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.

As you may have noticed if you own GE stock, you now also own a few shares of Wabtec (WAB). GE completed the previously announced spin-off of its Transportation business this week, which was then immediately merged with a wholly owned subsidiary of Wabtec. You can see your new shares in your Ameritrade account.

This merger creates a Fortune 500 global transportation and logistics company by combining Wabtec’s range of freight, transit and electronics products with GE Transportation’s equipment, services and digital solutions in the locomotive, mining, marine, stationary power and drilling industries. Wabtec has also been notified that it will now be included in the S&P 500 Index. Read more about your new holding at https://www.wabteccorp.com/.

Potentially even more interesting is the announcement this week of GE’s imminent sale of its Life Sciences unit to Danaher for $21 Billion. Danaher will also assume $400 million of GE’s pension liabilities, which is of great interest of many of us. GE will still own GE Healthcare after this sale is complete.

Read more here:  https://www.stockspinoffs.com/2019/02/25/the-incredible-shrinking-ge-turns-biopharma-into-danaher-cash/.

For those of you that have heeded our advice and not watched the GE stock price, the rebound over the last quarter has been very nice.  Hopefully that will continue.

As we undertook our year end file cleaning, which involved re-reading many of our old reports to all of you, we were struck by how cyclical some of the economic news really is. So we thought it might be interesting and fun to re-share some of the economic trends we have captured through the years in our client reports and compare to the more recent ones.

Spoiler alert, if you think we learned anything potentially useful about future economic trends through this exercise, you would be wrong!

January 2019

There’s no shortage of news on the economic or political fronts as 2018 comes to an end. We are still seeing strong economic growth. Concerns about trade and tariffs, particularly with China, could dampen the growth especially if they escalate into a trade war. The geopolitics of North Korea, Iran, and Russia also continue to dominate the international headlines. The one clear outcome is that the electorate is heavily divided, and Congress reflects that division. We can be hopeful that a spirit of bipartisanship or cooperation will break out in the new Congress, but at this point, it seems unlikely.

July 2017

Healthcare, tax reform, infrastructure and immigration reform are all priorities of the young administration but progress on all of them has been slow. The day to day tussle between policy and politics has accelerated and will likely continue to impede progress on any issue that requires bipartisan action.

January 2014

The international front continues to be very volatile, both economically and geo-politically. There is a hint of progress in Syria and some positive rhetoric coming from Iran, but it’s obviously too soon to tell if any real progress is possible. Hard to believe that the atmosphere in Washington could have gotten worse in the last month of the year, but that seems to have happened. It certainly doesn’t bode well for an agreement on anything, much less the very difficult decisions that have to be made. The volatile stock market has continued as the weather has cooled.

April 2012

The stock market has staged a terrific recovery in the last several months as economic news has improved. The stalemate in Washington has only gotten worse in the last couple of months as both sides are dug in to their ideological positions and unwilling to compromise or cooperate in an election year. The race for the White House has gotten increasingly nasty.

July 2009

The stock market completed its sixth consecutive quarterly decline, although March was the best month in more than ten years. Investors saw both a bear market and a bull market (declines and increases of more than 20%), occur during the first quarter of 2009.

April 2007

March storminess arrived a few days early for the stock market as stocks had their worst day since markets reopened following the September 11th terrorist attacks. It’s worth noting that stocks have been on an almost straight path upward since last summer and even March’s declines set the market back only to December’s levels. Of course, the real question is what happens from here. Nevertheless, corporate profits remain strong, oil prices are much lower than predicted just a few months ago, and consumers are continuing to spend money. Early hopes of cooperation and collegiality in Washington have faded quickly as debate over the war in Iraq has escalated along with the conflict. There are no fewer than a dozen announced and soon-to-announce Presidential contenders, so no shortage of political opinions on subjects ranging from tax cuts to national health care.

July 2005

The summer doldrums have taken over the stock market with stock prices unable to make a significant move in either direction. Corporate earnings and the economy remain strong, but oil prices, rising interest rates, and healthcare costs are dampening optimism for a summer rally. Volatility has returned to the stock market led by wide swings in oil prices…. Some very interesting new issues on the political front. With the imminent nomination of a new Supreme Court Justice, the discussion of the role of government in citizens’ private lives and of course the continued partisan bickering is likely to intensify. No real progress on the issues facing our country – social security, healthcare costs, and the deficit.

April 2003

Uncertainty reigns as the war with Iraq has begun and the stock market along with the rest of the world watches every development on TV. War news and war rumors, and they are hard to distinguish from each other, are driving the emotions of all of us and whipsawing the market. Even the Federal Reserve has admitted that conditions are far too cloudy to predict how the war will impact the economy and the stock market. The economy has slowed down since late last year; obviously it is very difficult to discern to what degree the slowdown has been brought about by the Iraq situation although clearly the two are connected. Corporate earnings are growing but not at the rapid pace that is usually associated with an economic recovery.

April 2001

There’s been no shortage of concerns for investors this quarter. The very steep declines in the technology sector that we saw last year have now spread to virtually all areas of the market, at least to some degree. The declines so far in 2001 have been due largely to earnings disappointments by companies in every industry.. Despite lower earnings and falling consumer confidence, all is not gloomy on the economic front. The Fed is lowering interest rates aggressively, not to boost the stock market, but to keep the economy growing at a reasonable pace.

October 1999

Volatility in the market has continued this quarter due largely to concerns about future inflation and rising interest rates. The market has become very reactive to minute changes in any price or productivity statistic which might signal too strong growth, increasing prices, or a weakening dollar. None of those events have actually occurred in the economy, but the fear of them occurring in the near future has led the market on a roller coaster ride. Adding to the market’s volatility are the two recent Fed interest rate increases. Although the two increases were widely expected, there is now renewed concern that the Fed may act again this year if inflationary signs are evident.

April 1998

The story for the quarter has been the record setting pace of the stock market; certainly an about face from late last year when 1998 projections were looking pretty dismal! For the first time in several years, the technology and small cap sectors have outpaced the performance of the Blue Chips. Economic indicators are not as yet showing the predicted growth slowdown. It appears likely that if the economy continues to grow at the pace set in early 1998, the Fed will seriously consider raising interest rates in anticipation of increased inflation.

Feel better? Thought not.

This week it’s Bradley, Marci’s older son, writing. I’m a PhD student in chemical engineering out in California, but I grew up with CNBC always in the background, so that’s sort of like a minor in finance.

On January 16th, Jack Bogle, the founder of the Vanguard Group passed away at the age of 89. Jack Bogle was one of the earliest proponents and founders of index funds, which significantly changed the way many individual investors (including clients of Linder Financial Services) invest. An index mutual fund is an investment in which many investors pool their money in order to buy all of the stocks in an index such as the S&P 500 or the Nasdaq. Because index funds are highly diversified (an S&P 500 index fund will own approximately 500 stocks), they are less sensitive to the outcomes of individual stocks, while still sharing in the overall growth of the stock market.

Index funds attempt to track the performance of an index (more on these later), in contrast to an actively managed fund in which the manager of the fund attempts to pick stocks to maximize returns. Jack Bogle’s investment thesis (inspired by Nobel Prize winner Paul Samuelson) was that the vast majority of fund managers are really no better at stock picking than they are at throwing a dart at a dart board, so better returns could be obtained by simply buying equal amounts of many stocks. By attempting to track indexes, index funds could have substantially lower fees than actively managed funds, due to not needing expensive fund managers, and decreased trading costs (as stock is only sold if the underlying index changes). For example, Vanguard’s S&P500 index fund (VFINX) has an expense ratio of only 0.14%, while actively managed funds may have expense ratios in excess of 1%. Note from my mom: index funds are not the answer for all situations – there is definitely a place for actively managed funds too.

Today, index funds make up most of the largest mutual funds. When Vanguard was launched, it had only 11.3 million dollars under management, while today it manages 5 trillion dollars. Vanguard’s focus on low expense ratios changed the financial industry, such that even many actively managed funds have been forced to lower their expenses to compete. The number of index funds has also greatly increased; today there are index funds that focus on various sectors of the US economy (for example, VITAX tracks technology stocks), investment strategies (VHDYX tracks high-dividend payers), or parts of the world (VPACX invests in the Asia-Pacific region). No matter your desired industry or strategy, there is likely an index fund that enables you to invest in an inexpensive and diversified manner. All of this was due to the vision and drive of Jack Bogle, truly one of the giants of the financial industry.

Several months ago, we attended the Baron Investment Conference in New York City and we want to share what we heard and learned. Each year, Ron Baron and his team host this one day investment conference for investment advisors and large shareholders. There is an educational component, as well as networking and entertainment pieces. More on these later.

Many of you own Baron Funds. Baron is a little different than most of the other mutual fund companies. First of all, it is much smaller. Baron manages less than $100 billion compared to a T Rowe Price or a Vanguard at over $1 trillion. The smaller overall size obviously means smaller fund sizes – which opens up different possibilities. Although Baron clearly partners with large institutional investors like pension funds, it also has a very active Family Advisor Practice to work with smaller advisories like us. Secondly, Baron has only actively managed funds – no index funds. The expenses are obviously higher for actively managed funds but we continue to believe there is good return for this additional cost.

Now back to the conference. The large shareholder educational “track” featured CEOs from some of the companies that Baron’s smaller and newer funds are betting on. This year’s featured companies included 2U Inc, Choice Hotels, and Iridium. These Baron capital infusions are meant to create long-term partnerships so the CEOs can then go run their businesses. The advisor “track” included panel discussions with portfolio managers. Marci and I enjoyed the sessions with the managers of Baron Discovery and Baron Opportunity. These managers talked about their growth strategies and how they assess companies. We also heard from the management teams from Baron International Growth and Baron Realty. These groups had a tough 2018 (uh yeah) and we all look forward to seeing better results as the market improves. Everyone made sure they heard this 😊.

And then there is the fun part. Normally there is musical entertainment I am told, but this year the entertainment was all comedy – guessing the Baron leaders decided everyone could use a bit of levity. The featured surprise performer was Billy Crystal who still is one of the greatest impersonators of all time.