Tag

investing

Women and Retirement Challenges

By | 2021, Money Matters, Newsletter | No Comments

The pandemic expanded the chasm women face when planning for retirement. Many women put their careers on hold or significantly reduced their work hours to stay at home becoming educators, primary caregivers, and much more. This has left many feeling ill-prepared for retirement.

Many women, fortunately, had the option to continue working from home. However, according to a report by Qualtrics, only 13% of women working remotely with children at home say they received a pay increase compared to 26% of men. This has only widened the pay gap observed by many working women.

Why is this so important? Women already face many challenges in planning for retirement. Typically, they have shorter career spans, entering the workforce later or working fewer hours while raising a family. They also leave the workforce early to care for aging parents. In both instances, their earning power is impacted and reduces their overall retirement savings and the benefit of long-term compounded growth.

Longevity is another challenge. Women outlive men on average by 5-6 years. When planning for retirement, this means more money is required to provide for those additional years. It is no surprise that 6 women in 10 do not expect their income to last their lifetime. To say it another way, 60% of women expect to run out of money during retirement. It is no wonder women are concerned.

Luckily, it is not all doom and gloom. Women can feel confident about retirement with some advanced planning. A plan will help you understand how your current saving and investing habits will impact your financial goals and can uncover potential shortfalls in retirement income. It will help you determine how to plan for specific milestones and at retirement when to access Social Security to maximize your benefits. It will provide a strategy to manage risk and allocate your assets to outpace inflation. All of this is done with a focus on your personal financial values and goals. Over the following few issues of our Money Matters newsletter, we will dive into some of these planning concerns.

For today, we will start with the most important: saving and investing habits. In the popular book, The Richest Man in Babylon, author George S. Clason points out that a part of everything you earn is yours to keep. This means you need to pay yourself first. Just like you pay your mortgage, utilities, auto loans, etc., start by putting yourself at the top of the budget list. If you are at the top, it is more likely you will get paid. On the other hand, if you put saving at the end of the list, you may not get paid when the money runs thin.   

To have money for future needs, you must love your future self as much as you love yourself today. This might mean giving up a few of the things you enjoy so you can save money for later. However, it is not an all-or-nothing choice. Take, for instance, your retirement savings. Employers provide 401(k), 403(b), or other types of plans where you contribute directly from your paycheck. The employer might sweeten the deal by matching what you put in up to a specific limit. If you are currently saving a percentage of your income, increase that percentage annually or each time you receive a pay increase. Saving 10% to 15% of your income annually will help you prepare for the future and allow you to maintain and enjoy your retirement years.

If you do not have an employer-sponsored plan, do not worry. You can contribute to an IRA or Roth IRA. Here, you can make an annual contribution or, even better, make a monthly contribution. Put everything on autopilot, so you do not have to think about it every month.

The sooner you begin saving and investing, the more compounded growth you will receive. Over time, this can amount to a large part of your nest egg. If you are just out of college with your first job, sign up for your company-sponsored plan. If you are behind the curve and retirement is not too far off, augment your retirement saving with non-retirement accounts. There is no limit on how much you can save in a non-retirement account. There is also no requirement on when or how much money you must take out of the account. You are in complete control.

Now, think about your personal situation. Do you have a plan for the future? Are you saving enough to meet your goals and maintain an enjoyable lifestyle in your retirement years? If you answer these questions with anything other than yes, give us a call. We can help assure you are on track for a successful financial future.

In the next issue of Money Matters, we will cover how inflation impacts retirement income.

Tags: , , , , , , , ,

Has All This Stimulus Created A Rational Bubble?

By | 2021, Money Moxie, Newsletter | No Comments

One of the most absurd and fascinating financial stories of the pandemic was Hertz. Yes, the Hertz that pre-Covid was the second-largest rental car company. Last April, it had 700,000 vehicles sitting idle and $19 billion in debt! On May 22, 2020, Hertz filed for bankruptcy protection. Then, just a few days later, the stock began a miraculous rise.

Between May 26th and June 8th, Hertz stock rose nearly 1,000%. A savvy investor might think that after all creditors are paid, there may be something left over for stockholders. In reality, Hertz had become one of the first social media stocks of the pandemic.

Individual investors encouraged each other to buy Hertz because it was “going to the moon” and “You Only Live Once,” also known as just YOLO.

Hertz recently announced it might be purchased for just under $5 billion—a number far below the $19 billion in debt. Eventually, investors realized this would happen because the stock could not stay above its June 2020 high. In reality, it is now worth approximately zero.

We have seen the manic rise and fall of many stocks, most of them in January and February of this year and most of them unprofitable. The reasons are complicated, but we will summarize them below:

(1) Gamification of investing with free phone apps
(2) People stuck at home with more free time
(3) Free money from Uncle Sam
(4) Leverage through the use of options
(5) Market makers hedging their risks
(6) Short sellers forced to cover

Let’s focus on the one that impacts all of us as investors: “free money.” The U.S. government has now approved three rounds of stimulus, totaling around $6 trillion. (An additional $4 trillion from the Federal Reserve went into financial markets over the last year.)

As described in the graphic below, the majority of Americans are not planning to spend the stimulus immediately. It has led Americans to save more money in the past year than any other time recorded in U.S. history!

Combine all these savings with reduced household debt, and we get a very flexible consumer. Remember, consumer spending is 69% of the U.S. economy.

Much of these savings will eventually get spent or find their way into investments, which is why some have called the rise in the stock market a “Rational Bubble.”

The health situation has drastically improved since January. While the United States continues to face even more contagious variants of Covid-19, vaccine distribution has substantially expanded. As of March 15th, over 90 million doses had been administered. Plus, approximately 2 million more Americans receive a dose each day.

Nationally, the best-case scenario may be happening. High economic growth (likely to top 6% this year) and low inflation (rising to possibly 3%) make it easier to handle the heavy level of debt. Many states, from New York to California, are easing restrictions. Other, less densely populated states are already way ahead in reopening.

In Utah, the governor thought we would have a massive deficit when shutdowns began last spring. Instead, the state ended up with a $1.5 billion surplus, and in February 2021, Utah had an unemployment rate of just 3.1%.

A year ago, many debated what the financial recovery would look like. Would we have a sharp rebound or a V-shaped bounce, or would it be a slower U-shaped or volatile W-shaped recovery?

The reality has been a letter not previously used to describe economics, but one that I think we will see again in the future. Our current progress has been called a K-shaped recovery because while it has been good for some, it has been difficult for others. As we emerge in Spring 2021, we hope to see more joyful and prosperous times for all.

*Research by SFS. Data from the Federal Reserve Bank of St. Louis. Investing involves risk, including the potential loss of principal. The S&P 500 index is widely considered to represent the overall U.S. stock market. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

Tags: , , , , , ,

2021 – Year of the Vaccine

By | 2021, Money Moxie, Newsletter | No Comments

Irrational Exuberance
On January 7, 2021, Elon Musk tweeted a recommendation that people replace the social media app Slack with Signal. Instantly, the stock for Signal Advance, Inc. began to climb. It finished the day up over 500%. Unfortunately, Signal Advance does not have a social media app.

Investors should have started selling the moment the mistake was publicized. Instead, the stock kept rising. In less than a week, Signal Advance rose 11,700%!

Let’s look deeper into what a number like this really means. An investor who owned $10,000 of this stock would have had nearly $1.2 million three days later. Of course, groups often move in irrational ways, but at some point, the truth begins to matter. On the fourth day, it had an epic fall, giving up most of the gains.

Behavior like this has happened before. In fact, it was common back in 1999. On April 1, 1999, The Wall Street Journal reported the story of AppNet Systems, which filed to have its stock publicly traded. That day, investors began buying up Appian Technology. Despite being described as an “inactive company,” the stock rose 142,757% in two days. Needless to say, it didn’t end well for most of these investors.

In 1999, online trading was new, and so were the internet chat rooms where investors could share stock tips. It seemed that nothing could stop the momentum.

Warning Signs from 2000
Technology stocks began to fall in February 2000, and the rest of the market began to fall in March. What triggered the decline? Were there any signs?

(1) Was it Yahoo’s addition to the S&P 500 on December 7, 1999, which signified the acceptance of technology domination in the investment world?

(2) Perhaps it was the symbolic show of a new world order when internet upcomer AOL purchased media giant Time Warner on January 10, 2000?

(3) Finally, could it have been that the S&P 500 price divided by future earnings was at an all-time high of 26 in February 2000?

(If you don’t remember or have never heard of AOL, well, that proves the point I am trying to make. Good investing is very different from speculation.)

Investor Mindset
Greater and greater stimulus from the federal government and the Federal Reserve have created an environment where some investors are only focused on return. They ask themselves, “How much money do I want to make?” Then, they invest accordingly.

Of course, there is no limit to how much money most people want, which is exactly why this won’t last forever. The stock market is not an ATM.

This bull market will end. However, it is difficult to accurately predict the timing of a falling market when in the middle of a powerful bull market. It could be in February or, with all the government support, it may keep going throughout 2021.

Government stimulus and all the new money that comes with it will have to go somewhere. This could be a great support for investors as 30% of the stimulus is not needed by its recipients and gets saved. Roughly the same amount is spent, and another part pays off debt. All of these help the stock market either directly or indirectly.

If even more stimulus comes in 2021, then we can expect more spending and more investing.

What could go wrong in 2021?
Unintended consequences are an incredible risk for the unprecedented government stimulus we have experienced. However, we have not seen any major negatives yet. Until we do, it is quite possible that the stimulus will continue to flow in 2021.

I will be keeping an eye on inflation. In the Great Depression, America had the New Deal. People were paid to work. In the pandemic of 2020, people were just paid.

As the money is spent, demand could outstrip supply, and prices could rise. If inflation somehow reaches 3% in 2021, then I believe the Federal Reserve will take the punch bowl away from the party. For now, Fed Chairman Powell says he is “not even thinking about thinking about” doing that. So, no reason to panic.

What could go right in 2021?
I expect a great rotation to begin at some point in 2021. This change could end what I would call the profitability of speculation. However, it does not necessarily mean a crash in the market. I’ll explain.

When the economy was barely growing over the last 10 years, it didn’t make sense to run from growth. This made it possible for technology, which was a poor investment from the year 2000 through 2008, to become a leader. Technology was the undisputed leader of 2020 as it was also well positioned for the stay-at-home economy during the pandemic.

Technology represents over 25% of the U.S. stock market, but this is not a fixed level. Just before falling out of favor in 2000, it was 30%. By 2008, it was only 15%.

Keep in mind that in 2020, technology only represented 6% of the U.S. economy and just 2% of employment. That means there is a massive amount of opportunity out there just waiting to regain strength. I believe that at some point in 2021, we will get that change of focus and market leadership.

International stocks, small company stocks, industrial stocks, and energy stocks have already begun to strengthen after years of lagging behind.

Only time will tell, but if the new trend continues as it has over the last few months, then we may be seeing new market leadership that will point the way forward for years to come.

*Research by SFS. Data from the Federal Reserve Bank of St. Louis. Investing involves risk, including the potential loss of principal. The S&P 500 index is widely considered to represent the overall U.S. stock market. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

Tags: , , , , , , ,

The Emotional Cycle of Investing

By | 2020, Money Moxie, Newsletter | No Comments

Emotions are a dominating force that impacts every aspect of our lives. The decisions we make, the interpretation of our experience, even our very personalities are all primarily influenced by our emotions. We are neurobiologically wired to create, feel, and think by emotion. In so many ways, our perceived realities are governed not by facts, but by feelings.

Psychologists believe that emotions drive 80% of the choices we make, while practicality and objectivity only represent 20% of our decision-making. This is because our brain has two sides, the thinking side, and the feeling side. The thinking brain is slow, rational, and objective. It deliberately, methodically, and logically reasons through information. The feeling brain is much faster. It is impulsive, emotional, and unconscious. It is also our default decision-making system.

How often do we describe the reason for a decision by saying, “It feels right?” Yet strangely, the mechanism we rely on most when making decisions is so fickle that it can be greatly altered even by what we ate (or did not eat).

This is why Dave Ramsey said that personal finance is not a math problem, but a behavior problem. Investors are emotional. Thus, they judge investment decisions mainly by emotion. This can have expensive consequences.

Most investors go through a recurring cycle that follows the market. This emotional cycle often leads an investor to make the wrong decision at the wrong time. You have heard the saying, “Buy low and sell high.” Logically, this means buying when everyone is feeling despondent (selling) and selling when everyone is feeling euphoric (buying). This is so much easier said than done.

One of many examples: In 2018, when the S&P 500 lost 4.38%, the financial analytics firm found that the average investor lost more than double that, at 9.42%. Investors lost money because they acted on emotion when markets declined. A study that same year published in the Journal of Financial Planning found that investors who implemented strategies to remove emotion saw returns up to 23% higher over a 10-year period.

As accredited Behavior Financial Advisors and Certified Financial Planners, we can help remove emotion from the equation and make wise financial decisions. Whether it is investments, estate planning, or a large purchase, we can provide the expertise that can make a positive difference in your financial future.

Tags: , , , , ,

Can We Stop the Tide?

By | 2020, Money Moxie | No Comments

I love Warren Buffett’s metaphor about the tide going out. It’s hilarious and true. Jerome Powell’s response demonstrates the magnitude of the task at hand in 2020. Now, a confession: Jerome Powell never said he could stop the tide—at least not in words. However, he is trying to stop the economic tide from allowing struggling businesses to borrow more and more money until the current global healthcare crisis is over.

A little background: When the federal government exceeds its budget, it must borrow. There is only one government agency where this does not apply, the Fed. My favorite metaphor for the Fed is the hammer. To a hammer, everything looks like a nail. Whether we are in a real estate crisis or a global pandemic, the Fed has one response: create money. And because it does not have to borrow, there is no limit to the amount it can make. The Fed wields a hammer of infinite size.

Just as you may have projects at home that require other tools, it makes sense that a hammer cannot solve all of America’s problems. A pandemic seems like it may be one of these. It has not stopped the Fed from trying. In less than 3 months in 2020, the Fed created more money than it did during the previous 12 years combined. (That includes the 2008 Great Recession and the trillions of dollars to get out of it.)

A consequence of the unprecedented government intervention is a massive amount of wealth creation. The Fed’s money goes mostly into debt markets, which pushes prices higher and makes the owners of assets wealthier. The wealthiest 10 percent of Americans own approximately 80 percent of market assets, so there is an unintended consequence of increasing the wealth gap. This is not the Fed’s fault exactly. Remember, it may have unlimited amounts of money, but it is really limited in how it can spend it.

You may be wondering, doesn’t printing money create inflation? Why haven’t we seen it in the last decade? Inflation is rising prices. It has averaged only 2 percent despite the $7 trillion created by the Fed during the previous 12 years and the $27 trillion borrowed by the federal government, most of this over the last 20 years. Instead, let’s describe it as follows: “Inflation is when prices go up for the stuff you want.” By that definition, I think inflation has been higher than 2 percent.

So, will we see inflation get even worse? All it takes is for demand to grow faster than supply, but this hasn’t happened yet. Consider investors like Jeff Bezos, Bill Gates, and Warren Buffett. When the Fed pushes up the value of their investments, do they buy another home or a big-screen TV? The wealth creation that the Fed engages in is unlikely to turn into major inflation unless it creates a significant increase in demand. Once consumers get accustomed to rising prices, then further increases may follow.

If the Fed had written checks out to every American for $21,000, there would have been a massive increase in spending. Demand would have been way beyond supply, and the prices of homes, cars, and other items would have skyrocketed. The Fed cannot do this, and it wouldn’t want to. Stable prices and full employment are its two mandates.

However, I believe that a more mild increase in inflation may come in the next decade. While the Fed’s money went into financial assets, there was an effort by the federal government to help Americans more directly.

The CARES Act provided $1,200 in cash to most Americans, including approximately 70 million children and over a million deceased. In addition to this, around 20 million unemployed Americans received a $600 per week boost to unemployment benefits.

All this adds up to a lot of extra stimuli, and it has had a more direct impact on spending, saving, and even investing. Approximately 30 percent of all income is now coming from the government.

The federal government is $27 trillion in debt, which is well beyond the size of our entire economy. And there may be even more stimulus coming.

As this stimulus works its way into the economy over the coming years, we may see inflation begin to rise for the first time in a long time.

Another potential impact of the Fed’s actions is also unintended. We call it moral hazard. If we avoid the pain and devastation of recession, then when will we learn the hard lessons?

Finally, will all this help productivity and innovation or hinder it? Will we have to pay off any of this debt, or will we use inflation to make it less meaningful? Only time will tell.

Even with all the uncertainty, the Fed firmly believes it does not have much choice. Jerome Powell likes to describe the Fed stimulus as a bridge to keep Americans out of financial harm until this crisis has passed. This is what I would call the Great Financial Experiment of 2020. This is not only happening in the United States but all over the developed world.

The success so far has been stunning and without major unintended consequences, but it’s also still early–very early. So, as investors, we look for opportunities to participate, but we never forget the risks. Only time will show if the United States of America and the rest of the developed world successfully stopped the tide from going out.

Tags: , , , , , ,

What is Regulation Best Interest?

By | 2020, Money Moxie | No Comments

By now, if you have accounts with SFS, you have received a new form called Customer Relationship Summary (CRS) from Securities America and an ADV Part 3 from Smedley Financial Services. So, why are you getting these forms, and what do they actually mean to you?

There is a new regulation that is designed to put your best interest first. It is called Regulation Best Interest, or Reg BI for short, and it went into effect on June 30th, 2020.

Reg BI requires an investment professional to act in your best interest and hold themselves to high standards of disclosing all important information, caring for their client, reporting any conflicts of interest, and maintaining strict compliance.

Form CRS is intended to explain the customer relationship with our Broker-Dealer, Securities America. This form clarifies the difference between investment services and advisory services and explains the difference between brokerage and advisory fees. It also details how the Broker-Dealer makes money and any disciplinary history for Securities America.

Form ADV Part 3 is specific to Smedley Financial. This form is intended to clarify the types of services we can provide, the fees you may pay, our fiduciary obligation to act in your best interest, any conflicts of interest, how we make money, and the fact that we do not have any disciplinary issues.

These forms are a good step forward towards putting a client’s best interest first. However, in my experience, most clients already expect this of their financial advisor.

The good news is that since the beginning, Smedley Financial has been a fiduciary and has always strived to put our clients’ best interests first. And we will continue to do so. For our clients, Reg BI should not have any meaningful impact. It should raise the bar for other “advisors” to make sure they hold themselves to the same fiduciary standard.

Reg BI also clarifies the sometimes-muddy waters of who can call themselves “advisors.” Professionals who just sell insurance or a product, or who only process trades as a stockbroker, cannot call themselves “advisors.” An “advisor” is someone who has the appropriate securities license to purchase stocks and bonds and is also licensed to give clients advice.

At Smedley Financial, we hold ourselves to an even higher standard by not only being investment advisors but also financial planners and life-centered planners. Our financial planning helps you figure out what resources you have, will have, and will need in order to meet your goals. Our life-centered planning helps you figure out how to live the life you want with the time you have left on this planet.

We appreciate you as clients, especially during these unusual times. If you have any questions regarding the forms provided or would like to review your plan, don’t hesitate to call us.

Tags: , , , , , , , ,

Living In Unprecedented Times

By | 2020, Executive Message, Money Moxie | No Comments

The last five months have been record-setting in more ways than we could have imagined. The impact has been wide-reaching – and I am not referring to the COVID-19 virus numbers.

Technology has provided opportunities that have businesses, including ours, to service clients and continue to run their operations while working from home. It allowed students to continue their studies remotely and check in with their teachers when needed. We have access to almost anything: news, shopping, connecting with family and friends, and investment markets, all of which are amazing. In fact, it is hard to imagine what we would have done without technology.

Newer technology has opened the doors for people to save and invest at entry levels without barriers, such as minimum investments. Apps have become popular among the DIY crowd, which are too often young and inexperienced investors.

Securities regulators have spent countless hours creating Regulation Best Interest, as explained in Mikal’s article. Regrettably, they have done little to educate and protect DIY investors who are not prepared for the leveraged risks and hidden fees of this new world. One of these investors even paid the ultimate price.

An app on a phone gives anyone fingertip access to investing. One of these apps offers game-like screen appearances, prompts users to place trades when looking up a stock ticker, and displays falling confetti to make them feel good when placing a trade. These apps even allow investors to leverage their investment through options – something professionals are required to have tested and trained for before offering them to their clients. What these apps do not offer is common sense or an advisor to help investors understand the associated risks of specific investments. They lack education and risk assessment before making speculative, high-risk investments.

We have heard disastrous reports of investors borrowing on credit cards and accessing home equity loans to invest, only to lose the lion’s share of their investment. As financial advisors, we find this very disheartening.

All investors should be educated about their investment options, risks, and costs. Smedley Financial makes a concerted effort to provide you with information and education regarding investing through our Money Moxie and Money Matters newsletters, regular webinars, seminars, and, most importantly, one-on-one meetings with clients. If you have questions or need more information regarding finances or investing, please reach out to our wealth management advisors.

Tags: , , , , ,

No One Can Predict The Future

By | 2020, Money Moxie | No Comments

No one can predict the future. Especially not me. On my LinkedIn page in March 2019, I posted: “I wouldn’t be surprised that we have some good growth in stocks for (2019). You usually have good growth right before a recession. However, 2020 could be a challenging year.” I had no idea it would be as challenging as it has been!

Even though I was right, I was not predicting the future. I was just following statistics and other economic indicators. Little did I know that a global pandemic would stall the U.S. (and world) economy and send it into a freefall. This yanked the 1st quarter into the red. Now, all we need to meet the technical definition of a recession is for the 2nd quarter to be negative as well.

Stocks are not the economy. There has never been a better example of this than the year 2020. The economy is hurting. Consumer spending is down double digits, and unemployment is near 20 percent.

Stocks, on the other hand, have been improving as the government has printed money. Some pundits think stocks have already bottomed and are just headed up from here. Others think we will head lower towards the mid-March bottom. Some have even suggested that this economy looks a lot like a depression. These are all conjectures. No one can predict the future.

This uncertainty leads people to question their financial future: Will I be able to pay my bills for the next 6 months? Will I be able to retire when I planned? Will my nest egg be enough to see me through retirement?

Years ago, questions like this led us at SFS to create a system that is simple yet powerful. It is designed for times like these. The goal is to provide an inflation-adjusted income for the rest of your life, regardless of the storms that may come. It helps remove a lot of the uncertainty around the security of your finances.

We call it a Lifetime Income Plan. The concept is simple: you segment your assets into time frames based on when you will need income. The assets set aside to generate income for the next 5 years should be conservative and protected.

The successive 5-year time segments should be moderate to aggressive, depending on the time frame and your personal risk tolerance. This system can be used whether you are already in retirement or just starting to save for the future.

While the design is simple, the application can be much more complex. As always, we recommend consulting with one of our Certified Financial Planners (CFP®) who are well versed in income distribution strategies.

No one knows exactly how things will turn out with the Coronavirus and how large or long-lasting the impact will be. However, with careful planning, you can help prepare your financial future for any storm that comes.

Tags: , , , , , ,

What To Do With Your 401(k), If…

By | 2020, Money Moxie | No Comments

1: You are still employed by the sponsor company

Keep investing! The 401(k) implements an effective purchasing strategy called dollar- cost averaging. This strategy involves making regular and continuous fixed-dollar investments. But it is more than just a payroll deduction plan. Dollar-cost averaging removes the risk of trying to time the market.

By using dollar-cost averaging in a long-term investment account, the average cost per share ends up being less than the average price per share. This is because you buy less shares when prices are high and more shares when prices are low. In other words, volatility can work in your favor. So keep investing.

2. You are no longer working for the sponsor company but are employed elsewhere

You have some options.

(1) You can take a partial or full distribution. In most cases, this is a taxable event and may carry additional tax penalties. In rare situations, is this a good idea. Speak with a professional advisor before choosing this option.

(2) You can leave your 401(k) with your previous company. You can no longer contribute to it, but it will continue to perform based on the investments you have selected.

(3) If your new employer offers a 401(k) and you are eligible for it, you can roll your old 401(k) into your new 401(k) plan. This is a tax-free rollover, and you will need to select new investments based on what the new plan offers.

(4) You can roll the old 401(k) into an IRA. In most cases, this is what we recommend. An IRA gives the account owner more control, more investment options, and better planning opportunities than a 401(k). Like a 401(k), an IRA is a retirement account with annual maximum contribution limits and early withdrawal penalties. A rollover is not considered a contribution, and therefore any amount can be rolled.

3. You are no longer working for the sponsor company and are not employed

You have the same options as above, with the obvious exception of rolling to your new 401(k). If you are retired, however, the rollover option to the IRA may be even more appealing. When it comes time to take distributions from your retirement accounts, the IRA has some significant advantages. Some of these include better risk management strategies, tax-saving distribution strategies, and avoiding mandatory distributions from Roth accounts.

4. You need financial help due to COVID-19

The CARES Act allows some individuals to take early withdrawals from retirement accounts in 2020 without the early withdrawal penalty. If you have been diagnosed with COVID-19, have a spouse or dependent diagnosed with COVID-19, or have experienced a layoff, furlough, reduction in hours, have been unable to work, or lack childcare because of COVID-19, you may qualify. Withdrawals may impact your tax liability, so speak with a financial advisor before taking an early distribution.

Tags: , , , , , , , ,

Election Years: Positively Volatile

By | 2020, Money Moxie, Newsletter | No Comments

It may turn out to be a typical election year. I expect stocks to be up in 2020, but in the single digits—much less than in 2019. Investors dislike uncertainty, and 2020 will be filled with plenty of political unknowns. Despite some extra ups and downs, election years tend to be positive for stocks. Hang in there.

A lot of Republicans could have missed out from 2009 to 2016. Similarly, Democrats would have missed the 2017-2020 markets. The rule for election volatility is that it comes sooner than most investors expect. Most summers have a bit of a slowdown. In election years, that drop usually hits in spring.

The classic October drop is typical even in election years, but don’t get caught saying, “I’ll invest when the election is over.” The market usually begins to climb a couple of weeks before the final vote.

Some rotation in the markets may develop as we learn who the candidates will be. Still, the most likely outcome is gridlock in Washington, with the Republicans staying in control of the Senate and the House controlled by Democrats. Regardless of your political opinions, gridlock is usually good for stocks because large companies plan 10+ years ahead of time and prefer a predictable business environment.

*Research by SFS. Data from the Federal Reserve Bank of St. Louis. Investing involves risk, including the potential loss of principal. The S&P 500 index is widely considered to represent the overall U.S. stock market. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

Tags: , , , , ,