Weathering the Storm

The stock and bond markets have had a historically bad start to 2022 as investors are feeling anxious about rising interest rates, high inflation, a slowing economy and war in Ukraine. Here’s how the US bond market, S&P 500 and Nasdaq have performed so far: The downturn has been particularly bad for growth stocks and long-term bonds, which were two categories that had huge returns over the last three years. You may have heard us discuss how these categories were performing in previous quarterly letters and commentary along with our expectation that, at some point, these categories would cool off and other categories would start to lead. It certainly appears that moment has arrived. As many of you know, we generally don’t make predictions about how the markets will react in the short term because we know that nobody has ever been able to reliably predict short-term market movements. The good news...

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5 Common Tax Myths

5 Tax Myths we see from our clients

The tax code is a confusing maze of rules and regulations that very few people understand. All of these rules often make it difficult to understand what is true and what is not. This leads to people creating rules of thumb that are generalizations to simplify the complexity of the tax code. Unfortunately, as with most complex topics, this can create popular beliefs that may not be true. Here are five of the most common tax myths we hear from clients:   1) I’ll be in a lower tax bracket once I’m retired.   Naturally, if you are no longer working and earning wages it is reasonable to assume you will be in a lower tax bracket. Unfortunately, the formulas that determine how much of your Social Security, qualified dividends and capital gains are taxed, along with mandatory withdrawals from your 401k/IRA at age 72, can lead to paying a lot higher tax rate than you...

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File Your 2020 Tax Return Now Or Later? Why It Matters This Year

It may pay to file your tax return early this year as new laws could impact your payout

The Senate and the House are currently working their way through approving another round of stimulus to help keep people and businesses afloat during the pandemic.  Like previous rounds, it is expected to include stimulus checks paid to individuals and families. This would include $1,400 per individual, plus children and adult dependents qualify this time as well. You must have income below $75,000 if you are a single filer or income below $150,000 if you file jointly with your spouse to get the full stimulus payment. In past packages, the stimulus payment would phase out completely for a single filer who earned more than $100,000 or a married couple who earned more than $200,000.  It was recently announced that the new package may have the phase out happen much faster, with single filers being completely phased out once they earn more than $80,000 and married couples phasing out once they earn more...

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The Power of Rebalancing for Retirees

The stock market has taken a wild ride so far in 2020. Starting on February 19th, the global stock market lost approximately 35% in five weeks.* Following that, the global stock market gained 42% from March 23rd through June 16th.* The market has been extremely volatile over this period, which typically drives investors crazy, but ultimately provides a unique opportunity for retirement investing. Over the last six months we have been rebalancing portfolios as we’ve mentioned in several videos and blog posts. We know that there is extensive research supporting rebalancing as a risk reduction tool, which is especially valuable for retirees. Typically, this involves selling stocks and buying bonds, mainly because stocks tend to earn higher returns than bonds over the long run. Thus, portfolios become overweight in stocks and create the need to rebalance. But when markets decline, rebalancing provides an opportunity to take advantage of depressed stock prices and...

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The Path to Recovery

The stock market has continued to tumble as investors flee to safety over concerns about the impact on the economy from COVID-19.  Rightfully so, there is an expectation of an economic slowdown as a result of people staying inside to try and limit the spread of the virus.  Does this mean investors should expect stocks to continue to decline for months? First, the stock market has already priced in a recession, that is why the market is down over 30% already.  The stock market is a forward-looking machine and it always has been.  This applies to recoveries as well, and we fully expect the market to recover before the economic data actually shows a recovery.  This is why selling stocks and “waiting until things look better” is a bad investment strategy.  By the time things look better, the market will already have started to recover. Case in point, this chart shows the...

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Coronavirus: Short Term vs Long Term

The headlines have been dominated recently by the spread of the coronavirus and confirmation of over 80,000 global cases.  The stock market has taken notice, and as of this writing, markets have declined approximately 11% from their recent highs last week.  Meanwhile, the bond market has rallied strongly as investors flock to safer investments. Undoubtedly, this outbreak has caused many people to become fearful about what might happen to the stock market and global economy going forward.  We certainly are no experts in health care or medicine so we will save everyone from having to hear our opinion about how the coronavirus situation may play out. What we can do, however, is provide perspective on how past outbreaks have affected markets and what investors should keep in mind as the markets fluctuate.  According to First Trust, during the last forty years there have been twelve major outbreaks.  During those events, the average...

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DFA and Vanguard Named to Best Parent Fund Companies List

Morningstar, an independent mutual fund rating company, recently updated their parent ratings on mutual fund companies.  The two primary mutual fund companies we use, Dimensional Fund Advisors (DFA) and Vanguard, were both given a high rating, the top rating available by Morningstar.  Only five total mutual fund companies, of which more than 50 were rated, received the top rating of high. Morningstar reviewed fund companies from several angles such as culture, long-term focus, ownership structure, manager tenure, regulatory infractions and ethical practices, and providing strategies that have served investors well. When speaking about Vanguard, Morningstar’s Alec Lucas said “Vanguard gained its stature by following Jack Bogle's playbook: pairing relatively predictable strategies, both passive and active, with minimal costs. That's enriched Vanguard's investors, and those outside its flock who have benefited from industrywide fee compression.” Daniel Sotiroff wrote about DFA; “Dimensional Fund Advisors continues to be an outstanding steward of its shareholders' capital. …...

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The Retirement Rules Are Changing

Congress recently passed, and the President recently signed, a bill called the Setting Every Community Up for Retirement Enhancement Act (SECURE Act).  This brings major changes to the retirement landscape that will affect all retirement savers going forward.  These are the most sweeping changes to the retirement rules in my entire 13-year career.  Let’s walk through the most impactful changes: 1) Changes the age to start required minimum distributions from age 70.5 to age 72 This is good news for those who don’t need to take money from their retirement accounts because they are still working or have other funds they can tap for retirement expenses.  This change allows more time to strategically plan for those who retire before 72 and want to take advantage of low tax years by doing Roth conversions.  I can also appreciate the starting date no longer being a “half” age, which is incredibly annoying for most...

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Trade War Worries Strike Again

The trade war with China reared its ugly head again this month as the President announced a tariff increase from 10% to 25% on $200 billion of goods while also threatening 25% tariffs on an additional $325 billion of Chinese imports.  Beijing retaliated with a threat to raise tariffs from 10% to 25% on $60 billion of U.S. goods on June 1st. Unsurprisingly, the stock market did not like this new development. The global stock market has dropped approximately 4.5% since the announcement of increased tariffs. Throughout the first quarter, the stock market rallied on news of progress towards an agreement, with an estimate at one point of a trade deal structure that was 90% done.  The U.S. claims China is trying to renegotiate aspects of the deal they previously agreed to. The bond market has subsequently rallied as the U.S. 10-year treasury yield dropped from 2.54% down to 2.32% (bond values...

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Retirees: Is Your Tax Refund Costing You Money?

Millions of people get tax refunds every year and, according to the IRS, the average refund this year is $1,949.  Much has been said about how a large tax refund is just an interest-free loan to the government and people should adjust their withholdings to keep more of their money in their pocket. That topic has been well covered and so I won’t beat it to death any further.  But for retirees, there is another interesting angle when it comes to tax refunds.  A big tax refund may actually be costing you real money. Let me explain; the tax code is built on a system of complex calculations for different types of income.  Long-term capital gains being taxed differently than wages is just one example.  For retirees, by far the most impactful is how your Social Security is taxed.  Basically, 50% of your total Social Security benefits, plus your other income, determines...

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