Back by popular demand, the next two Bernie’s BLOG posts will provide info on some great financial holiday gifts for you, your children or grandchildren.  This blog will cover 529 educational plans and the  next one will re-introduce many of you to Roth IRA’s.   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 IRA’s do just that, at least for now. 

529 plans are state run educational savings plans which can be used for very broadly defined educational expenses for adults or children.  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 rebalanced 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 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

It’s Marci on the blog this week with the age-old question:  “How much can I safely spend from my portfolio without running out of money?”

The 2021 Ameritrade/Schwab annual conference was held late last month, virtually, so we had opportunities to drop in on several different sessions of interest and the session on this topic obviously caught my attention.

Historically, we as investors have relied on four components for income from our portfolios:   bond coupons, stock dividends, capital gains, and principal.  In today’s environment though, with interest rates on bonds and cash at record lows, and stocks at record highs, it’s logical to wonder whether the 4% rate that has been generally agreed upon as the acceptable safe withdrawal rate is reasonable now. 

As we know, past performance is not a guarantee of future results, but the presenter of this session attempted to use historical market returns to determine what a sustainable withdrawal rate would have been over thirty-year spans beginning every year since 1871. The major factor outside of market performance that he considered in his analysis was the sequence of returns.  

As an example, consider the following:  The average market return over the period is 10%.  In the first scenario, the first two years are 0% and the next two years are 20%.  In the second scenario, the first two years are 20% each, and the next two years are 0%.  The 10% average holds in both cases, but the portfolio amount, and therefore the withdrawal amount varies greatly.  So, what did he learn from this analysis to share with all of us?  Going back in history through times that included the Depression, the dot.com bust, the financial crisis of ten years ago, and most recently, the coronavirus-driven downturn, as well as many, many years of double-digit market gains, the safe withdrawal rate that worked through all of that:   4 to 4½%.  And interestingly, that percentage held in his analysis in with stock/bond allocations ranging in some studies from 40/60% to 70/30%.

Obviously, this analysis is not the only consideration when spending from portfolio, but I thought it was interesting and hope you do too!

There is no doubt that international funds have recently under-performed domestic funds.  Vanguard has an interesting perspective about the future of international funds. Click the button below for the pdf:

Us too!  Here’s how we cope – feel free to join us in person or virtually…..

Alright, now for a little fun and a little perspective…..

Today is Oct 11, 2021.  The last time we actually posted a photo like this one on Bernie’s Blog was Oct 11, 2018, three years ago today!  Hm….  In that photo, we actually had CNBC on the TV in the background so we could see that the Dow that day was 25,572.  Right now, the Dow is at 34,532.  That’s a 35% gain in the last three years.   

And as painful as the last month has been on many days, let’s remind ourselves of just how good the market has been even year to date.  As the chart below shows, the S&P 500 is up 17% YTD! 

So, what do we recommend:

• Don’t panic or make sudden market moves. Turn off the TV and don’t look at the market. We are looking at both and we will let you know individually if you need to know something or do something.

• Re-look at, and recommit to, having a healthy cash reserve to cover planned and unplanned expenses for the next year to 18 months. As your life changes, so does your cash reserve need, so this is a good time to ensure that you have this cash readily available. We recommend a high yield savings account for this money. We can help you locate one and set it up if needed.

• If you still have some extra cash in those coffee cans in your backyard after boosting your cash reserve, now might be a good time to begin to dig it out to invest Will the market go down? Yep. Will it also go up? Yep. As usual, buying stocks a little at a time is the right strategy here. As many of you have experienced, this is the best way to build long term wealth.

We are here to talk, whine or wine with you!

It’s Tim here, blogging once again about one of my favorite topics….

Once again, Congress is “looking” at regarding changes to retirement savings plans.  No one knows what will actually pass.

Reportedly under discussion: 

• Raising the age of taking Required Minimum Distributions (RMDs) from 72 to 75.   This would be done over a 2-to-3-year period.

• Letting people over 60 contribute more to 401Ks.

• Allowing part time workers to contribute to 401Ks

• A revenue raising proposal to reduce the amount of pretax pay into 401K’s.  This bipartisan house bill would require that catch-up contributions to workplace qualified retirement plans would be subject to Roth treatment.  This means that the extra $6500 contributed by workers who are 50 or older would automatically go into a Roth 401K and come from post-tax salary rather than pre-tax wages.   Another provision would provide the option of having employer matching contributions put into a Roth 401K account.   This raises tax revenues today to pay for other retirement savings measures.   This may not be a bad thing. 

• Ideas to limit Roth IRA benefits for high income earners are back on the table.  The 2016 proposal prohibited contributions to Roth IRAs with balances over $5MM.   It also called for limiting high earning individuals from making after tax deposits into traditional IRAs and then converting them over to Roths.  Both proposals were pushed by Sen. Ron Wyden (D-OR) who now heads the Senate Finance Com., which is the tax writing committee for the upper chamber.  As of 2019, 28,615 individuals had $5MM or more in their IRAs (this compares to 8,000 in 2011).  Of these 497 have over $25MM or more. 

 Stay tuned! 

Press Release

FOR IMMEDIATE RELEASE

Linder Financial Services Receives 2021 Best of Alpharetta Award

Alpharetta Award Program Honors the Achievement

ALPHARETTA July 27, 2021 -- Linder Financial Services has been selected for the 2021 Best of Alpharetta Award in the Financial Advisor category by the Alpharetta Award Program.

Each year, the Alpharetta Award Program identifies companies that we believe have achieved exceptional marketing success in their local community and business category. These are local companies that enhance the positive image of small business through service to their customers and our community. These exceptional companies help make the Alpharetta area a great place to live, work and play.

Various sources of information were gathered and analyzed to choose the winners in each category. The 2021 Alpharetta Award Program focuses on quality, not quantity. Winners are determined based on the information gathered both internally by the Alpharetta Award Program and data provided by third parties.

About Alpharetta Award Program

The Alpharetta Award Program is an annual awards program honoring the achievements and accomplishments of local businesses throughout the Alpharetta area. Recognition is given to those companies that have shown the ability to use their best practices and implemented programs to generate competitive advantages and long-term value.

The Alpharetta Award Program was established to recognize the best of local businesses in our community. Our organization works exclusively with local business owners, trade groups, professional associations and other business advertising and marketing groups. Our mission is to recognize the small business community's contributions to the U.S. economy.

SOURCE: Alpharetta Award Program

CONTACT:
Alpharetta Award Program
Email: PublicRelations@online-award-info2021.net
URL: http://www.online-award-info2021.net

Hello there! There’s a new face around the LFS offices, and it’s the person writing this blog post! My name is Avra, and I’m a summer intern for Linder Financial Services. The past few weeks, I’ve been doing some behind-the-scenes work at LFS, including learning the ropes, assisting with clerical work, and doing some research of my own.

When I was offered the intern position at LFS, I’ll admit, I was a bit nervous. I was alright in the math department, but finance was completely new to me— they don’t offer Economics classes to high school sophomores! I’d heard snatches of conversation between my parents about a “Roth” and a “401(k)”, but apart from that, everything flew right over my head.

Enter LFS. On my first day, I found a schedule on my desk, with five full weeks of learning and research ahead of me. And research I did—among conducting interviews, investigating companies to invest in for my own Roth IRA, practicing my elevator pitch, and designing projects, I took several pages of notes, referenced and cross-referenced sources, and accumulated quite a large bibliography. Turns out that the world of finance is a little more complicated than I thought! I did get to mix a bit of fun in with my work via designing and painting the LFS holiday card (look out for something new in December!), and creating an auction board for the Country Club of Roswell’s charity fundraiser. Overall, speaking from week five, I can gladly look back and say that the experience was worth it. It’s always nice to have useful information under your belt, and I’m excited to share with you all what I’m going to use it for!

My main project while interning has been to design an informative guide focused on teen investment, so that I can pass along the information I’ve learned during my time at LFS. Over the summer, I noticed that many of my friends got hired for jobs, and regardless of if they were employed at small businesses or doing volunteer work, the end result was often money. And what do you do with that? To make a long story short— they wanted to know. When I broached the idea of a guide to them, I was excited to see that many of them had lots of questions, so I was even more eager to dig deeper in my research. My efforts resulted in the creation of a Carrd— a website platform that allows you to create easy-to-use interactive infographics. Over the past year, Carrd has gained a notable amount of popularity in terms of usage for its accessible design and layout, so I thought it fitting to use for my fellow tech-savvy peers. (Don’t worry, Carrd can still be accessible to you if you aren’t well-versed with technology!) It’s packed with the basic need-to-knows about investment, and I can’t wait to share it with you all (if you’re interested, of course). And while I’ll be leaving soon to head back to school, it’ll coming to a blog near you…

As most of you know, everything at Ameritrade is tied to your mailing address, phone number and/or email address.  If everything is current, Ameritrade is just slow and sometimes makes mistakes.  Kinda like us.  If these items are not current, it is nearly impossible to get anything done there, especially if it’s an urgent request.   These Ameritrade requirements are for our security as account holders, so this is all good!

We took a quick look at our own family accounts and realized that some members of our family (not to name names, Mom and Dad) have been woefully negligent in updating these items.  So, while we are cleaning up our own family info, we want to work with you on yours over the next few months.  We realize that many of you have moved recently due to record low interest rates,  have changed your email addresses or gotten rid of your home phones.

So how are we going to do this?

We have a CRM (customer relationship management) system which allows us to keep track of all of this client information – and we think it’s mostly accurate because your birthday cards don’t usually come back to us, but our system doesn’t update Ameritrade (again for security reasons).  So, expect that this process will be a little manual.  We will tell you what Ameritrade is showing and what our system has.  If you tell us that any of this is wrong, we will send you any appropriate paperwork to change it at Ameritrade.  Some info can also be updated via Advisor. Client. 

HINT:  We are now frequently using DocuSign for online form approval, when it is available, and you are comfortable using it.  This process requires you to answer obscure security questions (what color was your car in 2005?) or uses double factor authentication via text to the cell phone number on record at Ameritrade.  If you do not have a cell phone number on file at Ameritrade, this is a good time to add it, even if you don’t plan to text.  They can then call you to give you the code. 

Just think of this as summer cleaning….

Oops, we almost missed this but because it’s so important, we are going to extend June for another few days!

World Elder Abuse Awareness Month was started in 2006 to combat the six types of global elder abuse.  Financial mistreatment of the elderly is actually the most common and fastest growing type of elder abuse around the world.   

What exactly is elder financial abuse? 

The Older Americans Act of 2006 defines “elder financial abuse” as  “the fraudulent or otherwise illegal, unauthorized, or improper act or process of an individual, including a caregiver or fiduciary, that uses the resources of an older individual for monetary or personal benefit, profit or gain, that results in depriving an older individual of rightful access to, or use of, benefits, resources, belongings or assets.”    

I know many of us are saying “well yes, but that can’t/won’t happen to me or my parents.”  We hope we are right about that, but AARP says that the victims of just investment fraud are most likely married men with higher incomes and greater financial literacy than average.  That sounds like a lot of us, and our fathers!  And even more scary, as much as 90% of overall elder financial mistreatment is done by relatives or other trusted caregivers.   Retirees are often targeted just because of their wealth.  And only 1 in 6 cases is reported.   And in case you are wondering, we have absolutely had  clients who have been the victims of elder financial abuse.   

What are the signs of elder financial abuse?

The experts tell us to watch for in our loved ones:

• Uncharacteristic purchases or money transfers. As you know, we look at every Ameritrade transaction every day and we call you if we see something that doesn’t look like you.

• Failure to pay bills or keep appointments. This can sometimes be elder abuse and sometimes be forgetfulness or something else, of course

• Secretive transactions or unwillingness to discuss financial behaviors

 What should I do if I’m the victim of financial abuse?

• Report to Adult Protective Services in your county

• Notify local police department

• Tell us, and your other loved ones

We are happy to virtually introduce you to our summer intern, Avra Neuringer.  Avra is our niece, the oldest daughter of our sister Nancy and brother-in-law David.  She will be a rising junior at Northview High School here in Atlanta. 

Hopefully, many of you will meet Avra during her summer with us.  She will be participating in meetings via ZOOM and in person, and she will have a variety of projects which we hope will be educational and even a little fun for her!  

Avra will author Bernie’s Blog at the end of her summer with us to share what she has worked on and what she has learned. 

Welcome Avra! 

Back by popular demand and compliments of Nerdwallet, is an updated look at happy financial birthdays.  Or not.  All are subject to change. 

And all of these treats are in addition to the nifty birthday cards you get from us! 

We can help with any of these! 

Age 50:  Annual additional catch-up contributions of $1000 for traditional/Roth IRA’s are allowed (from $6000 to $7000).  For employer-sponsored plans like 401K’s or 403B’s, the annual catch-up amount is $6500 (from $19,000 to $26,000)

Age 55:  You can now (usually) withdraw dollars from your employer-sponsored retirement plan if you leave your employer for any reason, without the 10% early withdrawal penalty.   Income taxes still have to be paid.  Of course. 

Age 59½:  Withdrawals from any retirement plan without a 10% early withdrawal penalty are now allowed.  Income taxes – uh yeah. 

Age 60:  For most widows/widowers, this is the earliest age to collect survivor social security benefits.  There are situations where survivor benefits can begin earlier. 

Age 62:  This is the earliest age for social security benefits to begin (yours or spousal) but amounts are permanently lower than if you wait until full retirement age which is currently 66-67.  There is also a reduction in benefits until you reach full retirement age, if you earn over $18,960 in 2021. 

Age 65:  You are now usually eligible for Medicare.  Get signed up before you turn 65 if you can. 

Age 66-67:  This is considered full retirement age.   This is age 66 if you were born between 1943 and 1954.  It goes up by two months per year until you reach 67 if born after 1960.  This will change of course.  Starting to receive social security at this age means no reduction due to early start payments or income. 

Age 70:  Delaying social security beyond your full retirement age (see above) increases your (or your spouse’s) benefit by 8% per year until it maxes out at age 70. 

Age 72:  Required minimum distributions (RMDs) out of traditional, non-beneficiary IRA’s start at age 72.  The government has been waiting for its (fair) share of income taxes for decades, so this is the time.  There are other rules for employer sponsored plans if you are still working.  Does not apply to Roth IRA’s.  Qualified charitable contributions up to the amount of your RMD are not currently subject to income tax. 

This issue of “Bernie’s Blog” comes to you from Tim Kriegel who is a CPA, as well as part of our LFS family.

This month we want to look at the tax proposals impacting individuals that have been floated by President Biden.  We will keep our discussion to the major points and those that are more likely to impact our clients as there have been a lot of ideas discussed.  From what we have been able to discern, even if Congress would pass tax legislation this year, the changes would not be effective until 2022. However, now is the time to start discussing and thinking about the possible implications.  

Major potential changes:

• Top income tax rate on individuals increased from 37% to 39.6% for single filers with incomes above $452,700 (joint filers $509,300). 

• Long term capital gains of taxpayers (single or joint) reporting $1 million or more income on their returns would pay capital gain taxes at a rate of 39.6% up from 20% today. 

• The tax benefit of itemized deductions for those earning over $400,000 will be capped. 

• FICA taxes would be imposed on wages above $400,000. 

• The current Estate/Gift tax rate and exemption would remain unchanged.   

One of the biggest potential items impacting our clients is the proposal to change how unrealized gains are taxed at death.  The proposal eliminates the stepped-up cost basis on inherited assets upon death.    

There are several exemptions which we will be glad to discuss when we meet.

The President’s proposals are a starting point and will not pass Congress as-is.  They are bound to evolve, and compromises will be made, but we should all be aware of the ongoing discussions.  The last discussion item will impact a lot of people. 

Hi everyone.  As you know, investment advisors are heavily regulated, which is a good thing,  since the regulations are designed to protect you, our clients.  Once per year, we are required to send you an updated copy of Part 2 of our ADV, aka our Firm Brochure and/or to provide you with a summary of material changes over the last year.

In the next few days, we will be emailing this document to those of you who are clients.  Clients who prefer hard copy will receive document in the mail. 

Two changes this year to make you aware of:

1. We are now being regulated directly by the Securities and Exchange Commission (SEC) rather than by the Secretaries of State of GA and NC. This change is due to the growth in our assets under management – thanks to all of you and a very good stock market.

2. There is a new SEC regulatory requirement called the Customer Relationship Summary (CRS). This document is designed to provide information to clients in a non-technical, simpler, and easier to read format. We will let you decide whether or not it really does that!

 As always, feel free to send questions after you get the documents in the next few days.    

And time for our annual financial literacy quiz! 

As a reminder, financial literacy is defined as the ability to understand and effectively use financial skills and tools, which include personal financial management, investing and budgeting.  Ongoing financial education of ourselves, and our children/grandchildren, is considered the backbone of financial literacy so we are furthering the cause by providing some fun and educational questions for you. 

Spoiler alert, some of these questions refer to prior “Bernie’s Blog” posts, so feel free to look back as needed.  Some questions have more than one right, or wrong, answer. 

1. Where should I keep my emergency fund?

a. In 10 coffee cans in my backyard, to ensure proper diversification

b. In my checking account so I can get to it easily when I need it

c. In an online high yield savings account or short-term bond fund

d. In a high growth ETF for tax efficiency

e. No idea. Better call LFS

2. Why are my 2021 Required Minimum Distributions (RMDs) higher than I planned for?

a. What’s a required minimum distribution?

b. Because I/LFS did a lousy job planning

c. Because I didn’t take a RMD in 2020

d. Because the stock market ended 2020 at a record high

e. Because the government needs my tax dollars

3. How should I prepare for these higher RMDs?

a. What’s an RMD?

b. Sell the bonds in my IRA

c. Get a new accountant

d. Adjust my tax withholding

e. No idea. Better call LFS

4. When interest rates rise, what happens to bond prices?

a. They go up

b. They go down

c. They stay the same

d. They get indexed to bitcoin

e. No idea. Better call LFS

Easy part first…  A SPAC is a “special purpose acquisition company” also sometimes known as a blank check company.  Quite simply, a SPAC creates a way for a private company to go public/get money more easily and more quickly than by undertaking an IPO (initial public offering).  In actuality, a SPAC is a shell company with no commercial purpose except to raise money through its own IPO in order to merge with/acquire a privately held company.  These SPACs are created and owned by “sponsors” who are usually institutional investors, private equity or hedge funds, often with expertise in a specific industry.

Although SPACs have been around for decades, they became very popular in 2020 because of the economic uncertainty caused by the pandemic.  SPAC mergers have created many well-known, now publicly held, companies, including Virgin Galactic, DraftKings, and Opendoor.

How does a SPAC actually work? 

After the SPAC is created, the sponsors undertake their own IPO to get investors.  Investors in a SPAC have no idea which privately held company will eventually be acquired, so they are essentially handing over money to SPAC sponsors, who also do not usually know which company they will be buying.  A share in a SPAC usually sells for $10 and that share will ultimately be exchanged for a share in the acquired company, often with a right to buy additional shares at a discounted price.  In general, a SPAC sponsor has two years to find a merger candidate and close the deal.  If the deal isn’t closed in two years, the initial investment, plus a small interest payment, is returned to the SPAC shareholders. 

Once a privately held merger candidate is identified and vetted, the SPAC shareholders vote to approve or deny the merger.  If the merger is approved, the SPAC shares are exchanged for shares in the new company.  The sponsors generally retain 20% equity in the public company. 

What are the benefits and risks of SPACs for investors?

• Since SPAC shareholders have no real input into merger candidate selection, there is always a possibility that the company selected will be a company that investors do not like or an industry they do not want to participate in.

• There is also more risk for investors because there is much less due diligence required for a SPAC to merge with a privately held company, than there is for a privately held company to undertake its own IPO with the SEC requirements. However, that lack of SEC oversight means that the merger can be done in a matter of months, instead of the multiple years often required for an IPO, which also means the privately held company gets a cash infusion much more quickly.

• Historically, the biggest risk to SPACs has been the over-payment for the privately held company. Critics believe that since it’s not actually the sponsor’s money being spent to acquire, the valuation efforts done by the sponsors might be less robust. In truth, over the last 5 years, the returns from SPAC mergers have been significantly lower than the returns for traditional IPOs.

It’s nearly impossible to miss the news of rising 10-year treasury note yields.  What is easier to miss is the explanation of why the yields are increasing so rapidly and what that means to us as investors.

Let’s start with the WHY.   As the economy starts to recover, there is an increasing expectation of inflation. As the risk of inflation increases, interest rates are pushed higher.  Despite the resulting what we hope will be short-term volatility and pain, there are definitely positives and negatives for rising interest rates as we think about our portfolios.  Regardless, we should keep the rising interest rates in perspective.  Today’s 1.5% treasury yield seems so high, but it’s still close to the recent era historic low – well below where it was two years ago.  It’s the rapid rise from about 1% at the start of 2021 to the current level which is creating the angst.   I’m old enough to remember Jerome Powell saying that the Fed has no immediate plans to raise its benchmark interest rate or to reduce its bond purchases, but clearly investors are not as sure as he seems to be.

Now let’s look at happens when interest rates increase.  The most obvious result is that bond prices go down.  You can see that in your treasury notes and in your bond funds.  Short term bond funds, which many of you own as a back-up cash reserve, have definitely been impacted, but less so than the bond funds which hold longer duration bonds.  Of course, the monthly interest payable on all bonds will also increase, but that will take a moment to happen and even longer for us to see it. 

The less obvious result is that most equity prices have also dropped rather precipitously in the last few weeks.  The exception has been “economic re-opening” companies (think Disney) which have taken a beating in the last year.  Many of these re-opening companies are in the Dow which is why the Dow has so greatly outperformed the tech-heavy NASDAQ in the last few weeks.   Big picture, what is happening is that as interest rates increase, we as investors look hard at the equities in our portfolios and often decide that the risk premium associated with already very high-priced equities just isn’t worth it right now, because we can get an improved return on a presumably safer bond investment.  Tech has been particularly hard hit because the prices in the last year have increased significantly.  Think Apple, Microsoft, Tesla. 

The observation that bond and equity prices have come off their highs while the economy is improving so quickly is certainly disconcerting, but history and economics suggest that this can be a relatively short term reset.  We all hope. 

So now the obvious question is “you said there is good news, where is that part again?” 

• Some industries do better with rising interest rates. Banks for example can do well because they make higher profits on loans. Bank and financial services companies have been good this month so far. Some energy companies have also done well because oil prices tend to go up with inflation. So those of us that held onto those Exxon shares through what was a terrible 2020 might be feeling a little better. For now.

• Our cash reserves in those high yield savings accounts or short term bond funds will eventually deliver a better return. Might be almost time to look for those coffee cans of $10 bills buried in the back yard. It’s about time.

• Many of us own TIPs which are adjusted twice per year for inflation. There hasn’t been much movement in these over the last 18 months but if the current trends continue, it is likely that there will be a bump in the principal value of the existing issues in July and newly issued TIPs will be at higher coupon rates. All good here.

Bottom line, stay the course and remember why we have these diversified portfolios.

As you know, we often say that we don’t invest in things that we do not understand or can’t explain – and there are many of those!  But since some of you have asked about Bitcoin and many of us actually own a little in our S&P index funds (thanks to Elon Musk and Tesla) we decided it was time to learn a little and share a little.  For you cryptocurrency experts out there, I apologize in advance for what I get wrong here!

Spoiler alert – we still aren’t recommending that anyone liquidate their retirement accounts or even dig up those dollar-filled coffee cans in the backyard in order to buy Bitcoin. 

What is it?

Bitcoin is what is known as a “cryptocurrency”.  It is actually a system of owning and transferring “bitcoins” to pay for goods and services or to collect currency in exchange for goods and services.  Simple, right?  Bitcoin has actually been around since 2009.  It emerged after the financial crisis because it doesn’t require the use of a bank or a banking system – which were at risk in 2009.  There is no governmental oversight or regulation, which can be good or bad, depending on your perspective.

As of today, February 23, the value of 1 Bitcoin is $47,408 USD.  IT IS HIGHLY VOLATILE.  Bitcoin has value because it is limited in supply – as all currency should be.  More on this later.

Bitcoin works a lot like VENMO or any online bank, although there are a few big differences.  To participate, a user first installs a “bitcoin wallet” on phone or computer.  This installation generates a Bitcoin address which then generates actual Bitcoins, which I think of as virtual $47,000 coins.  The user gets a public “key” which he shares with his commerce partners and a private “key” which he keeps safe and sound.  I think it’s bad to forget this “key” as it’s then not possible to access the bitcoins.  The bitcoins themselves are purchased via a Bitcoin Exchange or Bitcoin ATM!

After a transaction is completed, it is recorded in a Blockchain which feels like a massive checkbook register – but one that is actually used.  The blockchain stores all the transactions in the blockchain and then updates the balances in the individual user wallets.  This confirmation and encryption process presumably guarantees that the Bitcoins are only used once.  In truth, because the value is so volatile, most users are investing in Bitcoin vs paying with Bitcoin.  But that too is starting to change.  

Users like Bitcoin for transactions because the use does not require ID or a bank so it can be used by the security or privacy conscious or in parts of the world where banking systems are underdeveloped.  The currency transfers are fast and always available.   

Where does Bitcoin come from?

I said earlier that Bitcoin is limited in supply.  So, could the Defense Production Act be used to just make more?  I don’t think so – at least not yet.  New Bitcoins are Mined into existence by following an agreed upon set of rules.  Simply, these rules have to do with finding the solution to a very complex mathematical problem.  That solving process unlocks a set amount of Bitcoin, which keeps the supply limited.  Math wins.  Again.

Why Now?

If Bitcoin has really been around for 12 years, why are we just now hearing so much about it? 

• Tesla bought $1.5Bn in Bitcoin stock. And is talking about starting to accept it as payment for its cars.

• Some cities, banks and companies (MasterCard) have announced plans to at least explore the potential benefits and risks to their businesses.

• There has been a lot of interest by retail and institutional investors – along with the creation of cryptocurrency ETFs.

• The pandemic has shifted transactions of all types to on-line.

• It’s seen as an inflation hedge, much like gold or silver.

• But likely the biggest reason: It’s a cultural phenomenon with its own social media push, vocabulary and even preferred purchases. Lambourghinis are reportedly a preferred purchase of Bitcoin zealots. Skeptics say that it’s gambling vs a real solution to a real problem.

Interesting to learn about, but we are still not suggesting that any of you should go stock up!  As I said, most of you already own a little in Tesla shares, S&P 500 Index funds or Baron Opportunity.  No doubt that some of the recent market volatility is driven by Bitcoin volatility.  By the time, this Blog post goes up on March 1, today’s $47,408 USD value will likely be ancient history.  But we have no idea whether it will be much higher or much lower!

P.S.  On a lighter and more important note, Pfizer has now confirmed the expected news that Marci and I both got the real deal in their vaccine trial in August/September!  Mom and dad are also now fully vaccinated.  We are ready to see you in person when you are vaccinated and ready to see us!

An early February Yahoo-Harris poll said that 9% of Americans bought GameStop shares in January.  The same poll revealed that 24% of Americans bought GameStop or another “viral stock” in January.  The other viral stocks included the likes of AMC Entertainment and Blackberry, among others.  The average investment was $8535.  Men in the 18-44 age group were the most likely demographic group to participate.  The majority planned to hold the shares less than a month and bought the shares in a brokerage account which was less than a month old.  GOOGLE search records revealed that more people than ever before googled “how to buy stock” in the days prior.   Hm….

The trading frenzy was sparked by talk on the social media Reddit sub-platform r/wallstreetbets.  No one really knows why this happened.  Was it boredom, Covid exhaustion, social media frenzy about making a quick buck or some extra cash from stimulus checks or not going out to eat?  Or was it a bit of all these things?  The good news for small investors: some made lots of money and learned a little about the stock market.  The bad news for small investors: some lost a lot of money and learned nothing.  What happens to the industry, something we all care about, remains to be seen.

So what really happened, or is perhaps even still happening?  Let’s peel it back a little more….

GameStop owns video game stores, mostly in malls.  In Aug 2020, the share price was $4 and the total value of the company was $280 million.  In January, a few hedge funds decided that GameStop was overvalued and decided to “short sell” shares, which is a common practice of hedge funds.   

“Short selling” occurs when an investor “borrows” shares of a stock and then sells these shares which he doesn’t actually own.  The investor hopes that the stock will go down in price so he can then buy shares at a lower price, return the borrowed shares and pocket the profit.  Now this is all good, until the shares instead go up in price.  Now the investor has to buy the shares at the higher price (In this case a much higher price) in order to return the borrowed shares.   

In this case, someone on Reddit noticed the short selling of the GameStop shares by the hedge funds and enlisted an army of Reddit loyalists to start buying the shares, which of course drove the share price higher.  In this case, the price shot up to as high as $480/share (from $4/share in August) and the company value rose to $33.5 billion from the August value of $280 million.  The hedge funds then had to buy the shares at up to $480/share so they could return the ones they sold at $4.  Of course, this all also led to a very complicated mess at trading platform Robinhood, details about which I will spare you. 

Fast forward to today, the stock is volatile but not anywhere near how it looked two weeks ago, and the criticism and blame is rolling in on all sides.  Who knows what will happen?  But as we all know, what goes up, goes down. 

One more thing….  Some of you who do options trading might have had moments of unrest as you watched this saga unfold, so I want to explain how what we are doing with you is different, to put your minds at ease:  The GameStop situation involved the purchase of “uncovered calls.”  In other words, the buyers were “uncovered” – they didn’t own the shares they were selling.  When we sell calls with you, they are “covered calls” – you always already own the shares you are trying to sell.  The worst case with covered calls is that the share price doesn’t get to the pre-determined strike price and you keep the shares – and the income from the sale of the call.  Best case is that you sell your shares at the pre-determined strike price and also get the income from the sale of the call.  Of course, there are also times when the share price goes up beyond your strike price and you leave a little money on the table!  All are ultimately good outcomes!

Next up:  Bitcoin, et al

We are so happy to share photos of Mom and Dad getting their first doses of the Moderna vaccine a few weeks ago!  Also loving the stories and photos of your own vaccinations – keep them coming!

P.S.  For those of you who are following our Pfizer vaccine trial journey, Marci and I are 95% confident that we both got the real thing back in August and September, but we have not yet gotten official word from Pfizer.  That’s expected in the next few weeks so we will confirm then! 

P.P.S.  See you soon!  We will be ready to meet in person when you are! 

Happy New Year once again!  We have three important administrative items for you today:

Roth IRA Contributions (and yes, you can still do for 2020)

The eligibility “phase-out” AGI (adjusted gross income) has been increased for 2021

• For taxpayers filing jointly, the phase-out AGI range has been increased:  $198K to $208K (from $196K to $206K in 2020)

• For single/head of household taxpayers, the AGI phase-out range has been increased:  $125K to $140K (from $124K to $139K in 2020)

• The maximum contribution remains at $6000 ($7000 for taxpayers over 50)

• Remember that you can make 2020 Roth IRA contributions until April 15, 2021.  Let us know if you want to do this, so we can advise how to provide instructions to Ameritrade to ensure the contribution is applied to the correct year. 

2020 1099’s from Ameritrade (we know you can hardly wait)

As usual, 1099’s will be available in waves

• The documents should be posted online on January 14, February 4 and February 11.  Accounts with real estate funds will likely be in the last wave.

• The mailed copies should be received 5 to 7 days after the online posting

• There will be the usual rounds of corrected 1099’s for weeks and months

• You will not get a 1099 from IRA’s of any type unless you took a distribution or withdrawal

Required Minimum Distributions (RMDs) are at record breaking levels

• Your 2021 RMD is based on your IRA account value at the market close on 12.31.2020.  As you probably remember from two weeks ago, despite what was the 2020 market rollercoaster, the end was pretty darn good. 

• You got a year older in the last year – and your RMD as percentage of your account value goes up every year

• Many of you did not take a RMD in 2020 since the CARES Act removed the RMD requirement so your account balance got even higher – hopefully. 

You can take your RMD’s in cash, shares or charitable contributions.  Some states (like NC) require state income taxes to be withheld, regardless of which distribution option you select.

It is not yet clear whether RMD’s will actually be required for 2021 (although we have heard that the government needs tax revenue, so it’s likely that they will be required in 2021).  If you do not need the cash right now, we advise waiting until path forward is confirmed.  We will work with you individually on the process here.

As always, we are happy to help with any of the above!