Month: February 2024

The “Company” We Keep
A group of magnifying glass
by Billy Garver, Data Analyst

How many strangers do you know? This isn’t some Zen riddle, but this question is trickier than the gut answer of “zero.” At one point, wasn’t your best friend a stranger?

As we meet new people, we may decide to remove the “stranger” label in favor of “acquaintance.” We learn the basics of the person at that point—name, occupation, and so on. We may develop a closer relationship, learning more intimate details. How’d they get where they are? And how are things going now?

We take a similar approach when building portfolios. When an investment opportunity arises, we may or may not have any prior experience with the company. We start by getting to know the basics—what they do, why they do it, how long have they done it, and so on.

From there, we may opt to remove that “stranger” label and start going deeper. When getting to know a company, understanding the company’s management, cash flows, and debt loads gives us a clearer picture. Only then does a company have a chance to enter your portfolios—the real inner circle!

Our relationship with the company doesn’t end there. Quarterly, we review each holding—making sure their business hasn’t deviated too far from what we expected. We check whether our understanding of the fundamentals is playing out.

Why does all this matter? Well, especially in the bumpiest of economic times, you don’t want any strangers in your portfolio. A swift change at the macro level can completely upend a business model. One thing that helps us weather the storms is knowing how our crew might navigate their way through them.

Being friends with the companies you own—being familiar with the details of their operations—helps prevent some of those big surprises in the long run. (Of course, it never eliminates the possibility of a surprise; friends can change and friends can make mistakes).

But, in the long run, it may pay to be careful of the “company” you keep.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

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Catsup, Ketchup, or Catch-Up?
graphic shows a piggy bank looking on curiously at a bottle of ketchup

One of these is not about tomato-based condiments.

In the world of IRAs—Individual Retirement Accounts—we consider the beginning of January through tax filing day “catch-up season.” Whether Roth or traditional, if we are eligible to make contributions, then we can catch up on our 2023 contributions even though 2023 is over.

Those just learning about the power of Roth IRAs can use this season to make two years’ worth of contributions at once. The limit on contributions is $6,500 for 2023 plus $7,000 for 2024.

Another note to know: for people who turn 50 by year-end, there is an extra $1,000 per year that can go in—a “catch-up” contribution.

Imagine if you had $13,500 in a regular account (in which you pay tax on earnings) and were eligible to contribute to a Roth IRA for 2023 and 2024. If you won’t be spending that money in the next few years, the question comes down to whether you would like to never pay tax on earnings on that money, ever again, for the rest of your life.

If that value were to double over the years and double again, as sometimes happens with long-term investments, there might be $54,000 available later with zero tax. And if you didn’t spend it, your beneficiaries would receive it, free of income tax.

No guarantees, of course: the markets go up and down.

The way Roth IRAs work, after five years your contributions can be withdrawn without tax. At the later of five years or age 59½, the earnings may be withdrawn without tax. There is a maximum earnings limit on Roth contribution eligibility; we’d be happy to visit with you about your eligibility. Simply email us or call if you have an interest in learning more.

There is a whole world of other lifetime tax reduction strategies related to Roth conversions; we’ll talk about those another time.

For now, happy catch-up season, one and all!

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

This information is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. We recommend you discuss your specific situation with a qualified tax or legal advisor.

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Catsup, Ketchup, or Catch-Up? – 228Main.com Presents: The Best of Leibman Financial Services

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Spare Time and Extra Money
Person looking out at the sunset.
by Mark Leibman, President

When we were a young family, two things seemed to belong in the the same mythical category as unicorns and leprechauns: spare time and extra money. These ideas sounded magical to us!

We usually had enough time and money to get by—usually—but life was often harried and hurried, and children have needs that sometimes require money to obtain. Then our children grew. The joys and pains of that chapter subsided over time, replaced by new circumstances and challenges.

There’s been an interesting theme to a few recent conversations with clients who are about my age—call it “sixty-something.” Reviewing their overall position, one person remarked they never planned on having so much money.

Another was trying to get perspective on the sense of buying a new vehicle to replace one with 100,000 miles. We came to the conclusion they had $600,000 more than they needed in their long-term portfolio.

And then there are folks scratching their itch to be more generous to causes and people than they ever imagined, with wealth they had never dreamed of.

It seems we caught the leprechaun. We saw the unicorn. There is such a thing as extra money. And the way compounding works, an extra half-million now might turn into an extra million, then two, if we live long enough. No guarantees, but in our opinion we’re liking the general trajectory.

This phenomenon brings deeper meaning to our refrain “invest wisely, spend well.” If you find yourself ahead of schedule on your goals, we’re more likely to put it this way: “Don’t pass up too many chances to have fun.”
Life is short, we’ve discovered.

Interestingly, the people we know with extra money now seem to have one thing in common: they invested 1) effectively 2) over a long period. They did not fall for the smoother ride to a poorer future; they knew that the ups and downs are an inherent part of striving for real investment market returns. In bad markets, they were not scrambling to sell out. They stayed the course—or added more!

No guarantees about the future, of course. Clients, if you would like to talk about whether or not you might be on track, please email us or call.

Oh, one more thing about spare time: it has remained elusive. Maybe it’s still out there, somewhere, with the leprechauns and unicorns.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

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Spare Time and Extra Money – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.