Market Update: Q3 2018

Market Update: Q3 2018

Normally when I write my quarterly market update, I don’t begin until a few days after the quarter’s ended. This gives me time to digest the data from the previous three months, and synthesize it into (hopefully useful) thoughts about what’s going on in the markets and in the world, and how that might impact your portfolio.

I also get some help with the research. You’ll notice many of the charts I use come from Dimensional Fund Advisors, and I leverage economic & financial data from many of the financial periodicals I read, like Barron’s, Wall St. Journal, and Financial Times.

I’m starting with this background because U.S. stock markets had a very strong third quarter, with the S&P 500 up 7.71%. In the first few days of the fourth quarter, the story has been starkly different. The Dow Jones fell about 800 points yesterday, and the financial media would have you believe the world is about to end.

To put some context to yesterday’s drop, the S&P 500 fell 97 points. This represents about 3.4% of its total value. Since the bear market in 2009 ended, yesterday marks the S&P’s 20th day losing 3% or greater.

And as painful as it is to see the value of your portfolio fall, we really haven’t lost that much ground. As I write this, the index is trading at about 2770, which is a low we haven’t seen since….June.

So before we dive into what happened in the third quarter, don’t be alarmed if the current sell off continues. It was always bound to happen. My guess is that it’s only a short term “pressure release valve”. But even if it’s not, your strategy shouldn’t change because the market lost a few points. Your portfolio should be built with this expectation in the first place.

How & When to Execute a Back Door Roth IRA Conversion

How & When to Execute a Back Door Roth IRA Conversion

If you asked me to choose my FAVORITE type of account to invest in, it would definitely be the Roth IRA. Roth IRAs allow you to save money tax free for the rest of your life. They’re not subject to mandatory withdrawals in your 70’s, and your kids won’t even owe taxes on their withdrawals if they inherit the account from you down the road. In my opinion the Roth IRA is just about the best deal out there.

Problem is, they’re not accessible to everyone. The IRS considers Roth IRAs such a good deal that they won’t let you contribute to one if you make too much money. Fortunately, there’s a work around: the backdoor Roth IRA conversion. The backdoor Roth conversion allows you to get money into the Roth IRA by making non-deductible contributions to a traditional IRA. Don’t worry if this sounds complicated. This post will cover exactly how the strategy works and when you might consider using it.

Market Update: Q2 2018

Market Update: Q2 2018

Stock markets here in the U.S. are traditionally pretty quiet over the summertime.  The kids are out of school, the weather is hot, and many financial managers, traders, and practitioners prefer to spend their time on vacation or in the pool. 

But like many industries, finance is changing rapidly today, and traditions are being upheld less frequently.  This summer, while the markets have more or less adhered to the summertime lull tradition, the financial news has not.  Among other topics of note, we have:

  • New tariffs on imports here in the U.S., and escalating trade tensions as a result;

  • Unceasing & fresh political headlines, and;

  • A tightening monetary policy by the Federal Reserve Bank here in the U.S.  

In response to all this, markets here in the U.S. haven't blinked.  (Or maybe they haven't opened their eyes yet).  Volatility continues to be extremely low compared to the last 25 years of returns data.  And that includes the returns of bonds and foreign currencies too, not just stocks. 

Nevertheless, even if the market doesn't feel that all this news is worth rolling over for, it's important for us to keep an eye on what's going on.  Read on for our quarterly update on the global capital markets.

Trade War? What Trade War?

Trade War?  What Trade War?

If you’ve been following the news recently, you’ve probably run across a headline or two about the impending trade wars with China and other countries.  It seems like wherever you pick your news, from the left-leaning sources like The Huffington Post to right-leaning sources like Fox News, the media has unilaterally lambasted the strategy.  I’ve seen the headline “economic suicide” thrown around more than once.

Entity Selection & The Tax Cut & Jobs Act

Entity Selection & The Tax Cut & Jobs Act

Because of the new tax bill, there are potentially large tax planning opportunities here.  If you own a pass through business (or any business other than a C-Corp), you could save thousands in taxes over the next several years by ensuring you qualify for the maximum deduction.

The 7 Most Common Retirement Planning Mistakes

The 7 Most Common Retirement Planning Mistakes

Hey Everyone! I'd like to invite you to our next live online event: The 7 Most Common Retirement Planning Mistakes.

Thanks to your feedback, we've put together a workshop that will cover the top mistakes I see in my practice and how you can avoid them.  We'll be hosting the workshop this coming Thursday, 4/26, from 10-11am PST / 1-2pm EST.

This workshop will be live, and if I manage the time correctly we'll have room for an open Q&A at the end.  So come prepared with retirement planning & investment related questions. 

This event will be free, but space is limited so grab your spot now while there's availability.

Volatility Finally Returns to the Markets

Volatility Finally Returns to the Markets

After years of historically low volatility throughout the stock markets, the start to 2018 has finally shown us a more normal amount of "bumpiness".  U.S. markets were down slightly on the quarter, as inflation has begun to creep up and the Federal Reserve continues to raise interest rates in response.   

As usual, I'm keeping a close eye on the messaging coming from the Fed.  The first quarter gave us a new Fed chairman in Jerome Powell, who took over for Janet Yellen.  Whereas previous regime changes have come with a great degree of change in stance and communication styles, Powell seems to be very similar to Yellen.  Since taking the position he's been relatively open on his stance, thoughts about rate trajectories, and metrics he and the other governors are looking at. 

All in all, the transition itself probably won't have a big effect on investors and the markets.  However, with economic growth still trending up & inflation creeping into the picture, it's not hard to see short term rates continue to rise.  

Free Online Training: Market Volatility Survival Guide

If you’ve been paying any kind of attention to the markets over the last two months, you’ve probably noticed a new trend: volatility.  Consistent market volatility isn’t something we’ve seen in quite some time.  Other than the market’s brief reaction to the Brexit, we really haven’t seen much upheaval since the depths of the financial crisis.

With tighter monetary policy from the Federal Reserve and both feet on the gas of our fiscal policy here in the U.S., there’s a good chance the choppy waters are here to stay.

Since I’ve been getting a ton of questions recently about how to handle market volatility, I figured it’d be a good subject for an online training.  So, this Tuesday, March 6th, from 10-11am PST / 1-2pm EST, I’ll be hosting a free online training on how to protect your retirement accounts during market corrections.  Here’s the link to register.

How to Use a Budget to Boost Your Family's Savings

How to Use a Budget to Boost Your Family's Savings

Budgeting: Why All the Negativity?

OK - let's start with the elephant in the room: the word budget.  Most people equate the word budget with the need to cut back.  Like some kind of financial diet....which makes most people cringe.

So if the headline to this post turned you off, let me say now that I'm not advocating for you to cut back on spending in order to save more.  In order to circumvent the negative feelings we have toward the word budget, I'm going to propose that we use a different term that doesn't spark innate vitriol: cash flow management. 

My sense of budgeting is really more like cash flow management.  It's not necessarily eating out less or nixing your fancy cable package.  Budgeting is more understanding the cash you have coming in each month, and where it typically goes.  The difference between the two, of course will either pad your savings every month or take from it.  And understanding these moving parts gives us a sense of how quickly we're growing net worth, and when we might reach our various financial objectives.

Navigating Key Person Insurance

Navigating Key Person Insurance

All businesses are different, and risk can come from many different sources.  That said, one risk common to all businesses (assuming you rely on partners or employees) is the unexpected incapacity of one.  The death or disability of a key staff member can cripple any operation. Along with losing a valued member of your management team, you could also be losing a manager’s skill, “know-how” and, important business relationships he or she has cultivated over the years.

Investing in 2018: Growth vs. Value

Investing in 2018: Growth vs. Value

Growth or value — what’s your style?  The debate surrounding which strategy is superior has raged on for ages.  For a quick refresher, growth investors look for stocks that will grow at a high rate for a relatively short period of time. Value investors look for stocks that are currently undervalued and are expected to increase to their true value over a longer time horizon.

Companies like Facebook, Amazon, Netflix, and Google (AKA, the FANG stocks) fall into the growth category, and paced the market in 2017 with an exceptionally strong year.  Looking ahead, what should we expect in 2018?  Should we favor growth strategies, given the momentum of the FANG stocks?  Or should we expect value shares to outperform?

What the New Tax Bill Means to You

What the New Tax Bill Means to You

For tax planning purposes, that means that it may make sense to "lump" your itemized deductions together in certain years, if possible.  Since you can always claim the standard deduction as a fall back, lumping together your deductions in an effort to itemize once every few years may make sense.  

Reviewing 2017 Market Performance Across Asset Classes

Reviewing 2017 Market Performance Across Asset Classes

On the whole, 2017 saw strong performance across nearly all asset classes around the globe.  Led by the emerging markets, stocks posted another year of gains with extremely low volatility.  Here in the US the S&P 500 returned close to 20%, but were outpaced by stocks abroad.

Tax Reform: Your Household & the Economy

Tax Reform: Your Household & the Economy

The Tax Cut & Jobs Act was passed by Republicans at on December 22nd, affecting our filings for 2018 and beyond.  The new law sets seven individual income brackets at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.  It also nearly doubles the standard deduction, to $12,000 for single filers and $24,000 for joint filers.

The Republicans’ objective in this bill was to simplify the tax code.  The sound bite you’ve probably heard is that they’d like everyone to be able to “file their taxes on an index card”.  The new law mostly accomplishes that objective.  The vast majority of Americans will end up claiming the new standard deduction instead of itemizing. 

So......What Should We Make of Bitcoin?

So......What Should We Make of Bitcoin?

If you’ve caught more than four seconds’ worth of financial media in the last 12 months, you’ve undoubtedly heard the “Bitcoin” mentioned at least a few times.  Bitcoin and other cryptocurrencies are receiving intense media coverage after skyrocketing in value in 2017.

So what should you make of it all?  Does bitcoin, ethereum, or another digital currency deserve a place in your portfolio?  First, let’s remember what bitcoins actually are.  Bitcoins, like all other digital currencies, are simply strings of computer code.  There’s no paper money or metal coins involved.  There’s no central bank issuing the currency, nor a regulator or nation that stands behind it. 

Should We Sell Stocks Because the Market is Rich?

As the decorations my wife puts up around our house read: “Happy Fall, Y’all!” The third quarter of 2017 had its fair share of global headlines, starting with a queue of hurricanes ravaging Haiti, Puerto Rico, and a giant portion of the southern U.S. The headlines didn’t stop there, though. President Trump continues to trade barbs with North Korean dictator Kim Jong Un every few hours, Equifax had 44% of Americans’ personal information stolen, and to top it off we’re still uncovering more and more evidence of Russian meddling in our presidential election last year.

So has any of that spooked U.S. equity markets? Absolutely not! Thus far in 2017 we’ve had historically low volatility. Only 5% of 2017’s trading days thus far have seen the S&P 500 move by more than 1% in either direction. This is by far the lowest number ever (since intra-day trading began being recorded in 1982, at least).

The Fed's Double Whammy

The Fed's Double Whammy

Greetings!  I hope everyone is having a great start to their summer.  The markets have shown continued strength since we elected Donald Trump as our President back in November.  The Federal Reserve also raised short term interest rates again, and expects to do so once more later this year.

The economy does appear to be strong right now, but politically things are starting to heat up.  Tension with North Korea and Russia continues to grow, and Mr. Trump is consistently finding himself in self-inflicted turmoil.

Despite the political climate, many investors I’ve spoken with recently seem to be “lulled” into a false sense of security.  It’s hard to blame them with the stock market marching steadily upward.  It’s been so long since our last correction that it’s easy to forget the market can go down, too!  

Hot Stocks & Rising Rates: Are We Poised for a Sell Off?

Hot Stocks & Rising Rates: Are We Poised for a Sell Off?

Despite the headlines, ruffled feathers, and self-aggrandizing tweets, stock markets have marched upward very consistently since Mr. Trump took office this year. Interest rates on both ends of the yield curve continue to tick higher, and equities in the international and emerging markets have also been strong. At this point, we need to prepare for the inevitable time when the levy breaks. U.S. stock markets are quite expensive on a historical basis, and our current 10-year bull run is one of the longer growth cycles in history.

While I never advocate for investors to time the markets, or change course because they expect a market downturn, we do need to understand that this level of calm is not the norm. I can’t tell you when or how the next market crash will occur, only that it will happen eventually. To prepare, investors should ensure that their strategic asset allocation fits their objectives and comfort with risk like a glove. If you’re uncomfortable with the idea of a stock market crash, it’s probably time to reassess your portfolio.

Turning the Page: What to Expect from the Markets in 2017

Turning the Page: What to Expect from the Markets in 2017

As we close the books on the holiday season and begin looking forward to what 2017 might hold, I always enjoy reflecting on what’s happened in the world over the last 12 months.  Not only for nostalgic reasons, but also to better understand the current state of the markets & how we got where we are today.  I find that using such context always seems to help make sharper investment decisions over the upcoming year.

And looking forward to 2017, there are three themes I see as important for investors to follow.  First, how the U.S. economy will respond to President Trump’s fiscal policies (however they’re implemented).  Second, the growing populist sentiment in Europe, as we saw in the Brexit and more recent Italian referendum.  And third, the increase in internet security breaches and how nations and corporations will respond.