloomberg, or Fox Business. Then, keep going and assess how much time you spend on the Internet researching investments. Of course, do not forget the Wall Street Journal, Barron's and the investment newsletters that you subscribe to either. Take on some more time with reviewing emails and statements from your brokerage firm. Don't forget about taking the time to trade, because you have to slow down and make sure you do not make any mistakes when you trade. Also, you need to factor in your conversations with friends, or going to free lunch seminars with other financial advisors to see if you can get some free advice.
All in all, how many hours are you spending managing your own money? When you put the pencil to it, if you are honest with yourself, then the amount of time spent or wasted on these activities will probably surprise you. Don't forget about the fact that you are a rank amateur either. When you make the wrong decision, then it can cost you plenty.
Did you go to cash in 2008, or just ride it out? If you went to cash, then when did you get back in? You see, there are two decisions when you go to cash. One to get out and the other to get back in. It is easy to get out, but much harder to know when to strategically get back into the market. Keeping in mind of course, that you may need a whole new portfolio at that point. After all, the one that you got out of obviously wasn't working or you would not have gotten out of it in the first place. This means that you will need to do a whole lot more research, doesn't it? Not really, because researching investments is something that you can constantly do and it will probably will not make a hill of beans in your performance. You see, the asset classes that you choose to invest in will be what really matters.
Investing is challenging, even for professionals. Professionals have a whole lot more tools at their disposal than you ever will have. Think about computer algorithms, for example. Do you really think your decision making skills is going to out fox a computer algorithm that can make trades in a split second?
The best thing you can do as an investor is hire a professional money manager. Spend time doing the things that you love to do and with those who you care about. You will be much better off. There is a light at the end of the tunnel for all of us. It is best to spend your time wisely.
Wednesday, July 18, 2018
New 401(k) Options Being Considered
Say it ain't so, Joe. Is Congress really considering capping 401(k) contributions at $2,400 per year which is down from $18,500 per year now? Let's hope not. This would be a huge mistake and I cannot imagine that it is even true. This would never pass into legislation.
What are these people (idiots) thinking? If you are over 50 years old, you can contribute an additional $6,000 on top of the $18,500. What are they going to do? Allow 50 year old and up people an additional $600 to make it $3,000 total? Seriously?
I just wonder if this is really fake news by the media to try and destroy the Tax Cut 2.0 plan by the Republicans. It fits their playbook 100%. Scare people to death with their outlandish claims in order to win votes from stupid people who don't have any sense and who listen and read fake news all day.
If true, this has to be the dumbest thing to ever come out of Washington, D.C.
President Trump tweeted that the 401(k) will be left alone. I cannot imagine him signing this middle class destroying legislation, nor any President for that matter.
Another thing I heard was they are talking about allowing people over age 70 1/2 to be able to make contributions to their IRA's. Currently, this is not allowed. This is give an old guy a break thinking which would be better than capping contributions. This makes me wonder if the news that came out about capping 401(k) contributions at $2,400 was in reality just another line of fake news.
It always blows my mind that the government has disincentives for people to work. I guess they want everyone on the government dole. Don't these Washington, D.C. idiots understand that if people cannot contribute deductible money to their 401(k), then this means that they will have less money in life which increases their possibility of becoming dependent on the government in the future. Dumb with a capital "D".
What are these people (idiots) thinking? If you are over 50 years old, you can contribute an additional $6,000 on top of the $18,500. What are they going to do? Allow 50 year old and up people an additional $600 to make it $3,000 total? Seriously?
I just wonder if this is really fake news by the media to try and destroy the Tax Cut 2.0 plan by the Republicans. It fits their playbook 100%. Scare people to death with their outlandish claims in order to win votes from stupid people who don't have any sense and who listen and read fake news all day.
If true, this has to be the dumbest thing to ever come out of Washington, D.C.
President Trump tweeted that the 401(k) will be left alone. I cannot imagine him signing this middle class destroying legislation, nor any President for that matter.
Another thing I heard was they are talking about allowing people over age 70 1/2 to be able to make contributions to their IRA's. Currently, this is not allowed. This is give an old guy a break thinking which would be better than capping contributions. This makes me wonder if the news that came out about capping 401(k) contributions at $2,400 was in reality just another line of fake news.
It always blows my mind that the government has disincentives for people to work. I guess they want everyone on the government dole. Don't these Washington, D.C. idiots understand that if people cannot contribute deductible money to their 401(k), then this means that they will have less money in life which increases their possibility of becoming dependent on the government in the future. Dumb with a capital "D".
Tuesday, July 10, 2018
Self-Employed Dilemma
Self-employed people often have a dilemma as far as estimating taxes are concerned. Most of the time, their income is not predictable and they are unsure of what their final income will be at the end of the year. This can present a challenge without professional help and advice.
Let us suppose we have a self-employed advertising executive that is hired by other firms to produce marketing plans. She expects her gross income to be $160,000. For the 2018 tax year, this puts her potentially in the 32% tax bracket before deductions. Some CPA's will say to just set aside 32% in a separate bank account and pay estimated taxes quarterly.
We can look at another alternative for argument sakes. Assume that our heroine is living in a state like Florida with no state income tax. She is using QuickBooks or Zoho Books and instead of paying herself a regular salary, she chooses to pay herself commission only. This would fit more with how her money comes in. It is unpredictable as to timing and amount, so the commission model would be best. We want her commission salary to be no more than the Social Security limit of $128,400. Otherwise, she would be paying extra and unnecessary FICA taxes. So, when her commission hits $128,400 she stops paying herself any more salary. You follow?
However, we want to add an Individual 401k to the mix, since she expects to gross $160,000 and easily meet her salary of $128,400. Based on this figure, she can contribute $32,100 to her i401k. $18,500 of it would be salary deduction and the balance, $13,600 would be a company match.
She has control over how to deposit these funds. For example, when she gets paid $6,000 in January for a project, then enter it in QuickBooks or Zoho Books as a commission. $18,500 divided by 12 equals $1,541.67. She puts $1,541.67 towards her i401k, then adds to that the company match which is $1,133.33 ($13,600 / 12). So, of that $6,000 commission, $2,675.00 went to her i401k and the balance was subject to taxes, FICA and Federal. Now, there is some additional cost to her which is the FICA paid by the employer. However, because she has this i401k, her Federal withholding will be significantly lower. FICA still gets paid regardless of the 401k, but you save in Federal withholding taxes.
Now let's review. She grossed $160,000, her commission salary was $128,400, but she was able to reduce that for Federal withholding down to a $97,300 taxable income. She has socked away $31,100 in her i401k. She has the difference between her gross commission of $160,000 minus the $128,400 commission salary to use for paying expenses and taxes.
Her tax bracket moves down from 32% to 24% assuming she is single saving her 8% as opposed to just paying estimated taxes based on the $160,000. Plus, she has a i401k with $32,100 in it after just one year! Imagine how this will quickly build a nice i401k.
If you need help with this kind of strategy, then let me know. You can reach me via email at rick@firstcoastplanning.com.
Let us suppose we have a self-employed advertising executive that is hired by other firms to produce marketing plans. She expects her gross income to be $160,000. For the 2018 tax year, this puts her potentially in the 32% tax bracket before deductions. Some CPA's will say to just set aside 32% in a separate bank account and pay estimated taxes quarterly.
We can look at another alternative for argument sakes. Assume that our heroine is living in a state like Florida with no state income tax. She is using QuickBooks or Zoho Books and instead of paying herself a regular salary, she chooses to pay herself commission only. This would fit more with how her money comes in. It is unpredictable as to timing and amount, so the commission model would be best. We want her commission salary to be no more than the Social Security limit of $128,400. Otherwise, she would be paying extra and unnecessary FICA taxes. So, when her commission hits $128,400 she stops paying herself any more salary. You follow?
However, we want to add an Individual 401k to the mix, since she expects to gross $160,000 and easily meet her salary of $128,400. Based on this figure, she can contribute $32,100 to her i401k. $18,500 of it would be salary deduction and the balance, $13,600 would be a company match.
She has control over how to deposit these funds. For example, when she gets paid $6,000 in January for a project, then enter it in QuickBooks or Zoho Books as a commission. $18,500 divided by 12 equals $1,541.67. She puts $1,541.67 towards her i401k, then adds to that the company match which is $1,133.33 ($13,600 / 12). So, of that $6,000 commission, $2,675.00 went to her i401k and the balance was subject to taxes, FICA and Federal. Now, there is some additional cost to her which is the FICA paid by the employer. However, because she has this i401k, her Federal withholding will be significantly lower. FICA still gets paid regardless of the 401k, but you save in Federal withholding taxes.
Now let's review. She grossed $160,000, her commission salary was $128,400, but she was able to reduce that for Federal withholding down to a $97,300 taxable income. She has socked away $31,100 in her i401k. She has the difference between her gross commission of $160,000 minus the $128,400 commission salary to use for paying expenses and taxes.
Her tax bracket moves down from 32% to 24% assuming she is single saving her 8% as opposed to just paying estimated taxes based on the $160,000. Plus, she has a i401k with $32,100 in it after just one year! Imagine how this will quickly build a nice i401k.
If you need help with this kind of strategy, then let me know. You can reach me via email at rick@firstcoastplanning.com.
Wednesday, June 27, 2018
2nd Edition of Meet Wally Street. The Reason You're Stupid
These days, when you write an eBook, then you can pretty much update it anytime. The people who bought it will automatically get the updates. This is what I did with the eBook. It has been updated with pictures and more stories. If you have already purchased a copy, then you will enjoy this update.
In the printed book publishing world, things work a little differently. If you want to do an update, then you have to for all practical purposes write a new book with a different ISBN number. After lots and lots of work, I have finished my 2nd Edition of Meet Wally Street. The Reason You're Stupid. It is very similar to the eBook, except the pictures are not in color. Amazon wanted me to sell it for almost $60 if I wanted it to be in color and I said no to that. Instead I went with the black and white version and listed it for $19.99. It is worth every penny, especially when you consider that it will make you a very smart investor and save you from the likes of Wally Street. That is priceless in my mind.
I hope you enjoy.
Buy it at Smashwords. Amazon is rich enough.
In the printed book publishing world, things work a little differently. If you want to do an update, then you have to for all practical purposes write a new book with a different ISBN number. After lots and lots of work, I have finished my 2nd Edition of Meet Wally Street. The Reason You're Stupid. It is very similar to the eBook, except the pictures are not in color. Amazon wanted me to sell it for almost $60 if I wanted it to be in color and I said no to that. Instead I went with the black and white version and listed it for $19.99. It is worth every penny, especially when you consider that it will make you a very smart investor and save you from the likes of Wally Street. That is priceless in my mind.
I hope you enjoy.
Mid Year Update
There has been a tug of war going on in the markets lately. The free traders are worried about a trade war and average people are not too worried. The market is normally pretty flat during the summer months, sometimes called the summer doldrums. If you were to look back historically at how the market does in the summer, then you will find that it is pretty flat and goes through a lot of up and down volatility. This is a textbook example of what is happening this summer. Mostly sideways movement with volatile ups and downs.
Here we are again at the end of another quarter and I expect the next couple of days to be down, then buyers will come into the market on Monday of next week. Money managers do their window dressing near the end of a quarter, because of two reasons. One is that they want to lock in any gains and the other reason is to hide their portfolios from freeloaders who like to copy what they are doing.
I think what we will see is a good second half of the year as far as the economy is concerned and more of a bounce to the upside in the market in the 4th quarter as has been typical historically.
Stay focused, stay invested and you will be rewarded for it later in the year.
Here we are again at the end of another quarter and I expect the next couple of days to be down, then buyers will come into the market on Monday of next week. Money managers do their window dressing near the end of a quarter, because of two reasons. One is that they want to lock in any gains and the other reason is to hide their portfolios from freeloaders who like to copy what they are doing.
I think what we will see is a good second half of the year as far as the economy is concerned and more of a bounce to the upside in the market in the 4th quarter as has been typical historically.
Stay focused, stay invested and you will be rewarded for it later in the year.
Tuesday, January 16, 2018
Alfred E. Newman Stock Market
Those of you who remember the cartoon character from Mad Magazine, Alfred E. Newman, will recall that there was usually a caption saying, "What? Me Worry?" This market reminds me of that line. Nothing to worry about with this market. If you have been sitting on the sidelines, you are missing out on one of the strongest bull markets in American history.
The best place to be as an investor is fully invested. It is even better if you can regularly add to your accounts every month. However, there are pockets where you may want to re-position some funds.
There has been some quick and major changes in some sectors of the market. Some sectors such as real estate and utilities are showing some weakness. If you look at these two sectors on a chart, then you will see that there is no bottom in sight right now. A good reason to get out for now and take a wait and see approach as to when to get back in.
This is VNQ - Vanguard Real Estate ETF
This is VPU - Vanguard Utilities ETF
As you can see from both charts, they appear headed lower. A good reason to get out for now. This is a direct result of the new tax law that did no favors for the REIT and Utilities industries.
Thanks.
The best place to be as an investor is fully invested. It is even better if you can regularly add to your accounts every month. However, there are pockets where you may want to re-position some funds.
There has been some quick and major changes in some sectors of the market. Some sectors such as real estate and utilities are showing some weakness. If you look at these two sectors on a chart, then you will see that there is no bottom in sight right now. A good reason to get out for now and take a wait and see approach as to when to get back in.
This is VNQ - Vanguard Real Estate ETF
This is VPU - Vanguard Utilities ETF
As you can see from both charts, they appear headed lower. A good reason to get out for now. This is a direct result of the new tax law that did no favors for the REIT and Utilities industries.
Thanks.
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