There was a recent article in Money Magazine which claimed that 2/3 of Americans have dollars in savings accounts which pay less than 2% APY. The article went on to say that 20% of the population earn less than 1% and 25% earn nothing at all on their savings accounts.

While all of you proved your financial literacy a few blog posts ago, we know that you may have family members or friends who might benefit from a reminder about online high yield savings accounts. These accounts are great for that very important cash reserve that we always talk about. Account owners can get quick access to cash while generating some income. Remember that savings accounts of any type are not LFS managed assets, but we are happy to help you (or the friend you are asking for) get an account opened.

Online high yield savings accounts currently pay about 2.5% APY. These online banks can pay higher interest because they have lower expenses. Generally they have no branches or checking privileges and will often limit the number of transactions per month. That means that account holders will need to electronically link their online savings account to their checking or credit union account. Luckily this is easy to do.

There are many online savings accounts available, as a quick online search will reveal. They have slightly different features, so read the fine print. We like Synchrony (link attached) because it is FDIC insured up to $250,000 with no monthly fees and no minimum balance. Withdrawals can be made online 24/7, by phone or via ATM. Synchrony High Yield Savings accounts are currently paying 2.3% APY.

Lori

https://www.synchronybank.com/banking-resources/faq/?UISCode=0000000

There have been a number of recent Wall Street Journal articles which highlight how the ever increasing number of choices in just about everything we do in life has made us less and less capable of, and willing to, actually make a decision. One of the recent articles entitled “America Shows You Can Have Way too Much of a Good Thing” poked fun at the choices we have in life – in everything from the types of yogurt on the shelf to the number of Netflix movies.

We especially enjoyed the reference to the number of mutual funds (pegged at 9356 in this article) and the author’s poke at how many are really needed.

But that got us thinking…. How many are really needed and then how can we make this simper every day for all of us?

Of course there is no agreement in the investment advisory community about how many mutual funds are needed in an individual portfolio. The number needed depends on the investment objectives – which are different for each client and each portfolio. Of course all portfolios also need to be sufficiently diversified to minimize the risk that assets will have to be sold when the market is low in order to access cash.

Our goal is to achieve your investment objectives with fewest number of funds possible. We are always challenging ourselves to consolidate and simplify. For example, there is no reason to have multiple funds with the same large cap holdings. If the holdings are the same, let’s just use the one with lower expenses.

This article made me count how many mutual funds we actually have clients in. The answer is fewer than 100 – or about 1% of that 9356 total count.

But our 100 count and the 9356 count don’t include ETF’s, individual stocks/bonds, any securities on foreign exchanges, money markets etc etc.

Exhausted yet?

Lori

There has been a lot of recent press about the inverted yield curve so without getting too geeky, I thought I would learn something about it and then share with all of you. The answer to “what it is” is much easier than the answer to “why should I care”.

Easy question first…

In a normal economic world, there is a lot more uncertainty in the economic outlook 30 years from now than there is 2 to 3 years from now. To compensate for that uncertainty and risk, borrowers pay more for long term 30 year Treasuries than for shorter term ones. The result is that we as the bondholders normally get paid higher interest rates for longer term bonds of equal credit quality. In an inverted yield curve world, some shorter term bonds actually pay higher interest rates than longer term bonds. For example, in late 2018, yields on 5 year notes actually fell below the yields on 2 and 3 year notes. This is an extremely rare situation and of course the pundits disagree on why it happens and what it means. There are books written on this subject.

So now the harder question about what it means for all of us average investors…

Historically an inverted yield curve has preceded many of the most recent recessionary periods (2005, 2006 and 2007) when equity markets collapsed. Not all yield inversions have led to recessions BUT when we have had recessions in the last 50 years, there was a preceding inversion in which yields on longer term Treasuries were lower than yields on shorter term Treasuries. An inverted yield curve predicts higher short term interest rates, which might mean that corporations and governments have to curb expansion because it’s just too expensive to borrow money. Consumer spending also slows because of increased borrowing costs. This lack of spending can be a precursor to recession. Historically it’s been 12-24 months after an inversion before a recession hits, if it does at all.

So now what?

No one knows what will happen a year or two from now so we continue the push to develop diversified portfolios for you and recommend healthy cash reserves so that the need to sell equities at an inopportune time is greatly reduced or eliminated. The market will go down – we just don’t know when or how much! In the meantime, the market is looking strong, so keep up the dollar cost averaging and look at those 401K statements as you send them to us!

Lori

Who even knew there was such a thing as Financial Literacy Month? But now that we know, we couldn’t help but dig a bit deeper….

Financial Literacy Month (April) was actually conceived in 2003 with a focus on teaching children and teenagers about money. It was “re-designated” by Barack Obama in 2010 after the financial crisis. Obama wanted us all to remember that the financial crisis of 2009 was caused by Wall Street and by Main Street. The need for improved financial literacy is something that both parties and Congress actually agree on. That alone makes this month noteworthy!

So just what is financial literacy?

Financial literacy is defined as a set of skills/knowledge that allows someone to make financial decisions. It includes an understanding of how

• money works in the world
• someone manages to earn money
• a person invests the money
• to donate money to help others

I evaluated a number of literacy quizzes to provide to all of you to test your knowledge. The good news is that they were all way too easy for all of you — you have clearly demonstrated the skills listed above. And taking quizzes reminded me of studying for my licensing exam — so I put a quick end to this part for me. BUT knowing how competitive some of you are, I decided to include a couple of questions below from the FINRA Investor Education Foundation to test your knowledge….

1. If interest rates rise, what will typically happen to bond prices?
   1. Rise
   2. Fall
   3. Stay the same
   4. No impact
   5. If I knew this, I wouldn’t have to hire you.
2. And harder…. If you owe $1000 on a loan and the interest charged is 20% compounded annually, if you pay nothing off, how long will it take for the amount you owe to double? (HINT: Remember the rule of 72)
   1. Less than 2 years
   2. 2 to 4 years
   3. 5 to 9 years
   4. 10 or more years
   5. This is a dumb question. I have terrific financial literacy and would never do this.

The one take-away for you…. It’s clear financial literacy is important to you. We can absolutely help build financial literacy in your children and grandchildren.

As all of you well know, we are not income tax experts. Luckily it doesn’t take an income tax expert to reinforce why you should, now more than ever, plan to make your charitable contributions from your traditional IRA IF you are at least 70 1/2 years of age.

Why is that, you may ask?

Prior to 2018, we got a tax break for charitable deductions as long as we itemized our deductions on our federal tax returns. As part of tax reform in 2018, the standard deduction was doubled and the write-off for state and local taxes was capped – something you have likely experienced as you have filed your 2018 tax returns. What this change to the standard deduction means is that most of us will now take the standard deduction and lose the ability to write off those charitable deductions. Of course it’s not just the tax break which drives charitable giving, but we want to make sure that those of you who are subject to required minimum distributions from your IRAs, and not itemizing deductions, are aware of the tax benefit of donating to charities directly from your IRAs. For those of you who are 70 1/2 or are approaching 70 1/2, read on…

The rules are relatively straightforward:

• You must be at least 70 1/2 and be taking required minimum distributions (RMDs) from your IRA. We are happy to help you figure out what the required amount for your distribution is.
• You can donate directly to a charity, up to $100,000 per year. We will prepare the forms for you to sign – all we need is the dollar amount you wish to donate and the full address of the charity.
• You are not allowed to write off the donation BUT you also do not pay income taxes on the donated amount.
• Remember this applies to traditional IRAs only, not Roth IRAs.

Of course there are other ways to tax efficiently donate to charities, including bundling several years’ donations into a single year and then itemizing for that year, establishing a donor advised fund and donating appreciated stock. These options absolutely require a tax expert though, so call your favorite one to answer questions on these options.

We are seeing a lot of news reports of scams targeting Seniors. The following list of top scams is taken from Investment News magazine. It has useful information for all of us!

10. Identity Theft: Thieves make unauthorized credit card purchases or bank withdrawals or apply for Social Security benefits.

9. Lawsuit Scam: A caller claims to work for a law enforcement agency and tells the victim that there is warrant out for his/her arrest unless a fine is paid.

8. Social Security: Scammer contacts a victim by phone or email, claiming to represent the Social Security Administration and asking for personal information including SS number or birthdate.

7. Romance Scams: An imposter establishes an online relationship via a dating site and then asks for money to cover visit or medical expenses.

6. Grandparent Scams: Caller pretends to be a grandchild and asks for money to get themselves out of an emergency.

5. Financial Abuse: Family members, caregivers, or investment advisors who use phone or the internet to steal from seniors.

4. Computer Tech Schemes: Caller claims to be from computer company (i.e. Microsoft), claim the victim’s computer has been infected with a virus and asks to get remote access to the computer.

3. Sweepstakes Scams: Criminals contact victims, tell them they have won a lottery and that they need to pay a fee before winnings can be collected.

2. Robo Calls: We are all inundated with calls that seem to originate from our own area, making victims more likely to answer and respond.

1. IRS Impersonation: Callers claim that the victim owes back taxes and penalties and threatens arrest unless payment is made immediately.