Back, by popular demand, is our December 2018 post on Roth IRA’s as holiday gifts for children or grandchildren. Still a great idea!!!

Many of you are familiar with Roth IRA’s, but for those of you that are not, here is a brief overview:

Roth IRA’s were created by the Taxpayer Relief Act of 1997 to help Americans save for retirement. These IRA’s have become enormously popular in the last 20 years but there are some important considerations:

• The dollar contribution limits are the same for Roth IRA’s and traditional IRA’s. Eligibility for a Roth IRA requires “earned income,” subject to an income cap which is not present for traditional IRA’s.
• Contributions are made with after-tax dollars, unlike those in traditional IRA’s or most company sponsored retirement plans
• Because the contributions are made with after-tax dollars, the contributions can be withdrawn at any time, without tax or penalty. This might be important for young investors like your children or grandchildren who might need the money they invested before retirement
• Unlike traditional retirement plans, the earnings can also be withdrawn tax-free, subject to owner age and account duration rules, and there is no requirement for distributions to begin at 70 ½ years of age

As I said above, there is a requirement for the Roth IRA account holder to have “earned income” in order to be able to contribute BUT the actual contribution can be funded by anyone (YOU in this case) as long as the dollar amount of the contribution does not exceed the owner’s earned income or annual maximum allowed.

Head spinning? How about an example? You have a 19 year old grandson who worked over the summer as a lifeguard at a community pool. He earned $2000 and will receive a W-2 from the city. I am guessing he probably can’t invest this $2000 in a Roth IRA because he is saving every penny for college, BUT you can fund it for him. You have until April 2020 to make this 2019 Roth contribution. We will help you understand eligibility requirements and then help you actually pull this off.

Want to read more about Roth IRA’s?  See attached link. https://www.investopedia.com/terms/r/rothira.asp

As part of our normal security training and review, we tested ourselves on our ability to spot phishing emails. We will give you an option below to check your own capability too! (The test is hard. I have had phishing training at least three times and I still didn’t pass the first time)

So just what is phishing?

Phishing is the fraudulent practice of trying to obtain financial or other confidential information via the Internet by sending users a fake email which looks like it has been sent by a legitimate organization but which contains a link to a fake website which looks like the real one. The confidential information entered by the user on the fake website is then used to steal money or confidential information. Scammers phish because it’s easy to do, there are no geographic limitations and it works! Phishing is also often done via a fake link sent by text message.

How do I know if an email is phishing?

• There is a link inviting you to update or confirm information, usually urgently. Often the email will indicate that your account is “on hold”
• The greeting is generic
• There are typo’s or grammar mistakes
• The email looks legitimate and it’s from a company you do business with
• It offers some refund or prize you have not requested

What can I do to reduce the chances of being caught in a phishing net?

• Use security software on your computer and apply security patches when they are pushed to you
• Automatically update your phone with security upgrades
• Use multi-factor authentication where it is available
• Back up electronic data – to external drive
• Do not click on links in emails unless you are sure they are legitimate. Use other means to contact the company.

What should I do if I am caught in a phishing net?

• If you think you have revealed confidential info, contact IdentityTheft.gov
• Run a security scan on your computer and update your security software if needed
• Change relevant passwords using legitimate website, not email link
• Report the scam to the real website owner
• Help others avoid the scammers:
  • If you got a phishing email or text message, report it. The information you give can help fight the scammers.
    • Step 1. If you got a phishing email, forward it to the FTC at spam@uce.gov and to the Anti-Phishing Working Group at reportphishing@apwg.org. If you got a phishing text message, forward it to SPAM (7726).
    • Step 2. Report the phishing attack to the FTC at ftc.gov/complaint.

Learn more here:  https://www.consumer.ftc.gov/articles/how-recognize-and-avoid-phishing-scams

Take the test yourself:  https://www.phishingbox.com/phishing-test

Vanguard has recently provided a few interesting pieces which reinforce the importance of “staying the course” when the market is volatile. This isn’t ancient history, unfortunately.

As always, we are here to talk if/when you are nervous.

Compliments of Vanguard…..https://advisors.vanguard.com/iwe/pdf/FAMKTVOL.pdf

You may have seen the news that TD Ameritrade is eliminating base commissions for online exchange-listed stock, ETF (domestic and Canadian), and options trades, moving from $6.95 to $0.00. This change goes into effect on October 3, 2019. That’s when you should start to see lower commissions on qualifying trades in your accounts. Note that mutual fund trades are not included in this change.

Please see the company press release for additional details on this announcement:

The Best Just Got Better: TD Ameritrade Introduces $0 Commissions for Online Stock, ETF and Options Trades

https://amtd.com/news-and-stories/press-releases/press-release-details/2019/The-Best-Just-Got-Better-TD-Ameritrade-Introduces-0-Commissions-for-Online-Stock-ETF-and-Option-Trades/

A single word defines the stock market right now…and that same word defines the stock market all the time.

“The macro environment continues to be defined by uncertainty,” Goldman Sachs’ top stock market strategist David Kostin said in his latest note to clients (emphasis added).

And he’s right. In recent days, we’ve seen oil prices spike after a drone attack, funds rapidly rotate out of one sector and into another, the Fed cut rates, something called the repo market go haywire… yeah, that sure feels like “uncertainty.”

But isn’t it always the case that the markets are defined by uncertainty? After all, uncertainty characterizes the risk investors take when they go long stocks. It’s that uncertainty that commands a premium, which is why the rewards of investing in stocks tend to be higher than risk-free assets.

I’m reminded of a comment made three years ago by Bank of America Merrill Lynch economist Ethan Harris: “It’s always something.” Back then, Harris pointed to turmoil in Europe, the threat of Britain exiting from the euro area, and anti-trade rhetoric picking up in D.C. Not only is there always something to be worried about, but ironically the stuff that was making investors nervous back then are very similar to what’s making investors nervous today. Though the S&P 500 was trading at about 2,000 back then and it’s at about 3,000 today.

I think my favorite musing on the permanence of uncertainty came during the darkest days of the financial crisis. It was Warren Buffett for the New York Times op-ed section.

“Over the long term, the stock market news will be good,” Buffett said. “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Buffett’s reflection is worth remembering. Because not only is there the risk of bad things happening, but worse, bad things actually happen. And yet time and time again, the markets sort it all out.

By Sam Ro, Yahoo Finance managing editor.

This question is one of the most common ones we hear from both clients and prospective clients. And as most of you know, the answer is “it depends.”

There was a recent article written by Craig L Israelsen and published by Financial Planning which attempts to apply data and science to this question and the answer – all of which we love. If you love the data and science too, a link to the article is included. For the rest of you, just read on….

As many of you know, the standard wisdom has said that, based on historical market returns, the average retiree can withdraw 4% per year from a retirement account and not risk running out of money in the account in the average 25 years of remaining life.

The study described in this article took a much deeper dive:

• considered 34 25-year time periods between 1961 – 2018 with a starting portfolio value of $1MM
• used a standard portfolio mix of 40% large cap U.S. equities/20% small cap U.S. equities/30% bonds/10% cash
• assumed no required distributions (i.e. Roth IRA)
• looked at 15 different withdrawal rates from 1% to 15%, withdrawn at end of year

And the results:

• in no scenario studied, was the portfolio at 0$ (or less) at the end of 25 years, even with a 15% withdrawal rate. Obviously, that doesn’t mean it can’t happen – it just didn’t in the years studied.
• Not surprisingly, the sequence of “good” years vs “less good” years matters. Portfolios which have the good years at the beginning of the 25 years did markedly better than those which had the good years nearer to the end of the 25 years.
• At the standard 4% per year withdrawal rate, the average ending portfolio balance was just over $4 million with a range of $1.8 million to $9.4 million!
• The optimum annual withdrawal rate for the scenarios studied was 8%. At this withdrawal rate, the average ending portfolio value was a very healthy $1.5 million and the highest annual withdrawal.

This is a good read! Our answer after reading… “it depends”.

Lori

https://www.financial-planning.com/news/the-ideal-annual-withdrawal-rate