Turbo Charge Your Savings Plan

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Investing in turbulent markets is much like Driving on Ice. The feeling of loss of control is scary, and our brains don’t like that feeling. Therefore, it prompts us to remove that feeling through action. Unfortunately, just like when our car is sliding on ice, our initial financial reactions are often the wrong ones. One such example is the desire to suspend contributions to retirement savings during down markets.

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You Can't Win a Race by Going Backwards

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The CARES Act rule changes giving easier access to retirement funds will certainly act as a much needed lifeline for many Americans in desperate need. For those that are not in dire need for short term funding, however, taking advantage of the ability to access retirement funds without penalty can be expected to have tremendous negative effects on a retirement savings plan. It would amount to shifting a race car into reverse during a race.

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Managing Cash in a Crisis

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Strenuous market environments often shine a light on one of the more challenging aspects of personal finance, cash management. How much cash is too much? How much is not enough? If you have excess cash, where should it go? If the answer is financial markets, when is the right time to do that? These questions are universal whether you are at the start of your career and just beginning your accumulation plan or a seasoned saver near the end of your career, and everyone in between. Let’s review these in sequence.

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Chicago Booth Economic Outlook - Lunch with Giants

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Yesterday, I had the pleasure of attending the University of Chicago’s Booth School of Business 2019 Economic Outlook Luncheon in Chicago. In addition to the great discussions had with other attendees, the main attraction was listening to the star studded panel, academically speaking at least, of Booth professors discuss their views on the state of the economy. The discourse was engaging, and challenging in a way that reinforced the degree of expertise of the speakers.

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Can We Live With A Government Shut Down? We Have Before...

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The latest headline roiling markets this week is the impasse in Washington regarding passage of a funding bill to keep the Federal Government up and running. If an agreement isn’t reached today, the Federal Government will shut down. Based on the sell-off in global stocks on Thursday, the markets are telling us that a potential government shutdown must be a big deal. While it certainly could be for those government workers that wouldn’t have a job to report to during a shutdown, most people will have a hard time noticing a change.

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Don't Over-Drive the Car

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Something odd tends to happen on the race track when a driver pushes harder and harder to go faster; they eventually find themselves going slower despite the extra effort. In daily life, we’ve probably all been caught out by trying to get into the “fast lane” when sitting in traffic just to see brake lights show up in the new lane while the one we just left starts moving. We then change back only to see the situation reverse on us yet again. For investors, migrating from asset class to asset class in an effort to improve performance can often be met with the same frustration.

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Driving on Ice

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This week’s dramatic market movements, with major US stock indexes down over 3% Tuesday as fears over the reported Chinese trade agreement details, Brexit related news coming out of the UK, and a partial inversion of the yield curve for US Treasury Bonds made many investors feel like their investments were sliding out of control. It’s the same helpless feeling you get when your car slides on ice when trying to negotiate a turn in winter. Unfortunately, the natural human reaction to both types of scenarios tends to be the wrong one, potentially leading to a crash.

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'Tis Better to Give than Receive? Why Not Both?

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Giving back to those in need is a common practice among Americans. In fact, for tax year 2016 (which were filed in 2017), 36.95 million tax returns included a deduction for charitable giving, averaging about $5,508 among them, according to IRS data. But why do we give? Psychologists generally breakdown the motivation for people give into two categories: altruistic givers and warm-glow givers.

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Beneficiary Designations...Do Your Family a Favor

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You’ve worked hard to build your retirement savings over your career with the expectation that you’ve been preparing for a long and comfortable retirement. Sadly, not everyone lives long enough to enjoy the fruits of these labors. While a healthy lifestyle may reduce your chances of passing prematurely, we all know that our life expectancy is unknowable. So what happens to your retirement savings if you don’t live long enough to spend them yourself? Simply put, they pass to your heirs and become available for them to spend. To whom these funds pass is determined in many cases by beneficiary designations.

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Use Caution Before Purchasing Real Estate in an IRA

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Purchasing an investment property with the funds in an IRA has gained popularity since the housing crash of 2008. At the time, prices were, and in some cases still are, attractively low. At the same time, many investors that had been laid off during the recession found themselves looking for ways to bring in income while coincidentally rolling 401(k) balances into IRAs. Others were still reeling from the stock market crash, and were leery of financial markets. As a result, they started turning to something the felt they better understood, real estate.

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Demystifying Required Minimum Distributions

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Tax preferenced retirement accounts, such as IRAs and employer sponsored 401(k)s, are extremely popular among Americans for many reasons such as tax benefits, creditor protections and access to financial markets. In fact, the tax benefits alone make these types of accounts one of the few gifts provided to us by the Federal tax code. Unfortunately, most of these accounts are also subject to Required Minimum Distribution (RMD) rules which require savers to transition from adding to their accounts to distributing from them once the saver turns 70.5 years old. These rules can be a bit complex for many retirees, but are incredibly important to understand and follow as the penalty for not fully adhering to the rules is steep; 50% of the amount not distributed.

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Be Careful with MLP Taxes, Especially In IRAs

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Master Limited Partnerships (MLPs) have grown in popularity in recent years due to their strong income yield, preferred tax treatment, the American energy production boom, and, more recently, a Trump administration friendly towards the energy sector. They also tend to have low correlations with most other asset classes, making them a strong diversifier when used within a properly allocated portfolio. Unfortunately, they also come with tricky tax treatment, especially when held in an IRA, making caution warranted.

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