I well recognize that the title of this blog is a bit of an oxymoron (how do we limit something which is required???) but Investopedia recently published an article on this very topic.  Not necessarily new ideas here but an interesting different perspective on this question, which we all ask nearly every day. 

Four strategies are discussed by Investopedia if the money from the IRA is not needed for expenses right when the investor turns 70 ½:

• Delaying retirement

• Converting to a Roth IRA

• Managing the timing of the initial distribution

• Donating to a charity from your IRA

Delaying retirement past 70 ½ is a possible way to delay paying income taxes on your retirement account.  This rule, which only applies to a 401K at your current employer, allows you to delay taking your RMD and PAYING THE TAXES on it until you actually retire.  Note that this does not postpone required distributions from other retirement accounts; it only applies to a 401-K at your current employer. This is an interesting idea but I’m not really buying this one.  

Converting to a ROTH IRA is a great option since it eliminates taxable required distributions forever, not only for you, but also for your heirs.  The downside is that you have to pay tax on the conversion amount in the year of conversion.  That obviously can be very expensive in that year.  It is a possible option for investors who have the cash to pay the tax outside of the IRA and who do not need the required distributions for current expenses.  Think of a ROTH IRA conversion, not only as a strategy to reduce your current required minimum distributions, but also as an estate planning tool since you are leaving a tax free asset to your heirs.    I’m sure we all know one person this caveat applies to.  I suggest we all get to know more!

Managing the timing of the initial distribution is another way to postpone the initial distribution.   The first distribution is required by April 1 of the year following the year the retiree turns 70 ½.  After that, distributions are required to be taken annually by December 31.  This timing means that a retiree could have to take two distributions in the first year, which could push the retiree into a higher tax bracket.  In almost all cases, we recommend going ahead and taking the initial distribution in the year you turn 70 ½.    

We have talked in earlier blogs about donating to a charity from your IRA.  As a reminder, you can donate your RMD up to $100,000 to an IRS qualified charity and not pay taxes on that amount.  This option is only available in IRA’s, not 401K’s or other employer-sponsored retirement plans,  so if you want to do this when you are 70 ½, you will need to roll over your 401K – which we can help you with. 

As always, we can discuss any of these options in more detail with you!

 -Lori

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.

1. 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.

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. 

We all need more New Year’s resolutions, don’t we?  We have tried to keep these simple and we will  help you with these three!  The “exercise more” and “lose weight” are up to you.  We will help with “reduce stress” though. 

1. Finish your 2018 Roth IRA contribution

Remember that you have until April 15, 2019 to make your 2018 contribution of up to $5500.  When you send to Ameritrade, clearly indicate that this contribution is for 2018.  Anything not clearly marked for 2018 will be applied to 2019.  And if you have already made your 2018 contribution, go ahead and get started on 2019.  The max contribution is $6000 for 2019.  We can help with either or both contributions. 

2. Reduce your mail volume from Ameritrade 

Obviously you can continue to receive mail from Ameritrade if you desire.  You can, however, choose to get your monthly statements and trade confirmations online instead.  As always, your tax documents will be both mailed and available online.  To change your document delivery options, go to www.advisorclient.com > Client Services> My Profile> User ID settings> Edit Communication Delivery Options.  While you are at it, you can change your account nicknames so you actually know which accounts are which!  Same basic instructions as above:  My Profile> Account Settings> Edit Account Description.  Remember that your transaction history and monthly statements are always available online for you to print as needed. 

3. Update your beneficiaries and trusted contact with Ameritrade 

Many of us have never added these in the first place, much less updated them as needed.  As usual, there is an Ameritrade form required to do this, for your security obviously.  We will work with you on this update as part of your Q1 or Q2 report. 

 Easy, huh?  Nice when something is!

 Happy 2019!

It’s understandable to be concerned about the market right now.  Political dysfunction is everywhere and it’s not clear when the “cooler heads” will prevail or who exactly those “cooler heads” are at the moment.  The drop in stock prices in the last quarter has been sharp and across the board. Very few sectors or individual companies have been spared. The gains that were established earlier in the year have been erased. As you well know, we are nowhere near smart enough to predict when and where the bottom is. This has been painful for all investors, but we believe there is a real potential upside to much of the turmoil.

Most mutual funds have just declared and are in the process of paying their dividends and capital gain distributions for 2018. The value of these distributions is double and in some cases, triple the percentages from prior years. What this means is that at some time during 2018, the funds sold off shares in which they had recorded sizeable gains. We don’t know when this occurred during the year, but you as shareholders are receiving these proceeds.  As most of you know, when a mutual fund pays a capital gain or dividend distribution, the share price of the fund declines by the amount of the distribution and then the next day, you receive that same amount in either cash or in additional shares of the fund.  Most of you are reinvesting the cash automatically in additional shares of the funds.  These funds are likely now sitting on large amounts of cash. That is the position that you want to be in; lots of cash to invest as prices are falling. The funds we recommend for our clients are managed by very smart people and you have seen that over the years. Will they be perfect in timing when to reinvest this cash?  Probably not, but they will be smarter than we, as individual investors, trying to time the market would be. That is why we are recommending that almost all of our clients maintain their holdings and wait for the furor to subside. It will, maybe not next month or even next quarter, but there really will be positive outcomes after all of the turmoil.  

Our best advice:   Enjoy the holidays with your families and appreciate our many blessings!   

Best wishes for a Merry Christmas, and a Happy, HEALTHY 2019!

Bernie, Lori, and Marci 

As promised, it’s Lori back again to re-introduce you to Roth IRA’s, but this time, as great financial gifts for your lucky and hard-working children or grandchildren.  As I said earlier in the month, there are very few investments which grow tax free but 529 plans and Roth IRA’s do just that!

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 70½ 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 2019 to make this 2018 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

It’s Lori blogging in December to share our thoughts on great holiday financial gifts for your children and/or grandchildren.  This post will cover 529 educational plans and the next one will re-introduce many of you to Roth IRAs.  By the way, we are not suggesting that you forego fun gifts for your offspring, but we really like the idea of longer term not nearly as “fun” gifts to help secure the financial futures of your lucky family members. 

As many of you know, there are very few investments which grow tax free but 529 plans and Roth IRAs do just that.

529 plans are state run educational savings plans which can be used for very broadly defined educational expenses for adults or children.  Starting this year, these funds can be used for pre-college, trade school, or college tuition/fees.  The investments in a 529 plan can be made by anyone, subject to gift tax requirements, and are made with after-tax dollars although some states offer a state tax credit to parents who contribute in their state of residence (North Carolina does not offer this credit at this time).  The funds in a 529 plan can be moved to another child and the funds do not have to be used in the state in which the plan was funded.  Unlike other investments, 529 plans are controlled by the account “owner”, not by the child.  Taxes and penalties are due if money is not used for educational expenses, but again, the definition of educational expenses is quite broad and usually includes computers, books and room and board.

These plans carry low management fees because they tend to be “target date” funds where the investment mix is automatically re-balanced as the child gets closer to college age. 

Although 529 plans are not LFS managed assets, we would be happy to assist you in starting one for your children or grandchildren, or even for yourself!  There is no minimum dollar requirement to open an account and dollars can be added throughout the year. 

If you want to read up, see link below, or feel free to call us to talk more. 

https://www.investopedia.com/terms/1/529plan.asp

Hi everyone.  It’s Lori blogging today from our Atlanta LFS office.  I just want to share a few quick updates and an invitation for all of you.

First (and most important if you ask me!) is that after 250 grueling study hours, I have just passed the Series 65 investment advisory licensing exam and am now a registered investment adviser along with my dad Bernie and sister Marci.   You will get formal notification in Q1 but I just wanted to share the good news now.

Although Marci has been working out of our new office in Atlanta since January and I joined her in June, we haven’t had an Open House yet to show off our new digs.  We never want to pass up the opportunity to celebrate good news, and since the market isn’t providing much these days, we are throwing ourselves a party!

The Atlanta clients have already been formally invited, but if anyone else is looking for an excuse to visit Atlanta, we would love to have you too.  Just let us know!

Date: Sunday December 9

Time: 4 to 7 pm (drop in)

If you are feeling a bit queasy today, it’s with good reason.  Stocks have declined precipitously over the last couple of days and there may well be more to come.  There is no denying that it has been painful to watch.   

Since we don’t know how steep or prolonged this decline may be, let’s spend a few minutes on what history has shown regarding stock market declines.

First, despite the pundits on TV and online, outside of an external event like a terrorist attack, no one knows what triggers a rapid sell off.  Contributing factors MAY include the strong jobs report last week that raised inflation fears, the Federal Reserve’s likely interest rate hikes this year, Washington dysfunction, or a stock market that has been moving higher almost every day for the last year.  The steep decline in the last several days is only a fraction of the huge stock market gains we have all gotten in the last year.

The US economy is strong.  Corporate earnings are growing and both large and small companies stand to benefit from the recently passed tax legislation.  The housing market continues to rebound, and consumer confidence and spending are increasing.

Obviously, the stock market and the economy don’t move in tandem every day, and this selloff might continue for a while, so how do we as investors respond?

Our recommendation, as always, is not to panic sell (or buy).  While this is a difficult period for sure, history has shown that selling into a downturn rarely works out over the long term.  Our goal for all of our clients is that you have a sufficient allocation to cash and bonds to both provide for near term cash needs and allow you to sleep at night during these periods.  

The most important message we want to send this morning is that we are here.  Call, email, or come by either office.  If you are nervous and want to talk, that’s what we are here for.

Best wishes for a healthy, happy, and prosperous 2018!

Over the last several months, we’ve enjoyed showing many of you our new office (and Linder home) in North Carolina. 

Now, we are excited to announce the opening of our new office in Atlanta, located in downtown Alpharetta.    The new address and phone number:

           308 Maxwell Rd, Suite 300

           Alpharetta, GA 30009

          770-696-4470

It’s still a bit of a work in progress, but the internet, phone, and coffee pot are working, so we are open for business and looking forward to seeing you.

Of course, the “brilliant” advice you receive from both offices is unchanged!

This is Charles this week writing a blog post while I nervously look out the windows at the swaying trees here in GA due to Irma.  I’m hoping all of you are safe as you read this. 

I honestly can’t say that I have often worried about identity theft, credit fraud, and the like.  However, with the apparently catastrophic breach at Equifax reported last week, I decided on initiating a credit freeze with each of the three credit bureaus as these breaches are becoming the new normal.  It was surprisingly easy to do online.  My wife Lori will do it as well, and we are recommending it to our two grown kids (it can be done for minor children as well).

Basically, a credit freeze (or security freeze) allows you to seal your credit reports for as long as you’d like, and then requires a personal identification number (PIN) to temporarily “un-freeze” your credit when and if you need to apply for credit in the future (new credit cards, home loans, car loans, etc).  This additional security means that criminals won’t be able to establish new credit in your name even if they obtain your personal information.

Freezing your credit does not impact your existing lines of credit in any way, nor does it affect your credit rating.  I suppose if you need frequent access to your credit reports for work or for regularly creating new accounts, then you may not want to use this technique, but for me it seemed like a no-brainer.

The cost ranges from about $3 to $10 per person per bureau to freeze a credit report (was $3 in GA).  It’ll cost you that amount again if you want to thaw your credit in the future, which is also done online just as easily.  Small price to pay for peace of mind in my view.

Additionally, I’d like to recommend signing up for Credit Karma which is a free service that allows you to monitor your credit ratings and all reported credit activity for your various accounts.  It can be used on a PC or via a smartphone app.  Just google Credit Karma or find it in your App Store.  I’ve used it for several years.

Here are the links for the three credit bureaus:

Equifax - https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp

Experian - https://www.experian.com/ncaconline/freeze

TransUnion - https://freeze.transunion.com/sf/securityFreeze/landingPage.jsp

As always, if you have any questions don’t hesitate to reach out to one of us.