Month: November 2020

The Swiss Army Knife of Finance
photo shows a Swiss Army knife

Some people consider the Roth IRA the “Swiss Army knife of finance.” A versatile tool, a Roth is useful in a lot of different circumstances. It might make sense to run through a review before year-end: your 2020 income tax situation may have an impact on your thinking. 

Here are just a few uses of the Roth IRA to consider:

1. They can help you manage your lifetime total taxes. 

You may be able to take advantage of relatively lower tax brackets now before income tax rates go up, as they are scheduled to after 2025 or in the case that future legislation raises tax rates. Converting existing retirement balances to Roth makes the amount converted taxable now—but wipes out taxes on future gains. 

Moving temporarily depressed holdings from traditional IRAs to Roth involves paying tax only on the lower current value. Any recovery ends up being free of tax. (Airlines are an example of depressed stocks that may recover. No guarantees of course.)

2. They can add flexibility to your retirement planning.  

Unlike traditional IRA balances, Roth IRAs do not have required minimum distributions (or RMDs). And they are a useful place to go for large retirement outlays without making a bulge in your tax bill. Planning to buy a second home, boat, or camper in retirement? Roth money might come in handy then.

3. They can make great gifts. 

Roth IRAs can be wonderful for children or grandchildren with earned income who qualify to make Roth deposits because they have earnings but lack the funds with which to make deposits. Growth over the decades ahead may never be taxed.

4. They can help fund an education. 

Parents seeking versatile education funding for their children may use their own Roth IRAs as a source of funds for that purpose. If not needed, the money may remain in the Roth and ultimately help fund their own retirement. 

Right for you? 

Again, the Roth is a versatile tool! What from the list is jumping out to you? 

We understand that the end of the year can be a busy time. We would love to help you sort out these issues—just email us or call if they are pertinent to you. 

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How to Get It Right
photo shows a chart with rainbow star stickers

The world is full of advice, from self-help resources to lists, “listicles,” and everything in between. (Incidentally, check back next week for our post “48 Ways to Know that You’re Not Famous Enough Yet!”)

We’ve noticed that a lot of this content focuses on the things to avoid. Getting familiar with common mistakes sounds logical enough on the surface, but we’re also contrarians… so we’ve been thinking about this for a while.

This is the model that’s just about always been used in our schools and even our pastimes. Our work is returned to us with the errors marked so that we can correct them, review, and push on. When a team loses, even by a small margin, the plays get scrutinized so that the team can learn from the defeat. Makes a certain kind of sense.

But there are a million ways to mess something up. More finite, however, is the list of ways to really shine at something. How often do we stop to consider what went right? We suggest we should be learning from our successes, too.

“Was this success a win or a fluke?”

“What made Company X a strong one?”

“In this project, I’m glad I paid attention to…”

These are just a few ideas for prompts, because goodness knows we don’t need any more lists about “how to not get it wrong.” We’d like to know more about how to get it right.

Clients, when you’re ready to chat, please write or call.

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Light at the End of the Tunnel: Good News toward a Vaccine
photo shows an out-of-focus pink, purple, and light blue sunrise

For up there is down; for day there is night. Sunrise, sunset. You’ve heard this from us before. It’s been challenging for many of us to apply this same awareness to the global COVID-19 pandemic. Some of the earliest cases of the virus were detected this time last year, and many of us in the U.S. have been living much more restricted lifestyles since early spring of this year.

The changes we’ve made—limiting travel, exposure, contact, among others—have been a reasonable price to pay for the possibility of preserving the health and vitality of ourselves and those around us. And yet, it’s still been a long stretch. It’s had its tough moments.

But the sun keeps rising, we continue to count our blessings, and the latest scientific developments may help provide some hope.

Following a recently completed phase of a COVID-19 vaccine trial, the National Institutes of Health reported promising results, suggesting this latest “vaccine is safe and effective at preventing symptomatic COVID-19 in adults.”

This isn’t a victory by itself, but it’s certainly an important milestone in the journey forward. Many partners are working together to figure out the logistics: how a vaccine would be produced, stored, transported, distributed; how its effects would be monitored; and how other areas might be affected as the vaccine takes priority. All that is to say… it’s complex.

But it’s not impossible. And it’s not forever. It may feel like we’ve been traveling through a long, dark tunnel. Here’s the thing about tunnels: they’ve got exits. It’s possible that things are dark and that we’re still on our way.

Let’s keep our heads up, toward that glimmer of light ahead.

Clients, when you’d like to talk about what all this means for you, your plans, and your planning, reach out.

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Peace and Prosperity: What We Hope for in the Long Run
photo shows a pink and purple and blue sunrise over rolling hills

Nearly 150 years ago, Jules Verne wrote about the colorful adventures of an ambitious globetrotter in Around the World in Eighty Days. During the American leg of his journey, the traveler Phileas Fogg is attacked when he is caught in a riot that breaks out between two competing political rallies.

The punchline of the story comes when Fogg asks one of the locals what office the opposing politicians are running for. Was it a very important position? The answer: “No, sir; justice of the peace.”

Like many of the episodes in Verne’s book, the local color is exaggerated for dramatic effect. But it still makes one thing clear: American politics have a longstanding reputation for rowdiness.

We have the good fortune to be living in relatively peaceful times. When riots and protests broke out in cities across the country over the summer, it was alarming to many of us—but not unprecedented. We have been here before, even within many of our lifetimes. Adjusted for inflation, the damage surrounding the riots reacting to George Floyd’s death was roughly similar on a per capita basis to the 1992 riots over the Rodney King incident.

Such violence is tragic. It was regrettable then, and it is regrettable now. At some point in the future it will happen again, and it will be regrettable in the future too. Do not mistake our comparisons here as explanations for or resignation to violence. We offer the comparisons to seek some perspective.

Generally, we think of ourselves as optimists. We look forward to better things for our children and grandchildren than we had for ourselves. But healthy optimists move in a real world. We can hope that we will know less unrest in the future, but it will never be gone entirely.

In six years, our nation will celebrate its 250th birthday. In two-and-a-half centuries of existence it has seen civil war, two world wars, droughts, famines, and many pandemics. Every year it sees wildfires and hurricanes far more damaging than any riot in our history. It has seen the sun set on imperialism, defeated fascism, and outlasted communism. Come what may, it’s poised to survive the next presidential term, and the next, and the next.

We look forward to 2026 and celebrating the U.S. Semiquincentennial. Our crystal ball is a little fuzzier further out, but we still think the Republic will be here in 2076 for the Tricentennial, too.

And who knows? Maybe we have a chance to provide writers from around the world more uplifting episodes to write about.

Clients, when you have any thoughts or questions, please give us a call.

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The 3% Solution
photo shows a red basket full of red apples in the grass

Finding potential bargains is one of the hidden joys of stock market disruptions. (And seeking bargains is a core principle for us!) Sometimes, economic setbacks affect the value of enterprises that are actually quite durable, companies that will probably survive and ultimately prosper.

We noted a few months ago that bargains had emerged among those providers of basics—like food, clothing, and shelter—and that we were likely to still need these things in the future.

Now we are noticing another benefit to some of these prospects.

Dividend yields in the 3% range in name brand companies, although not guaranteed, offer the opportunity for actual recurring investment income. You know another one of our core principles is owning the orchard for the fruit crop. Well, a share of ownership in a profitable enterprise, when some of those profits are distributed as dividends to the owners, can be like owning an orchard.

While the value of the orchard (or the ownership share) will fluctuate, the crop (or the dividend) may be a sufficient reason to simply own it.

Why are we mentioning this now? Income-producing investments may be a way to offset the twin Federal Reserve policies of near-zero interest rates combined with the intent to raise the cost of living by 2% per year. (Officials speak of wanting to “hit a 2% inflation target,” but that is just another way to say “increase in the cost of living.”) When savings is earning less than the inflation rate, purchasing power erodes day by day.

Let’s keep our eyes open.

Clients, if you would like to talk about options for your cash or any other portfolio issue, please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

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Through a Dangerous Door
photo shows a rusty key in a rusty keyhole on a wooden door

Life in the 21st century is more connected and accessible than ever before. The Internet has brought whole new worlds of opportunity that would have been all but unimaginable before.

New opportunities have also created new pitfalls. Online stockbrokers have opened new doors for small-time traders, racing to cut commissions and expand access to trading instruments—even ever riskier ones.

Traditionally, trading features such as derivatives and margin trading were reserved for experienced investors who had money to lose. New online trading platforms have been pushing down the barriers to entry, allowing traders with just a few thousand dollars to their name to make heavily-leveraged speculative bets.

Our investment philosophy centers on traditional equity investing. We believe in owning pieces of real companies that have physical property and actual products. This provides no guarantees for us; equity investments are considered volatile, and they risk loss if a company disappears from the map.

Even so, these risks are small potatoes compared to what investors may get themselves into when they start playing around with complicated investment vehicles. Derivative investments can very easily be wiped out, and margin traders may find themselves owing more money than they put in to begin with. Traders beware!

At some point, it seems frankly irresponsible to turn inexperienced traders loose with such dangerous financial instruments. (In June, tragedy followed when a young trader misread his online trading statement and thought he was $700,000 in debt.) Online platforms have opened some doors that would have been best left closed.

Our goal here at 228Main.com is to make investing more accessible, more transparent, and more understandable for our clients. Part of that mission is making sure that we are not steering clients into inappropriate investments, a protection that do-it-yourselfers trading online lack.

We do not believe our role as advisors is to play “high priest” and tell you that we cannot be bothered to explain things to laypeople: we want to lay everything out on the table and make sure that our clients understand what they are getting into.

Clients, if you have any questions or concerns please call or email us.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Stock investing includes risks, including fluctuating prices and loss of principal.

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Odd Couple (of Goals)

Surveys indicate the public’s trust in the Federal Reserve has been declining over time. We totally understand this result.

The Federal Reserve, like other central banks around the world, plays a significant role in setting monetary policy. It operates under mandates written in law to promote full employment and price stability. Presumably, most people would be in favor of these worthy objects.

In practice, however, it seeks to raise the cost of living by 2% every year: that’s the actual effect of the goal we typically hear about, to hit an “inflation target of 2%.” That term is a less clear way of saying “raise the cost of living.” How many of us actually want that?

Now add in Federal Reserve policy on interest rates: keep them near zero for the next few years. So if the cost of living is rising and we earn next to nothing on our savings, then we are really going backward in purchasing power. A dollar of savings today plus zero interest for the next year and we will be short by 2 cents to buy the same amount of goods a year from now. That is a risk to our financial position.

This really is an odd couple of goals. It is rough on savers and people on fixed incomes.

The Federal Reserve has its rationale for all this, of course. It believes that a little inflation is good for the economy and that we are prone to have our spending manipulated by its policies for the short-term benefit of the economy. A better economy means more jobs, which is generally good for each of us.

We have our doubts about the logic. Fortunately, we can try to invest to take advantage of the opportunities these policies present. If we are willing to live with fluctuations in value, we may still be able to earn returns.

We believe it was simpler when savings had positive returns, but we are here to make the most of it.

Clients, if you would like to talk about the risks and rewards of investing and saving, please email us or call.

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