Just inherited an IRA? Take a moment to consider your options

Marcos- cropped

Marcos A. Segrera, CFP® Financial Advisor

Have you or will you inherit an IRA from someone that is not your spouse?

This is not uncommon. Roughly 42 million US households own some type of IRA. So odds are you know someone other than your spouse who owns an IRA. Play your cards right and you could be a named beneficiary.

If you inherit a Traditional, Rollover, SEP, or SIMPLE IRA from a friend or family member (NOT A SPOUSE), you have several options, depending on whether the account holder was under or over age 70.5 .

If the account holder was under 70.5, here are your choices:

  1. Open an Inherited IRA and use the Life Expectancy Method
    1. Rollover (transfer) the assets into an inherited IRA held in your name. You can open the inherited IRA at places like Charles Schwab, TD Ameritrade, Fidelity, etc. You must begin required minimum distributions no later than 12/31 of the year after the account holder died. Required minimum distributions (RMDs) are mandatory as per the IRS and you are taxed (ordinary income) on each distribution. You will use the IRS Single Life Expectancy Table to determine your annual RMD. Take the value of the account at the end of last year, divide it by the number corresponding with your age on the table and voila. Assuming the account is invested, the undistributed assets can continue to grow tax-deferred. You are also able to name your own beneficiary.
  1. Open an Inherited IRA and distribute within 5 years
    1. Rollover (transfer) the assets into an inherited IRA held in your name. You can open the inherited IRA at places like Charles Schwab, TD Ameritrade, Fidelity, etc. In this case no need to take RMDs. However, the full account value must be distributed by 12/31 of the fifth year after the account holder died. You will need to pay ordinary income taxes on the amount distributed. Undistributed assets can continue to grow tax-deferred for up to five years. You are also able to name your own beneficiary.
  1. Lump sum distribution
    1. Exactly like it sounds, you take a full distribution from the deceased’s IRA and pay all the taxes now. No opportunity for tax-deferred growth. You may move to a higher income bracket depending on the amount of the distribution and your current income level.

If the account holder was over 70.5, here are your choices:

  1. Open an Inherited IRA and use the Life Expectancy Method
    1. Same as above with one detail to note. If the original account holder did not take an RMD in the year of death, an RMD must be taken from the account by 12/31 of the year the original account holder died.

  1. Lump sum distribution
    1. Exactly like it sounds, you take a full distribution from the deceased’s IRA and pay all the taxes now. No opportunity for tax-deferred growth. You may move to a higher income bracket depending on the amount of the distribution and your current income level.

Although your individual circumstances must be taken into account, we typically find the greatest opportunity offered to a non-spouse beneficiary is the ability to open your own inherited IRA and allow the undistributed amount to grow tax-deferred over time. The added flexibility of being able to name your own beneficiary means that this account could stretch significantly beyond your own lifetime and continue growing and providing for future generations. In fact, many IRA owners planning for the future use the stretch feature as a way to comfortably provide for their child’s retirement through the power of tax-deferred compounding.

Sounds wonderful? We agree. Unfortunately, this flexibility may be put to an end with the passing of the SECURE Act (Setting Every Community Up for Retirement Enhancement Act). This legislation, that has already been passed by the House, would kill the stretch provision for non-spouse beneficiaries. The SECURE ACT would require non-spouse beneficiaries to pull out all of the money held in the Inherited IRA within 10 years. The effect would make more of an IRA subject to higher taxes sooner.  We would hate to see such a great planning opportunity be put to bed but we will have to wait on Congress to see where we end up. Don’t hold your breathe.

Do you think you may be inheriting an IRA? Stay tuned or feel free to reach out with questions.

Happy investing.

Marcos

 

Feel free to reach out to Marcos by phone 305.448.8882 extension 212 or email: MSegrera@Evensky.com

 

 

Resources:

https://www.irs.gov/publications/p590b#en_US_2018_publink1000231236

https://www.ici.org/policy/retirement/plan/ira/faqs_iras

https://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/inherited_ira/withdrawal_rules

 

NewsLetter Vol. 12, No. 4 – July 2019

HRE Headshot_01-2019

Harold Evensky CFP® , AIF® Chairman

DEAR READER,

 

SUCCOTASH

Mixing vegetables together may be fine for food (although it’s not my favorite), but it’s nonsense in the investment world. When you hire a money manager (e.g., a mutual fund), do you really care how good his or her sibling managers are if he or she is awful? Do your due diligence on the fund, not the family.

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THE LEAST EXPENSIVE U.S. CITIES FOR RETIREES

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Y’all come!

https://www.thestreet.com/personal-finance/real-estate/least-expensive-us-cities-for-retirees-14956443

 

ON THE OTHER HAND…DEPRESSING

Florida is the No. 1 state for fraud and the No. 4 for identity theft. Florida was the top state for formal reports of fraud to the federal government in 2018. Floridians made about 205,400 fraud reports last year, amounting to an average loss of $400.

 

https://www.floridatrend.com/article/26849/wednesdays-afternoon-update

 

MOUTH AGAPE FROZEN

Also balderdash and horsepucky!

From InvestmentNews:

SEC commissioner Hester Peirce said the proposal to raise advice requirements for brokers will result in a standard for them that is stronger than the fiduciary duty investment advisers must meet.

“We have this new standard, which is something more than suitability,” Ms. Peirce said at an Institute for Portfolio Alternatives conference in Washington on Tuesday. “When you lay it side-to-side against the fiduciary standard, I think one could argue that it’s a stronger standard because it does require mitigation or elimination of conflicts in a way the fiduciary standard does not.”

I won’t bother to detail what insulting nonsense this is, but I would be happy to chat with anyone who is interested. Alternatively, ask any knowledgeable attorney how the “new suitability” standard can possibly be stronger than the RIA standard of the Investment Advisers Act of 1940.

It obviously begs the question: if it is indeed a stronger standard, why does the brokerage industry spend millions of dollars trying to prevent the enactment of a fiduciary standard? Why not just make brokers subject to the ’40 Act? A cheap and simple solution.

https://www.investmentnews.com/article/20190508/FREE/190509930/sec-commissioner-hester-peirce-says-reg-bi-is-stronger-than

 

SAY IT ISN’T SO!

Classic Board Game Monopoly Gets a Modern Makeover Using Digital Technology to Go Cashless

  • Hasbro created a version that uses digital assistant technology like Amazon Echo.
  • The technology is set to make cheating in the board game a thing of the past.
  • Monopoly will be a voice-activated banker, broadcast from a smart speaker.
  • Playing pieces will each have a button so the players can activate transactions.

Cashless??!! That’s not Monopoly!

https://www.dailymail.co.uk/news/article-7177397/Classic-board-game-Monopoly-gets-modern-makeover-using-digital-technology-CASHLESS.html

 

MAKING MONKEYS OUT OF SOME INVESTING GURUS*

More picking on active managers reported in the Wall Street Journal:

No animals were harmed in this financial experiment, but some human egos were bruised…

The results were brutal. Heard columnists, not monkeys, threw the darts at newspaper stock listings…. The columnists’ eight long and two short picks beat the pros’ selections by a stinging 22 percentage points in the year through April 22. Only 4 of 12 of the Sohn picks even outperformed the S&P 500.

*Wall Street’s best and brightest investors participate in this unique, “must attend” event to share their expertise with an audience of more than 3,000 people, comprised of portfolio managers, asset allocators and private investors. Most speakers manage large proprietary investment portfolios that have outperformed the market for many years and do not share their insights in any public forum, but they volunteer their time to The Sohn Investment Conference for the benefit of The Foundation.

https://www.wsj.com/articles/making-monkeys-out-of-the-sohn-investing-gurus-11557115260

 

WHO KNEW?

From Forbes:

Those oh-so-handy USB power charging stations in the airport may come with a cost you can’t see. Cybercriminals can modify those USB connections to install malware on your phone or download data without your knowledge.

“Plugging into a public USB port is kind of like finding a toothbrush on the side of the road and deciding to stick it in your mouth. You have no idea where that thing has been,” says Caleb Barlow, Vice President of X-Force Threat Intelligence at IBM Security. “And remember that that USB port can pass data.”

It’s much safer to bring your regular charger along and plug it into a wall outlet or, alternatively, bring a portable power bank to recharge your phone when you’re low on bars.

https://www.forbes.com/sites/suzannerowankelleher/2019/05/21/why-you-should-never-use-airport-usb-charging-stations/#4d7456495955

 

INVESTORS SEEM TO BE CATCHING ON

From Morningstar:

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https://fundflows.morningstar.com/fundflows/marketsummary.aspx

 

MORE KATIE

Our partner Katie continues to learn about Lubbock infrastructure. She got to drive the airport fire truck, shoot the 19-inch hose and shoot a Taser at the police department. (“Luckily my suspect was cardboard and not moving!”)

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SOME GOOD ADVICE FROM VANGUARD

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Changing Market Leadership

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Positive International Outlook

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Volatility Reduction

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https://advisors.vanguard.com/iwe/pdf/FAWHYINT.pdf

 

GUESS WHO’S OLDER THAN DIRT

17 out of 17!

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AND IF I HAD ANY DOUBT

From The Hollywood Reporter:

It’s not just a game for the 250 million players who are eschewing traditional social media, Netflix and other leisure activities in favor of community events like Marshmello’s virtual concert.

Fortnite isn’t just a game—it’s also social media. So says a study from National Research Group, which provides a telling snapshot of the new attention economy. Fortnite players spend more of their free time logging into the battle royale game than they do scrolling through Facebook and Instagram or streaming on Netflix and YouTube.

In the two years since its July 2017 launch, Fortnite has grown into a global phenomenon with more than 250 million active players (82 percent under age 35) and $2.4 billion in annual revenue. Netflix CEO Reed Hastings was onto something when he noted in January that the streamer “competes (and loses) more with Fortnite than with HBO.” According to NRG, Fortnite players spend 21 percent of their free time with the game.

https://www.hollywoodreporter.com/news/fortnite-eclipses-facebook-instagram-as-tweens-preferred-social-platform-1217335

And I’ve never even heard of Fortnite! I’m definitely older than dirt!

 

BUFFETT ON GOLD

From Investment Advisor:

Buffett made his first investment, of $114.75, in 1942. In a no-fee S&P 500 index fund with dividends reinvested, that money would have grown to $606,811. The same amount invested in 3¼ ounces of gold would now be worth about $4,200. That’s “less than 1% of what would have been realized from a simple unmanaged investment in American business,” says Buffett. “The magical metal was no match for the American mettle.”

 

BEWARE

From CNN:

If you get a call from an unfamiliar number that rings once and hangs up, don’t call back. The Federal Communications Commission is warning people about a new phone scam, which they’re calling the “one ring” or Wangiri scam. (Wangiri is Japanese for “one ring and drop.”)

The scam works like this: A scammer places a robocall to a number and hangs up after one or two rings. They may call back several times. The idea is to get the caller to call the number back. When they do, the caller is prompted to pay long distance fees to connect the call, fees that are usually paid in part to the scammer.

https://www.cnn.com/2019/05/07/us/fcc-robocall-scheme-scam-warning-trnd/index.html

 

WOW!!

The Indian Army says it found yeti footprints in the Himalayas. Stay tuned—the Loch Ness monster and Golden Asteroids are next.

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https://www.nbcnews.com/news/world/indian-army-says-it-found-yeti-footprints-himalayas-n999951

 

PLACES TO GO

DEPARTURES –  CITY GUIDES

https://www.departures.com/city-guides/barcelona

https://www.departures.com/city-guides/paris

https://www.departures.com/city-guides/london

https://www.departures.com/city-guides/new-york-city

https://www.departures.com/city-guides/rome

https://www.departures.com/city-guides/lisbon

https://www.departures.com/city-guides/tel-aviv

 

SOME GOOD NEWS

From Wealth Management:

N.J. Governor Vetoes Bill Saying Insurance Agents Are Not Fiduciaries

Gov. Phil Murphy said the bill runs counter to the state’s efforts to improve consumer protections, including its recent fiduciary rule proposal for financial advisors.

New Jersey Gov. Phil Murphy has been an outspoken proponent of the state’s proposed fiduciary rule, which he called “some of the strongest investor protections in the nation.” So when a state bill was passed that would eliminate a fiduciary standard for insurance producers, he, naturally, vetoed it…

He recommended the legislature remove section 1 of the bill, which “prohibits a cause of action against an insurance producer arising from transactions involving property and casualty insurance or a health benefits plan where the cause of action is based on a fiduciary duty.” He believes that will also leave it open for lawmakers to impose a fiduciary duty on insurance producers.

He also suggests the removal of the third section of the bill, which would require the insurance agent to notify clients that information about their compensation is available, rather than disclose that information to the client directly. And they’d have to include only information about compensation that’s based on a percentage of the premium.

A recently proposed rule by the state’s Bureau of Securities would require all financial advisors registered in the state to act as fiduciaries, making New Jersey one of the first states to propose a uniform fiduciary standard for all financial services professionals.

The rule would apply to recommendations on investments; opening or transferring assets into any kind of account; and the purchase, sale or exchange of any security. A broker or advisor has to make “reasonable inquiry” in the best interest of their client, and any recommendations offered cannot be made with regard to a financial interest of the broker, advisor or any other third party.

The SEC has said it intends to release a final rule on its Regulation Best Interest this fall. This regulation is expected to require more robust disclosure procedures to ensure that brokers are acting in the “best interest” of a client, though critics contend this would fall short of the fiduciary duty demanded of investment advisors; New Jersey’s rule stressed that disclosing conflicts alone would not suffice in protecting investors.”

https://www.wealthmanagement.com/regulation-compliance/nj-governor-vetoes-bill-saying-insurance-agents-are-not-fiduciaries

 

COOL TIP

From One Mile at a Time:

Using FlightAware to check inbound flight status

There’s one cool hack that many people aren’t aware of that makes this really easy. FlightAware is a flight tracking website, and it will also show you where your plane is coming from. Just enter the flight number for your journey.

Then when you see the map for your flight, on the right side you should see a section that says “track inbound plane.” Just click that, and you’ll see where the plane is coming from.

https://onemileatatime.com/track-inbound-plane/

 

DEPRESSING

Journal of Financial Planning Stat Bank:

65…Percent of people surveyed who said they mistrust the financial services industry to some degree.

2…Percent of people surveyed who said they trust financial professionals “a lot.” (We work hard to be in that 2%.)

21…Percent of people who understand the difference between a planner who is a fiduciary and one who is not. (I hope regular readers of my NewsLetter know the difference!)

50…Percent of investors who work with a financial advisor who know for certain their advisor is a fiduciary. (I hope my readers and our clients know that we are fiduciaries.)

 

YOU READ IT HERE FIRST!

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https://www.foxnews.com/tech/loch-ness-monster-might-be-real-according-to-new-scientific-study

 

AND IF THE YETI AND LOCH NESS MONSTER DON’T GET YOU EXCITED, HERE’S AN ITEM FROM DAVID THAT MIGHT

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The Golden Asteroid That Could Make Everyone on Earth a Billionaire

Whether it was the Big Bang, Midas or God himself, we don’t really need to unlock the mystery of the origins of gold when we’ve already identified an asteroid worth $700 quintillion in precious heavy metals.

If anything launches this metals mining space race, it will be this asteroid—Psyche 16, which is somewhere between Mars and Jupiter and carries around enough heavy metals to net every single person on the planet close to a trillion dollars.

The massive quantities of gold, iron and nickel contained in this asteroid are mind-blowing. The discovery has been made. Now it’s a question of probing it.

NASA plans to do just that, beginning in 2022.

https://www.rt.com/business/462703-golden-asteroid-everyone-billionaire/

 

SNAKE OIL SELLS

My partner Lane shared an interesting marketing piece with me.

Investment Strategies

Defensive Alpha

Our Defensive Alpha portfolios aim to reduce market drawdowns without sacrificing participation in rising markets. These strategies seek to invest in a global allocation of market blend indices during rising markets, but attempt to exit to defensive, low volatility stocks in the early stages of market declines. When markets rebound, the portfolios are expected to return to a growth posture.

Unconstrained Tactical

Our Unconstrained Tactical strategies attempt to track global allocations of market blend indices during rising markets, but seek to exit to cash or more stable fixed income assets as prices start to move lower. When markets begin to rebound, the portfolios attempt to return to fully invested positions. Because these strategies seek to exit to cash, they are a means of attempting to gain access to above inflation returns with robust loss avoidance.

 

I’m obviously a massive skeptic. The key words are attempts and seeks—“attempts to exit” and “attempts to track” and “attempts to return” and “attempting to gain” and “seeks to exit.” With an eye on possible customer complaints, there are no promises here, but lots of attempting and seeking.

In the last few hundred years, no manager has done this successfully over long periods of time, but I guess hope springs eternal. We’re still passionate believers that successful investing is not timing the market but time in the market.

 

COOL HISTORY

 

 

PERCEPTION vs. REALITY:

Causes of Death in the United States

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NOT SURE IF I COULD BRING MYSELF TO EAT THEM—MAYBE IF IT WAS A BOTTLE OF WINE

Two melons sold at a Japanese auction for $45,000

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https://www.foxnews.com/food-drink/two-melons-sold-at-japanese-auction-for-45k-to-first-time-bidder-report

CAVEAT EMPTOR

From Jason Zweig of the Wall Street Journal:

A New Rule Won’t Make Your Broker an Angel

All brokers and financial advisers have conflicts of interest. New regulations, no matter how well intended, can’t change that.

Next week, the Securities and Exchange Commission is expected to approve a rule that will require brokers to act in the best interest of their customers—rather than their own wallets—when offering investment advice. That’s good, so far as it goes.

It probably won’t go far enough, however. The new rule is also likely to lead many investors to drop their guard, in the misguided belief their brokers now can do no wrong. And it may create a marketing bonanza for brokers and investment advisers…

The most immediate result, I expect, will be to weaponize the marketing pitch that brokers have used for so long: “Trust me.” The corollary now will be: “The U.S. government requires me to act in your best interest.” That new clincher will act like kryptonite on the skepticism or objections that many customers otherwise might have mustered.”

https://www.wsj.com/articles/a-new-rule-wont-make-your-broker-an-angel-11559313036

 

DO YOUR HOMEWORK—A SHORT LESSON IN DUE DILIGENCE

I recently received an email touting the Ampersand Fund. The “headline” was certainly impressive.

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Looking a little further, I found it was honestly labeled a Morningstar 5 Star fund.

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I also found it had indeed outperformed the S&P for 5-month for 2019 through 5/31/2019.

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It also significantly outperformed its Morningstar category peers.

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And on an after-tax basis, the difference is magnified.

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How about managing risk? The fund’s website says “Objective: An innovative fund solution that aims to achieve returns and volatility comparable to the S&P 500® Total Return Index [that’s the IVV iShare], while seeking to avoid the full impact of downside risk.”

While it’s true that it tracks the volatility of the S&P (standard deviation), on a risk-adjusted basis (Sharpe Ratio), it fails.

And as for “avoiding the full impact of downside risk,” not so much so during the most recent correction.

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The moral? Caveat emptor. Do your homework. Don’t make your investments based on Morningstar Star “Stars” or clever ads.

 

MORE “WHO KNEW?”

From USA Today:

States With the Most UFO Sightings: Vermont Leads the Way

UFO reporting levels vary by state. In states with cold winters, sightings increase dramatically during summer months, when more residents are spending their leisure time outdoors. The five states with the most reported UFO sightings per 100,000 people are all northern states, and three of them—Vermont, New Hampshire and Maine—are located in New England. By comparison, UFO reports don’t fluctuate much during the year in southern states, where weather and daylight conditions don’t vary as much.

https://www.usatoday.com/story/news/nation/2019/06/19/states-with-the-most-ufo-sightings/39306977/

 

MORE AMAZING PICTURES

From my friend Peter:

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FOR THE ACADEMIC-MINDED

This is admittedly a bit heavy, but those of you who are familiar with my writing know I’m a passionate fan of behavioral economics, as I believe it explains most of the issues our clients deal with in investing. This is such a good example that I thought an excerpt would be worth sharing.

How Active Management Survives

J.B. Heaton, Ginger L. Pennington; Financial Planning Review

Abstract

There is much evidence that passive equity strategies dominate active equity management, but many investors remain committed to active investing despite its poor relative performance. We explore the behavioral‐economic hypothesis that investors fall prey to the conjunction fallacy, believing good returns are more likely if investment is accompanied by hard work. This is an especially plausible manifestation of the conjunction fallacy, because in most areas of life, hard work leads to greater success than laziness. Our internet survey results show that from 30% to over 60% of higher‐income, over‐30 individuals fall prey to the conjunction fallacy in this context, raising significant questions for law and regulatory policy, including whether actively managed equity products should carry warnings, at least for retail investors. [They don’t mince words.]

Belief in a “just world” is a second psychological factor that may explain the strong subjective appeal of a causal association between financial success and active investment. The “just world hypothesis” asserts that people have a strong desire to view the world as a fair, predictable place—a place in which a person’s merit and her fate are closely intertwined, and where hard work can be expected to yield just rewards (Lerner, 1980). While a large amount of research on the just world hypothesis focuses on harmful societal effects of this belief (that is, victim blaming), other work examines the influence of just world beliefs on decision‐making. Decision makers with a strong belief in the association between hard work and success tend to engage in a range of counter‐productive behaviors, spending excessive amounts of time reaching a decision and distorting perceptions of alternatives in a way that unnecessarily complicates choice (Schrift et al., 2016).

The psychological tendency to believe in a just world influences investors on multiple levels…it encourages investors to overcomplicate what should be a relatively simple decision problem—believing that a more complex investment scheme is necessary to achieve good outcomes. This last point may go far in explaining the efforts to which some leading hedge funds go to give an appearance of hiring the “best and the brightest” even when their investment results are inconsistent with the value of that practice.

The confluence of illusions of control and just world beliefs probably leads investors to accept the idea of a causal link between traders’ work and financial success. When asked to assess the likelihood of achieving financial gains in the stock market, investors employ these feelings as relevant information, judging success to be more likely with an active management. Using very brief surveys, we presented approximately 1,000 adults with a choice judgment task to test for the emergence of the conjunctive fallacy. Similar to Tversky and Kahneman’s heart attack problem,* we expected respondents to find the joint outcome more probable, due to feelings of fluency invoked by the assumed causal relationship…

The most straightforward test of our hypothesis was conducted with a sample of 1,004 individuals, roughly 57% male (n = 572) and 43% female (n = 431). All participants were above the age of 30 (roughly 34% between the ages of 45 and 60 and 41% over age 60), with household incomes in excess of $100,000 (20% of the sample earned over $200,000/year). This is the first question presented to that sample:

ABC Fund invests in common stocks listed on United States stock exchanges. Which is more likely?

(1) ABC Fund will earn a good return this year for its investors.

(2) ABC Fund will earn a good return this year for its investors and ABC Fund employs investment analysts who work hard to identify the best stocks for ABC Fund to invest in.

This question evoked a strong manifestation of the conjunction fallacy, with 62.8% selecting choice (2). This rate is on par with the magnitude of bias found in past studies using this problem structure. By comparison, the “heart attack” problem in Tversky and Kahneman (1983) produced a 58% error rate.*

*The conjunction fallacy emerges even in contexts that are not amenable to that explanation, namely, those in which little to no background information has been provided to participants. In one such demonstration, Tversky and Kahneman asked participants to consider the likelihood of a randomly selected adult male having suffered a heart attack. Participants were instructed to choose which statement was more likely:

(1) This person has had one or more heart attacks.

(2) This person has had one or more heart attacks and is over 55 years of age.

The majority of respondents selected the second option. Despite choice (1) being logically more probable, the addition of age‐related information to choice (2) lends it an air of enhanced plausibility. This is because choice (2) suggests a causal explanation that is consistent with both participants’ prior knowledge and objective reality (that is, the risk of heart attack does, in fact, increase with age). Qualitatively, choice (2) “feels” more likely to participants.

You can read the whole paper here: https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1031

Now go back and look at the graph PERCEPTION vs. REALITY: Causes of Death in the United States for another example of Behavioral Economics.

Hope you enjoyed this issue, and I look forward to “seeing you” again.

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

For Previous Issues:

NewsLetter Vol. 12, No. 3 – May 2019

NewsLetter Vol. 12, No. 2 – March 2019

 

www.Evensky.com

 

 

Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evensky & Katz / Foldes Financial Wealth Management (“EK-FF”), or any non-investment-related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from EK-FF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. EK-FF is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of EK-FF’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are an EK-FF client, please remember to contact EK-FF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. EK-FF shall continue to rely on the accuracy of information that you have provided.

 

Thoughts on Transferring Wealth to the Next Generation

Roxanne Alexander

Roxanne Alexander, CAIA, CFP®, AIF®, ADPA® Senior Financial Advisor

Lately, clients have been asking if we wouldn’t mind having a conversation with their kids about planning for future wealth transfer, as well as helping their children learn how to save and become financially independent. The decision as to whether to talk to your children and when is very personal, so there is no right answer. Every family has their differences, and views on money can be disparate, but having a conversation in advance can prevent future mistakes and confusion within the family. If you have open communication lines with your kids and don’t mind them knowing about the assets you have, bringing up this topic sooner rather than later can be advantageous.

First, decide how much information you want to reveal and what you would like to accomplish or instill in your children. Sometimes it may make sense to involve your financial advisor or estate attorney, who can be a sounding board and an intermediary when explaining types of accounts, estate documents, and other investment questions that may arise. Having a discussion about current beneficiaries, where accounts are located, and the purpose for each type of account is important. For example, if a child inherits an IRA or 401K account, there can be huge tax consequences if the child takes out all the funds at once.

Family Dynamics

If there are several children and grandchildren involved, usually most parents try to be fair. If you pass away and leave more money to one child than the other, since you helped one more while you were alive, communicating this decision in advance may prevent conflict. Also, discussing which assets would be best given to whom may make splitting assets smoother in the future. It may be more efficient in some cases to leave a house to a child that lives in the same location versus to a child who lives in another country. There may be certain tax advantages to leaving an IRA to one child versus another. If one child is struggling and paying for grandkids’ college and also thinking about buying a house, and you really want to pay for this, leaving only IRA assets to that child would cause them to have to take out funds and pay taxes prematurely, in comparison to another child that may be more financially stable and does not need the cash now.

Business Succession

If you are passing on generations of wealth from a family business, you may want to discuss how the money was made and explain the family legacy. If the family business is still active, communicating with your children about how you expect the business to continue may be important. One of our clients had a great idea. He wrote a book about his life for his grandkids and future generations. He added various pictures and life stories such as his first car and first girlfriend, and how he started in his profession.

Charitable Giving

If you are involved in charitable causes, this may be an opportune time to explain the importance of having philanthropy continue into the next generation. If you have a very strong inclination to give back to a specific cause because of a past experience, when your kids understand that decision they may be more inclined to remain involved in that cause once you are gone. One way of doing this could be to set up a charitable fund and have your kids as beneficiaries, but to discuss the purpose of the funds in advance.

Special Needs

If you are dealing with a child with special needs, it is important to have a conversation with other siblings or family members regarding your wishes when you are gone. If the plan was to have another sibling take care of the child with special needs, communicating and planning for this in advance can prevent future surprises. Assuming that a sibling wants to take responsibility as trustee or guardian for another sibling may end up in disaster. If you set up a trust with a sibling as trustee and they resign, you may end up with a corporate trustee making the decisions.

Continuing the Plan

Since your financial plan was put in place to make sure you are secure throughout your lifetime, if significant assets are projected to be left behind, continuity with your financial plan may be another topic for discussion. If your kids are all well off, planning for grandkids and future generations may now be your goal. Having a discussion with your advisor along with the family will help you make better decisions about how to plan for the future. Keep in mind that this should be revisited when there are changes in the tax laws or if there are changes in the family such as a marriage, divorce or new grandchild.

Feel free to reach out to Roxanne Alexander if you have any questions by email: RAlexander@Evensky.com or phone: 305.448.8882 extension #236.

www.Evensky.com

How to Navigate Between Private Foundations and Donor-Advised Funds

Kristin Fang

Danqin Fang, CFP®, CFA Financial Advisor

There are more tools now available to help you plan your charitable giving. The two most popular vehicles are private foundations and donor-advised funds (DAFs). While they are both designed to accomplish the same goal, namely of getting funds to charitable causes you care most about, they each come with a different set of pros and cons based on their different structures, tax rules, privacy, and flexibility levels.

Private Foundations

These are independent tax-exempt 501(c)(3) legal organizations, established by individuals, families, or corporations with public charitable missions. The board of directors or trustees and officers are responsible for such foundations’ three main duties: 1) Operational management, 2) Asset investment, and 3) Grant decisions. As its own legal entity, a private foundation provides its management board of great flexibility in grant making activities and total control over investments. However, this also comes with additional legal and recordkeeping responsibilities, with the need to comply with a set of more stringent tax rules. Before jumping into this powerful tool, it is prudent to weigh up all of the limitations and the level of commitment required.

Donor-Advised Funds (DAFs)

On the contrary, DAFs have gained increasing popularity in recent years by complementing what private foundations can do[i]. DAFs are charitable investment accounts established within a public charity that is affiliated with a community foundation, a financial institution, or other sponsoring organizations. Such funds were first addressed and defined in the Pension Protection Act of 2006[ii]. Donors who contribute assets to a DAF are eligible for immediate tax deductions. The contributions grow tax-free and are available for grants directed by donors at any time to any IRS-qualified public charities. While not offering the same grant-making flexibility as private foundations, DAFs provide an efficient solution for donors who want to outsource grant-making due diligence and the extensive administration of running a private foundation.

Comparisons and Planning Opportunities

  • Ease of setting up? DAFs win

DAFs are easy to set up as donors simply fill out account applications for the sponsoring organizations, without any cost associated, and then the accounts will be ready to use in just a few days. However, to set up a private foundation, the donor must first make a filing with the state to establish a trust or corporation and then apply to the IRS to ensure it is eligible, which can be a time-consuming and cost-burdensome process.

  • Independently managed? Private Foundations win

As a separate legal entity, a private foundation can appoint a board of directors and hire officers, including family members, to administrate the foundation, and the ultimate control over the foundation’s assets and the flexibility of its operations. However, A DAF is simply an account managed by a sponsoring organization, over which the donor has limited control regarding the account management, investments, and grant-making directions.

  • Preferred tax treatment? DAFs win

A wide variety of assets can be contributed to DAFs and the IRS allows a deduction of up to 60% of the donor’s Adjusted Gross Income (AGI) for cash gifts and up to 30% AGI for the fair market value of appreciated assets if held over one year, either for publicly or non-publicly traded assets. However, the deduction limit for private foundations is capped at 30% AGI for cash gifts and 20% AGI for appreciated assets. Even better, there is no excise tax on the annual income of DAF investments while generally a 1–2% federal excise tax is levied on a foundation’s annual investment income.[iii]

  • Investment control? Private Foundations win

Donors or the board of directors of private foundations can appoint investment advisors or can self-direct any investments they think prudent for their foundations. However, the investment options of DAFs are more limited for donors to choose from because they need to be approved and listed by the sponsoring organizations. Sometimes exceptions are made for higher account balance DAFs to include outside advisors.

  • Grant-making control? Private Foundations win

Private foundations donors have full control over the distributions of grants. There are no restrictions on the types of charities (either domestic or foreign) that can receive gifts, and even individuals can receive grants from private foundations, such as scholarships. However, DAF donors can only direct grants to eligible public charities approved by sponsoring organizations because these sponsors take on due diligence and legal compliance duties.

  • Distribution requirements? DAFs win

The “qualifying distributions” rule requires private foundations to grant 5% of the fair market value of its assets to other charities each year. However, there is no such requirement for DAFs and such donors can make grants anytime they like.

  • Privacy matters? DAFs win

The sponsoring organizations of DAFs can submit IRS form 990 with individual donor records kept private, so DAF donors can choose to grant anonymously should they wish. However, private foundation must complete a 990-PF tax form, which requires all contributions and grants to be part of the public record.

  • Recordkeeping and expenses? DAFs win

DAFs offer consolidated recordkeeping and tax reporting through the sponsoring organizations, and the fund administration and investment fees are charged to the accounts proportionate to their sizes. However, as an independent legal entity, a private foundation is responsible for all its own legal, accounting, tax reporting, investment management, and staffing operations expenses.

  • Successor election? DAFs win

Donors can simply name other individuals or charities as successors in their DAF accounts, whereas private foundations require the board of directors to vote for successors.

There is no one-size-fits-all solution to carry out your philanthropic mission. To plan well, it’s important to start by asking the right questions to help understand your priorities. For example:

  • Do you have a specific or a broad range of causes you’d like to support?
  • Which charities would you like to support? Are there any foreign charities or individuals?
  • Who will decide on grant making? Is flexibility in investment control important to you?
  • Do you want to make anonymous grants?
  • Will the different tax treatments of each charitable vehicle have a significant impact on your specific situation?
  • Do you want to donate in cash or highly appreciated assets?

 

Complementing a private foundation with a DAF

Sometimes choosing only one between a private foundation or a DAF is not always the best option, instead, a strategy to include both may be necessary. Establishing a DAF to complement a private foundation can be very effective because you can make grants with flexibility and control investments using private foundations, while at the same time, you can use DAFs to solve situations where you want to make anonymous awards to certain controversial causes you’d like to support, and to take advantage of DAFs’ favorable tax treatment for donating highly appreciated assets, etc.

Conclusion

On your journey to become a more successful philanthropist, it is important to utilize the most efficient and effective strategies to achieve your charitable goals. There is no one “right” way, each specific situation should be planned accordingly with a customized solution.

[i] 2018 DAF Report,. National Philanthropic Trust

[ii] https://www.irs.gov/pub/irs-tege/donor_advised_explanation_073108.pdf

 

[iii] https://www.fidelitycharitable.org/guidance/philanthropy/what-is-a-donor-advised-fund.html

 

Feel free to reach out to Danqin Fang if you have any questions by email: DFang@Evensky.com or phone: 305.448.8882 extension #222.

www.Evensky.com

 

Congress moves to make changes to US retirement system

David Garcia

David L. Garcia, CPA, CFP®, ADPA® Principal, Wealth Manager

Having made substantial changes to the US tax code at the end of 2017, Congress took a step closer to changing the US retirement system a few weeks ago. The House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act on May 23 by a large bipartisan margin of 417-3. The bill is expected to be taken up by the Senate later this year and would make some major changes to the US retirement system. What follows are some of the major provisions of the bill, which would be the most significant changes to the system since 2006.

  • Currently individuals are barred from contributing to their IRAs after age 70 1/2. The House bill would remove this limitation while also increasing the age when taxpayers are required to start taking taxable distributions from their IRAs from 70 ½ to 72.
  • The bill would make it easier for 401(k) plans to offer annuities by providing more liability protection to employers. This provision has been somewhat controversial, with some consumer advocates suggesting more protections for participants when negotiating annuity prices.
  • The bill would allow parents to withdraw up to $10,000 from 529 education-savings plans for repayment of student loans.
  • One of the biggest changes would affect people who inherit retirement accounts. The bill would require heirs to withdraw the money within a decade and pay any taxes due. The Senate version has a similar provision. Currently, beneficiaries can take much smaller taxable distributions over their own life spans.
  • The bill allows unrelated employers to create groups to offer a retirement plan. This is meant to encourage smaller firms to offer retirement plans.

Lawmakers say this could be only round one of legislation geared to increase retirement savings in the US, with more to come later in the year. Possible legislation may require companies of a certain size to offer retirement plans to their workers. The Senate is considering its own version of the House bill, called the Retirement Enhancement and Savings Act, or may just vote on the House version later this year. There is a real possibility a final bill could make its way to the president’s desk before year end.  EKFF will continue to monitor the progress of the legislation and its impact on our clients.

 

Feel free to contact David Garcia with any questions by phone 305.448.8882 ext. 224 or email: DGarcia@Evensky.com 

For more information on financial planning visit our website at www.Evensky.com

References:
Tergesen, Anne, and Richard Rubin. “House Passes Bill Making Big Changes to US Retirement System.” The Wall Street Journal, 23 May 2019, 6:32PM, www.wsj.com/articles/house-on-track-to-pass-bill-making-big-changes-to-u-s-retirement-system-11558625474.
O’Brien, Sarah. “The House Just Shook up Retirement Planning: Here’s What Could Happen to Your Savings.” NBC News, 24 May 2019, 1:18PM, www.nbcnews.com/business/retirement/here-s-what-new-retirement-bill-could-mean-you-n1010001.
“House Passes Bill That Would Bring Major Changes to US Retirement System.” CBS News, 24 May 2019, 12:12PM, www.cbsnews.com/news/secure-act-bipartisan-retirement-bill-clears-house/.

The December Rout

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

 

 

 

 

 

In case you haven’t been paying attention, it’s been a bit rocky lately in the market, so I thought this might be a good time for a little recent history.

05-2019-18

05-2019-19

https://www.ft.com/content/73d3dd26-0ce0-11e9-acdc-4d9976f1533b

 

BLOOMBERG, DECEMBER 26, 2018, 10:23 AM

INVESTORS SCRAMBLE TO PULL CASH OUT OF MUTUAL FUNDS

Investors withdrew $56.2 billion from mutual funds during the week that ended Dec. 19, according to data from the Investment Company Institute. The mutual fund market hasn’t experienced a one-week outflow so large since October 2008.

Rout_03

REMEMBER THESE HEADLINES DURING THE “DECEMBER ROUT?”

We’re always preaching patience and long-term investing but we’re also well aware that scary headlines such as the ones above make it difficult to remain in the market when “experts” are warning that the world is coming to an end. So, I decided to track the daily headlines post-“Rout” to see how helpful the daily news might be for investors. I believe you’ll find the almost daily flip-flopping enlightening and it will persuade you to ignore the financial pornography and remain a patient long-term investor. Be sure to note the flip-flop between the red and green boxes, particularly the heavy ones.

Obviously I didn’t know where the market was going when I started this, but I haven’t been surprised that the media coverage followed the classic pattern below.

The moral is, next time you think you should make your investments decisions based on financial pornography and “breaking news,” reread the history below since the beginning of the “December Rout” and think twice before you bail out.

Investment success is based on time IN the market, NOT market timing!

Rout_04.png

Rout_05

Rout_06

Rout_07

Rout_08

Rout_14

Rout_15

Rout_16

Rout_17

Rout_18.png

Rout_19

Rout_20.png

 

FINALLY, AFTER READING THIS I THOUGHT YOU MIGHT ENJOY A BIT OF CREDIBLE OPTIMISM FROM WARREN BUFFETT

Buffett: Stocks are ‘virtually certain’ to rise in years ahead

‘Miraculous’ U.S. economy remains the engine, says Berkshire chief. He’s not worried.

Warren Buffett assured Berkshire Hathaway investors that they’re likely to continue seeing “substantial” investment gains, aided by what he describes as the long-running U.S. economic miracle.

“Our expectation is that investment gains will continue to be substantial—though totally random as to timing—and that these will supply significant funds for business purchases,” Buffett said in his annual letter to Berkshire

Naysayers may make money by pushing “gloomy” forecasts, he said, but “heaven help them if they act on the nonsense they peddle.”

https://www.marketwatch.com/story/buffett-stocks-are-virtually-certain-to-rise-in-years-ahead-2017-02-25

If you made  it this far, I hope you found it useful and this history lesson provides some comfort as we struggle (once again) through volatile markets. Just remember, patience pays and we’re here for you if you’d like to chat further.

Sincerely,

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

www.Evensky.com

 

 

Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evensky & Katz / Foldes Financial Wealth Management (“EK-FF”), or any non-investment-related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from EK-FF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. EK-FF is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of EK-FF’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are an EK-FF client, please remember to contact EK-FF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. EK-FF shall continue to rely on the accuracy of information that you have provided.

NewsLetter Vol. 12, No. 3 – May 2019

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

DEAR READER,

8 WAYS TO SPRING CLEAN YOUR FINANCES

An excellent piece by my friend Robert Powel in USA Today with a link to my partner Josh Mungavin’s free “Family Information Organizer”: https://www.amazon.com/Family-Information-Organizer-Emergency-Disaster-ebook/dp/B07HFG63CQ/

https://www.usatoday.com/story/money/columnist/2019/04/25/financial-planning-key-components-plan/3329845002/ 

 

HOW LONG?

How long might you be around? A life expectancy calculator developed by the Janet and Mark L. Goldenson Center for Actuarial Research at the University of Connecticut.

https://apps.goldensoncenter.uconn.edu/HLEC/

 

NOT SUCH GOOD NEWS

“How much money will you need to retire? If you’re like the majority of Americans, you don’t know the answer.

A Bankrate survey from June 2018 found that 61 percent of Americans don’t know how much they will need to have saved to fund their retirement. Meanwhile, a separate March 2019 survey found that 21 percent of working Americans aren’t saving at all. It’s no surprise then that half of working households are “at risk” of not being able to maintain their standard of living when they retire, according to the National Retirement Risk Index (NRRI) from Boston College’s Center for Retirement Research.”

If you’re in the “don’t know” camp, check with us—that’s what we do.

https://www.bankrate.com/retirement/how-to-save-for-retirement/

 

NO COMMENT

Except you might want to consider the Fiduciary Oath.

Wells Fargo, LPL, Raymond James, Stifel, Oppenheimer, RBC and 73 Other Firms Ordered to Pay Millions to Harmed Investors

The SEC has settled charges against 79 advisory firms that have been ordered to pay more than $125 million to mostly retail clients harmed in the sale of higher-priced mutual fund share classes when lower-priced share classes were available.”

http://financialadvisoriq.com/c/2223483/269053/

 

SUCCOTASH

Barron’s recently published its 2018 “Fund Family Ranking: The Best Active Shops.” I must admit the concept and value of the “Best Shops” leaves me clueless. A fund family may rank highly due to a few of the managers posting outstanding performance while the majority are mediocre or worse. Kind of reminds me of the man who drowned in the lake that only had an “average” depth of four feet or the one who was comfortable with his head in the freezer and his rear in the oven. Investors put their money in individual funds, not families. Succotash may be fine for vegetables, but not investments.

HOW TO CALCULATE THE COST OF COLLEGE: A GUIDE TO FINANCIAL AID TERMS

An excellent guide from NPR for anyone facing the daunting task of funding college expenses.

https://www.npr.org/2019/04/11/709528694/how-to-calculate-the-cost-of-college-a-guide-to-financial-aid-terms?utm_medium=RSS&utm_campaign=news

 

FREE MONEY (MAYBE)

A tip from AARP Magazine

05-2019-01

https://www.usa.gov/unclaimed-money

 

BEWARE!

Of unrealistic guarantees and affinity marketing.

Getty Images Plus

“SEC Charges Texas Radio Host For $19.6 Million Ponzi Scheme”

William Gallagher, the self-dubbed “Money Doctor” and author of “Jesus Christ, Money Master” is principal of a firm that claimed “to be a vehicle of God’s peace and comfort to as many people as possible, helping first with their financial peace of mind.” Gallagher guaranteed investors risk-free returns in the accounts ranging from 5 percent to 8 percent per year, according to the SEC’s complaint.

The Securities and Exchange Commission charged a Texas radio host on Tuesday for allegedly operating a $19.6 million Ponzi scheme that targeted elderly Christian investors.

https://www.wealthmanagement.com/people/sec-charges-texas-radio-host-196-million-ponzi-scheme

 

SPIVA UPDATE

The 2018 full year report is now in and it doesn’t look any better for active managers.

“For the ninth consecutive year, the majority (64.49%) of large-cap funds underperformed the S&P 500. The figures highlight that heightened market volatility does not necessarily result in better relative performance for active investing. Similarly, small-cap equity managers found it more challenging to navigate 2018’s market environment compared with 2017’s rangebound market movements; 68.45% of all small-cap funds lagged the S&P SmallCap 600 over the one-year horizon.”

05-2019-02

05-2019-03

05-2019-04

https://us.spindices.com/documents/spiva/spiva-us-year-end-2018.pdf

 

AND MARKET TIMING DOES NOT HELP—IN FACT, IT COSTS

DALBAR: U.S. Investors Lost Twice As Much As The S&P 500 In 2018

A combination of volatile market conditions and bad timing caused the average U.S. investor to lose twice as much as the S&P 500 in 2018, according to a new study from DALBAR.

The research firm’s latest Quantitative Analysis of Investor Behavior (QAIB) found that investors were actually blown away by market turmoil last year, losing 9.42 percent over the course of 2018, compared with a 4.38 percent retreat by the S&P.

https://www.fa-mag.com/news/u-s–investors-lost-twice-as-much-as-the-s-p-500-in-2018-43995.html

 

GOOD ON YA

As my Aussie friends would say

From Financial Advisor

Grandparents Spending $179 Billion Annually On Grandkids: AARP

While grandparents spend an average of $2,572 annually, many are spending a good deal more on things like tuition assistance and even multi-gen vacations, according to new research from AARP, which found the financial impact that grandparents have on their grandchildren’s lives is immense.

https://www.fa-mag.com/news/grandparents-spending–179-billion-annually-on-grandkids–aarp-44245.html

 

I’M CONFUSED

“Maryland Lawmakers Get Earful On Proposed Broker Fiduciary Rule” 

A recent story in Financial Advisor highlighted the debate over the fiduciary proposals now being debated in a number of states.

“Those both for and against Maryland legislation that would put brokers and insurance agents under a state fiduciary rule testified before state legislators on Wednesday…

Dually registered advisor and FSI member Bruce Robson, a partner with Comprehensive Financial Solutions (CFS) in Salisbury, Md., told Financial Advisor magazine that his smallest clients would likely be hurt by a state fiduciary rule that would force him to use only advisory accounts.

‘It would be harder to serve those clients because of cost,’ he said. ‘Our choices would be to stop working with smaller clients or to increase our fees to an unreasonable level, which would not just be a regulatory red flag, but put us out of compliance.’

Advisory accounts cost investors in the neighborhood of 0.75 percent to 1.0 percent of assets each year, while brokerage accounts can range from 3 percent to 5 percent in a one-time, upfront commission, which is amortized over the life of the account.”

https://www.fa-mag.com/news/industry-groups-fight-back-against-maryland-fiduciary-rule-43791.html?section=3

I am clearly biased but I’m also confused.

  • Why on earth would it be harder to serve small clients or cost them more? If the 3 to 5 percent is a reasonable upfront charge for the brokerage service and there is an issue with doing it as a commission, no problem: charge a 3 to 5 percent fee.
  • I don’t understand the concept of “amortized over the life of the account.” After a commission sale there is NO “life of the account.” After the sale the obligation of the broker to the investor is over. If the broker never speaks to the client again they keep the 3 to 5 percent. In an advisory relationship, the advisor only continues to receive a fee if the client continues to receive advice they consider valuable.

 

TIME IN THE MARKET, NOT TIMING THE MARKET

An interesting chart from DFA

05-2019-05

 

DON’T KNOW WHY

They spent so much money trying to get their kids into a prestigious school. They should have focused on sports training.

05-2019-06

 

HIGH-CLASS GARBAGE COLLECTOR

Our partner Katie is participating in a city program that invites community leaders to actively participate in various city services in order to gain an appreciation for the work of city workers. One of her first experiences was becoming a garbage collector. Her observation: It’s a lot harder than it looks! Coming soon, riding with the police for an evening. Mighty proud of her.

05-2019-07

 

AND THE PRICE IS RIGHT!

05-2019-08

05-2019-09  05-2019-10

05-2019-11  05-2019-12

 

NONSENSE

As much as I respect Fidelity, I can’t help but respond to this comment.

Baby boomers, heavily invested in stocks, are putting retirement savings at risk: study

“If there was a market downturn, they could lose a significant chunk of what they’ve worked so hard to save,” said Meghan Murphy, the vice president of thought leadership at Fidelity.

Roughly half of baby boomers have their 401(k) plans invested in riskier allocations than Fidelity suggests for their age group, Murphy said. (Fidelity recommends having around 54 percent in stocks and the rest in bonds, money market funds or certificates of deposit.)

https://www.msn.com/en-us/money/savingandinvesting/baby-boomers-heavily-invested-in-stocks-are-putting-retirement-savings-at-risk-study/ar-BBV0chD

First, assuming the portfolio is appropriately balanced and rebalanced and the investment is truly long term, they are unlikely to “lose a significant chunk of what they’ve worked so hard to save.”

Second, there is no reason to believe their 401K is their only form of saving.

Third, to advise an allocation based on age is wrong and often dangerous. Consider two families living next door to each other, both the same ages and health. One only has limited savings and their 401K, the other has significant savings, a high probability of a significant inheritance and/or the other spouse has a good pension and/or they spend significantly less than their neighbor, etc., etc. Obviously, age is a not very important factor.

Finally, it seems contradicted by what I believe is much more credible Fidelity advice

Long-term investors: Stick to your plan

If you are saving for retirement or another goal that is years away, the time to consider how much of a loss you can handle isn’t during a correction. Rather, you should consider the appropriate risk level for your portfolio when you are looking at your long-term goals, and thinking clearly about your financial situation and emotional reaction to risk.

If you haven’t created a plan, you should. If you have one, it may be worth checking in to see if your investments are still in line with that plan and if your plan continues to reflect your investment horizon, financial situation, and risk tolerance. If all that is so, you will likely be in a better position to manage the ups and downs of the market. If your mix of investments is off track, consider rebalancing back to a more neutral positioning

Key takeaways

  • Given the inevitability of market pullbacks, it’s important to have an investment plan you can stick with through market ups and downs.

https://www.fidelity.com/viewpoints/investing-ideas/ready-for-stock-market-correction

 

NOT SO GOOD NEWS

Future of Retirement: Many Americans Will Run Out of Money; The Street.com

“The future of retirement is, in a word, bleak. Currently, only 58% of households between the ages of 35 and 64 are predicted to not run short of money in retirement, according to Jack VanDerhei, Research Director of the Employee Benefit Research Institute, and one of 16 experts who spoke at TheStreet’s Retirement, Taxes, and Income Strategies symposium held recently in New York. Or put another way: Roughly four in every 10 households between the ages of 35 and 64 (call it 27 million households) are predicted to run short of money in retirement, according to EBRI’s research.”

https://finance.yahoo.com/m/f0be4a7a-cad8-3e4a-a4ff-0ee98e933bb5/future-of-retirement%3A-many.html

 

MORE KATIE

Receiving her second consecutive Golden Apron Award from the mayor for raising the most funds at Beans and Cornbread, the fundraiser for Hospice of Lubbock.

05-2019-13

 

PHILOSOPHERS OF THE TWENTIETH CENTURY

From my friend Alex

  • When a man opens a car door for his wife, it’s either a new car or a new wife. ~ Prince Philip
  • Having more money doesn’t make you happier. I have $50 million, but I’m just as happy as when I had $48 million. ~ Arnold Schwarzenegger
  • If life were fair, Elvis would still be alive today and all the impersonators would be dead. ~ Johnny Carson
  • The first piece of luggage on the carousel never belongs to anyone. ~ George Roberts
  • As I hurtled through space, one thought kept crossing my mind—every part of this rocket was supplied by the lowest bidder. ~ John Glenn
  • America is the only country where a significant proportion of the population believes that professional wrestling is real, but the moon landing was faked. ~ David Letterman
  • I’m not a paranoid, deranged millionaire. Actually, I’m a billionaire. ~ Howard Hughes
  • After a game of chess, the king and the pawn go into the same box. ~ Old Italian proverb

 

 

MENSA WINNERS

From David

The Washington Post’s Mensa Invitational once again invited readers to take any word from the dictionary, alter it by adding, subtracting, or changing one letter, and supply a new definition.

Here are a few of the winners…..

  • Intaxication: Euphoria at getting a tax refund, which lasts until you realize it was your money to start with.
  • Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period of time.
  • Reintarnation: Coming back to life as a hillbilly.
  • Giraffiti: Vandalism spray-painted very, very high.
  • Sarchasm: The gulf between the author of sarcastic wit and the person who doesn’t get it.
  • Inoculatte: To take coffee intravenously when you are running late.
  • Karmageddon: It’s like, when everybody is sending off all these really bad vibes, right? And then, like, the Earth explodes and it’s like, a serious bummer.
  • Decafalon (n): The grueling event of getting through the day consuming only things that are good for you.
  • Dopeler Effect: The tendency of stupid ideas to seem smarter when they come at you rapidly.
  • Arachnoleptic Fit (n.): The frantic dance performed just after you’ve accidentally walked through a spider web.

 

I THINK I SEE THE PROBLEM

As much as I loved growing up in New Orleans, it’s a bit depressing to see my home state ranked as the “Dumbest State for Financial Literacy: 2019.

05-2019-14

https://www.thinkadvisor.com/2019/04/09/10-dumbest-states-for-financial-literacy-2019/

 

BEST TIME TO BUY FLIGHTS

From Lifehacker

05-2019-15

When to Buy Winter Flights

If you can avoid Christmas week and ski destinations, most winter destinations offer good value for the money.

  • The average best time to buy is 94 days from travel (just over three months). The prime booking window is 74 to 116 days (about 2.5 months to nearly four months).

When to Buy Spring Flights

Plan ahead for spring flights. There are no major travel holidays in the spring, but both families and college students enjoy spring break for much of March and April. Take advantage of lower midweek prices to help keep costs down.

  • The average best time to buy is 84 days from travel, or nearly three months. The prime booking window is 47 to 119 days (about 1.5 months to just under four months)

When to Buy Summer Flights

Americans travel a ton in the summer, and the peak summer dates of June 15 – August 15 are when the bulk of travel happens. You can find the best deals the closer you get to the end of the season (late August and September will give you the best odds to score low airfares).

  • The average best time to buy is 99 days out from travel. The prime booking window is 21 to 150 days. Flying the second half of August on into September is the sweet spot for these deals.

When to Buy Fall Flights

Overall, fall offers great value for budget travelers. Fall is shoulder season for a lot of destinations, and people simply do not travel as much. Of course, the one exception to this rule is Thanksgiving week. Traveling during Thanksgiving? Better buy on the early side.

  • The average best time to buy is 69 days from travel. The prime booking window is 20 to 109 days (about three weeks to 3.5 months)

https://lifehacker.com/the-best-time-to-buy-flights-in-2019-based-on-917-mill-1833514909

 

CHOOSING A FINANCIAL PROFESSIONAL

Some good advice from the Texas State Securities Board:

05-2019-16

05-2019-17

https://www.ssb.texas.gov/sites/default/files/2019_CORE4_Choosing_A_Financial_Professional.pdf

 

FINALLY

Keep your eye out for my “special report” on the December Rout, coming soon.

THE DECEMBER ROUT

In case you haven’t been paying attention, it’s been a bit rocky lately in the market, so I thought this might be a good time for a little recent history.

05-2019-1805-2019-19.png

https://www.ft.com/content/73d3dd26-0ce0-11e9-acdc-4d9976f1533b

 

Hope you enjoyed this issue, and I look forward to “seeing you” again.

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

For Previous Issues:

Vol. 12, No. 2 – March 2019

Vol. 12, No. 1 – January 2019

www.Evensky.com

Important Disclosure
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evensky & Katz / Foldes Financial Wealth Management (“EK-FF”), or any non-investment-related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from EK-FF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. EK-FF is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of EK-FF’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are an EK-FF client, please remember to contact EK-FF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. EK-FF shall continue to rely on the accuracy of information that you have provided.

 

 

 

Protecting Elderly Family Members – What Can You Do?

Roxanne Alexander, CAIA, CFP®, AIF®, ADPA®
Senior Financial Advisor

Fact: We are all getting older. Unfortunately, there are many ways that the elderly can be targeted and taken advantage of financially. We are seeing increases in fake phone calls and emails and IRS fraud as scammers and the technology used becomes more and more sophisticated. There are some steps you can take to help ensure that you and your family are protected from fraud or inadvertently making a transaction that you cannot reverse. I have heard several stories about caregivers, even family members, who did not have good intentions, managing to take funds from the elderly.

If you feel your elderly parent, spouse, or friend is having cognitive difficulties but is not considered medically incapacitated, some of the steps below may also be helpful. It can be hard for someone to relinquish control over their finances, especially when they have been accustomed to handling their affairs for decades, so for some people this may be a sensitive subject.

There are several options that can be easily put into place if you think you or your loved one may be at risk.

  1. Trusted contact forms: Most custodians such as Vanguard, Schwab, Fidelity, TD, etc., offer trusted contact forms, where you can list a trusted friend or family member who can be contacted if there is any suspicion of financial exploitation. This person has the right to confirm your contact information, health status, and the identity of any legal guardian, trustee, or power of attorney. The trusted contact will not be able to view your account information or execute transactions. You would probably want to make sure this person knows that they are listed as a trusted contact.
  2. Set up view-only access: You can set up view-only access for accounts so that a family member can log in and monitor activity. You can also set up a family member or friend to receive email alerts and notifications regarding the account. Paperwork would need to be signed by the account owner to allow viewing access. Keep in mind that these notifications (similar to receiving duplicate statements, which may not catch fraud immediately) may not be timely enough in case of an incident such as a wire transfer.

This action, along with the trusted contact form, are two steps that provide a basic layer of protection. Technologically-savvy family members could also be authorized to download the custodian’s app on their phone and set up notifications. For example, some credit card apps send alerts every time the card is used, and they pop up on your phone.

Having viewing access is also a good way to monitor your loved ones’ spending habits – usually, an unexpected or unexplained change can indicate a potential problem.

  1. Advisor notifications: If you work with a financial advisor, the advisor is usually set up to receive notices on any delinked accounts, accounts being transferred out, contact info changes, deposits, and withdrawals on a daily basis, but again, these notices may not be timely enough if a wire is initiated and money has already left the account. Your advisor may also be able to contact the custodian or a family member if there is suspicious activity in the account.
  2. Add a power of attorney: Adding a power of attorney will allow another person to conduct transactions on the account, view the account, sign paperwork, etc., depending on the extent of their power-of-attorney privileges. This document will not prevent an elderly family member from making transactions or requests – it will just add another person to the account who also has this ability. This step will not prevent the account owner from calling up and wiring funds or moving the account. You should discuss this with your estate planning attorney before adding this document to make sure it matches your intentions.

The most restrictive steps you can take, which can prevent the account owner from doing anything inadvertently, are as follows:

  1. Resign as trustee: The ability to resign as trustee on a trust will depend on the language of the trust. If you resign, the successor trustee(s) will take over. You may need to prove you are incapacitated by providing doctor’s letters stating your health condition before this can be done.
  2. Conservatorship or guardianship account: This step requires an original court-certified conservatorship/guardianship order, which will then be reviewed by the custodian of the funds. The custodian will then decide what type of additional paperwork is needed for the specific type of account, such as a new account application that may have to be filled out to add the guardian. This route will prevent the account owner from being able to do anything on the account. You would probably not choose to go to this extreme unless the account owner is incapacitated and can no longer manage their financial affairs.

The worst-case scenario may be if large wire is accidentally or unintentionally sent, since this can be impossible to get back once it leaves the account. Usually there is paperwork to fill out and sign, as well as security questions to answer, but if the account owner is able to provide all this information there is not much that can be done to stop the transaction.

If you have concerns about someone in your family, you may want to discuss these steps and possibly reach out to their attorney or financial planner to discuss the best options based on the situation.

Feel free to contact Roxanne Alexander with any questions by phone 305.448.8882 ext. 236 or email: RAlexander@Evensky.com 

For more information on financial planning visit our website at www.Evensky.com

Turning age 70.5 with an IRA account – what you need to know

Roxanne Alexander, CAIA, CFP®, AIF®, ADPA®
Senior Financial Advisor

When you turn 70.5, you have to start taking distributions from your retirement plans. There are several decisions you will need to make once this process starts, but making sure you do start taking distributions is the most important, since the IRS imposes a 50% penalty on funds that are not withdrawn as mandated.

How is a required distribution calculated?

The calculation is fairly straightforward, if you fall under the regular rules. You would take the value of your IRA accounts as of December 31 of the prior year and then divide it by the IRS divisor based on your age. This IRS Uniform Lifetime Table can be found here:

https://www.fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/overview

There are several rules depending on whether you are married or single, and whether your spouse is 10 years younger than you are. If your spouse is 10 years younger, your distribution amount will be less, and you would use the IRS Joint Life Expectancy Table to find the correct divisor. The custodian of your IRA will usually calculate your required distribution and will track how much you take out on a monthly basis. They will then give you this information on your monthly statement. However, if you have a unique situation (inherited IRA or younger spouse), you may need to calculate and track this on your own.

Do you need the cash?

If you need cash, you would simply withdraw the required amount from your IRA and move it into a taxable account less any tax withholding. Usually the custodian of the funds will send the tax withholding directly to the IRS on your behalf. This works somewhat like withholding on a W2, so when you go to file your taxes this amount has already been paid to the IRS on your behalf. At the end of the year, you will get a 1099R showing how much you took out and the taxes that were withheld on this amount. Sometimes your accountant may suggest a higher withholding than your actual tax rate, since the withholding may cover taxes on any other income you might be receiving. If you don’t need the funds, you can transfer securities into a taxable account. This will still be considered a taxable distribution, so you will either need to have funds available to pay the taxes or you may need to sell some securities to generate funds to pay the taxes. You should speak to your accountant to determine how much you should withhold based on your tax situation.

Should I wait until the following year to take my distribution?

You have until April 15th of the year after you turn 70.5 to take your first distribution. Keep in mind that, in this case, you will have to take a second distribution that year. If you are still working in the year you turn 70.5, but plan to retire the following year and project that you will have lower income, you can choose to wait and take two distributions the following year.

Do I have to take a portion from each account?

If you happen to have several IRA accounts, you can aggregate the value of the accounts to make the calculation, but then take the distribution from only one of the accounts. You do not need to take a portion from each account, unless you prefer to do it that way for accounting purposes. Keep in mind, if you have a 401K account, you will need to calculate that amount separately and then take that portion from the 401K. If you have other accounts, such as retirement annuities or 403b’s, you will likely have to take those distributions separately, as they cannot be aggregated with your regular IRAs. If you have a 401k and you are still working and contributing, providing you are not more than a 5% owner of the company, you can choose to defer distributions until you retire. If you own more than a 5% share of the company, you will be required to take a distribution.

Charitable contributions and the new tax laws

The new tax laws have increased the standard deduction and put caps on what you can itemize. If you have charitable contributions, you can make these through your IRA by sending a check to the charity directly from your IRA account. These donations go towards satisfying your required minimum distribution, but are tax free. For example, if your RMD is $50,000 and you donate $50,000 to a charity from your IRA, you owe no taxes and you have satisfied your required distribution. You can also request checks on your IRA in order to make smaller donations along the way that otherwise may not be deductible. Keep in mind that the charity has to be registered as a qualified charity.

Feel free to contact Roxanne Alexander with any questions by phone 305.448.8882 ext. 236 or email: RAlexander@Evensky.com 

For more information on financial planning visit our website at www.Evensky.com

Harold Evensky’s NewsLetter Vol. 12, No. 2 – March 2019

Harold Evensky CFP® , AIF®
Chairman

Dear Reader:

SPIVA UPDATE

S&P 500 SPIVA Institutional Scorecard

“This report adds institutional accounts to the mutual funds analyzed in the U.S. SPIVA scorecards. Underperformance among institutional accounts was not meaningfully different from those reported for retail funds.

“For active equity institutional managers, the one-year performance figures ending December 2017 were positive. Managers in 10 out of 17 categories outperformed their benchmarks, gross-of-fees. [Editor’s note: There are only two problems with this positive spin: gross-of-fees and short term.]

“However, the majority of equity managers in 15 out of 17 categories underperformed their respective benchmarks over the 10-year horizon, gross-of-fees.”

LINK

 

COOL TIDBITS

The following bits of wisdom are from a talk by my friend Jane Bryant Quinn, one of the very best personal finance writers ever.

  • Clairvoyance Society of London will not meet this week due to unforeseen circumstances.
  • I am an optimist. I’m not someone who smells flowers and looks around for a coffin.
  • Her mom is 102, and five years ago married a young man of 85.
  • Broker: “I’ve looked over your assets and I’m happy to say there is enough there for both of us.”
  • The SEC is enabling fake fiduciaries: “Informed consent” supported by the SEC staff.
  • Lilly Tomlin: No matter how cynical you become, it’s hard to keep up.
  • A man was going to die and asked God if he could bring some of his things with him. God said yes but only one suitcase. He scoured his investments—stocks, bonds, real estate. He decided on gold. When he got to the pearly gates, St. Peter asked, “What’s that?” He opened his suitcase and all the gold bars spilled out. St. Peter exclaimed, “What, you brought pavement?!”

 

FROM MY FRIEND PETER

Don’t blame me for these—blame Peter.

  • England has no kidney bank, but it does have a Liverpool.
  • I tried to catch some fog, but I mist.
  • I changed my iPod’s name to Titanic. It’s syncing now.
  • I stayed up all night to see where the sun went, and then it dawned on me.
  • I’m reading a book about antigravity. I just can’t put it down.
  • I did a theatrical performance about puns. It was a play on words.
  • Why were the Indians here first? They had reservations.
  • I didn’t like my beard at first. Then it grew on me.
  • Broken pencils are pointless.
  • What do you call a dinosaur with an extensive vocabulary? A thesaurus.
  • I dropped out of communism class because of lousy Marx.
  • I got a job at a bakery because I kneaded dough.
  • Velcro: what a rip-off!
  • Don’t worry about old age; it doesn’t last.

 

THE WORST PERFORMING ETFs IN THE PAST MONTH

As reported by Wealth Management magazine

Past month? You’ve got to be kidding. That’s noise, not news. This is a story I would classify as financial pornography.

LINK

 

2018: A YEAR TO FORGET FOR ACTIVE INVESTORS

Excerpts from a Morningstar research report, as seen in Financial Advisor

“Proponents of active management may want to forget what happened in 2018. In fact, if they’re large-cap investors, they may want to forget the entire past decade.

“Only 38 percent of active U.S. stock funds survived and outperformed their average peer passive fund last year, which was down from 46 percent in 2017, Morningstar said in its year-end ‘Active/Passive Barometer’ report….

“While that was the year-to-year picture, the long-term view of active vs. passive fund performance wasn’t any better, according to the Chicago-based research firm. Only 24 percent of all active funds beat their passive fund rivals over the 10-year period ending December 31….

“The data is based on the performance of 4,600 U.S. funds that account for about $12.8 trillion in assets, or about 69 percent of the U.S. fund market, Morningstar said.”

LINK

 

DAN EGAN

I don’t know Dan, but I did enjoy his tweet: “How come we have Smart Beta and not Lucky Alpha?”

 

DID YOU KNOW?

These come courtesy of my special friend Patti.

  • Humans are born with two fears: falling and loud noises. Every other fear is learned.
  • You once held the world record when you were born, for being “the youngest person on the planet.” Think I’ll add it to my resume.
  • An octopus actually has six arms and two legs, not eight legs.
  • There are exactly 46,783,665,034,756,288,456,012,645 moves possible in a game of chess.
  • Elephants can smell water from three miles away.
  • If humans killed each other at the same rate we kill animals, we’d be extinct in 17 days.
  • Without your pinkie finger, your hand would lose 50% of its strength.
  • Giraffes spend about 70% of their day eating. They must be on a cruise.
  • Cows have best friends and get stressed when they are separated.
  • Beer reduces the risk of developing kidney stones by 40%.
  • Dogs are capable of understanding up to 250 words and gestures. The average dog is as intelligent as a two-year-old child. And they pay about as much attention.
  • Tea is the most consumed drink in the world after water. I’m working on wine to give tea a run for its money.
  • Once a tractor company owner was insulted by the owner of Ferrari. Enzo Ferrari’s words were “You may be able to drive a tractor, but you will never be able to handle the Ferrari properly.” Today that tractor company is known as “Lamborghini.”

 

AND IF YOU’RE NOT YET CONVINCED THAT YOU SHOULD AVOID “GURUS”

Barron’s runs an annual forecasting challenge. Last year it had over 4,000 entrants. Here are a few of the results.

What will the DOW industrials return in 2018, including dividends?

Correct answer: Negative

Correctly answered by 11.57%

Which global market will do best in 2018?

Correct answer: U.S. S&P

Correctly answered by 25.03%

Which of these developments is most likely to occur in 2018?

Correct answer: Equity bear market, S&P 500 finishes in the red

Correctly answered by 8.11%

How many times will the Federal Reserve lift short-term rates in 2018?

Correct answer: four or more

Correctly answered by 5.98%

 

WILL ROGERS QUOTES

Suggested by my friend Alex:

  • “Common sense ain’t common.”
  • “Live in such a way that you would not be ashamed to sell your parrot to the town gossip.”
  • “The road to success is dotted with many tempting parking spaces.”
  • “When you find yourself in a hole, quit digging.”
  • “The short memories of American voters is what keeps our politicians in office.”
  • “A fool and his money are soon elected.”
  • “I don’t make jokes. I just watch the government and report the facts.”
  • “The trouble with practical jokes is that very often they get elected.”
  • “Be thankful we’re not getting all of the government we’re paying for.”
  • “Last year we said, ‘Things can’t go on like this,’ and they didn’t—they got worse.”
  • “The only difference between death and taxes is death doesn’t get worse every time Congress meets.”
  • “There are men running governments who shouldn’t be allowed to play with matches.”
  • “The taxpayers are sending congressmen on expensive trips abroad. It might be worth it except they keep coming back.”

I’ll let you decide whom these shoes fit. I can only believe Rogers would be having a ball if he were alive today.

 

AND IF THE MARKETS DON’T SCARE YOU, WHAT DOES?

According to Popular Science…

Heights                               28.2%

Sharks                                 25.4%

Reptiles                              23.6%

Public Speaking            20.0%

Deep lakes & oceans 18.2%

Clowns                                6.7%

LINK

 

READY FOR A QUIZ?

Also from Popular Science:

Sorry, you’ll have to wait for the end for the answers…

 

FOLLOW THE MONEY

From Skip and InvestmentNews

Fiduciary-based—IAA, FPA…………………………$     468,264

NOT Fiduciary-based…………………………………$19,915,902

SIFMA—brokerage firms

ICI       —Mutual funds

NAIFA —Insurance

FSI      —Commission-based advisors

SIFMA, the trade association representing major brokerage firms, spent more money lobbying lawmakers last year than Goldman Sachs, Fidelity InvestmentsVanguard Group, and other top financial services firms.

 

INTERESTING BUT DEPRESSING

Notes from the Journal of Financial Planning:

In “Retirement Income Literacy: A Key to Sustainable Retirement Planning,” Hopkins and Pearce conclude “…those who better understand key retirement income issues are more likely to have a well-developed retirement income in place.”

“Unfortunately, based on a 2017 survey of 1,244 respondents between the ages of 60 and 75 with at least $100,000 of investable assets:

Mean Score for Retirement Income Knowledge Areas: 47%”

“When asked: how knowledgeable would you say you are about retirement income planning, 88% responded they were moderately to extremely knowledgeable. However, of this same group, only 28.6% passed the literacy quiz with a score of 60 percent or higher.

When asked about Concerns, “Running Out of Money” was of the least concern and health care costs and potential cuts to Social Security were the highest.”

From the Center of Financial Services Innovation U.S. Financial Health Pulse Study:

  • “Only 28 percent of Americans are ‘financially healthy.’ Over half (55 percent) were categorized as ‘financially vulnerable.’”

And some less depressing news:

  • ETFs: 2018 was the 25th anniversary of exchange-traded funds. (I had no idea they were that old.)
  • Roth IRA: 2018 was the 20th anniversary
  • Bitcoin: 2018 was the 10th anniversary
  • Dow Jones Industrial Average (DJIA) removed General Electric, a member of the index since 1907, replacing it with Walgreens.
  • In 2018 Amazon and Apple reached a value of $1 trillion, and Fidelity reached $2 trillion in retirement assets.

 

INTERESTING STATS

Also from the Journal of Financial Planning:

$35,676: Average cost of tuition and fees for the 2018–2019 school year at a private college

$21,629: Average cost of tuition and fees for the 2018–2019 school year at a state school for out-of-state students

$9,716: Average cost for state residents at public colleges for the 2018–2019 school year

40: Percentage of parents with 10th graders who have a financial plan in place to reach college savings goal

56: Percentage of parents with 10th graders who have not discussed how much their kids will be expected to contribute to the cost of college

$16,400: Average amount borrowed per year by parents to pay for their children’s college education in 2014, up from $5,200 in 1990

$37,180: Estimated parental debt from federal college loans for the 2017–2018 school year

 

NEWS HEADLINES FROM NPR

That’s tough!

I guess it would have been OK if he had been legally spying.

 

MORE NEW, OLD PRODUCT PITCHES FROM PETER

 

WANT TO RETIRE IN COMFORT? HERE’S WHAT IT COSTS BY STATE PER YEAR:

#50 – Arkansas     $36,378

#37 – Texas          $39,814

#30 – Louisiana    $41,107

#24 – Florida         $42,586

#4   – California    $49,640

#3   – New York    $50,321

#2   – Hawaii         $54,590

#1   – Alaska         $56,879

LINK

 

TECHNOLOGY, ONCE UPON A TIME

LINK

 

I KNOW YOU’VE ALL BEEN WAITING

So here’s the link to our updated paper, “The Efficacy of Publicly-Available Retirement Planning Tools”: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2732927.

 

A THOUGHT TO REMEMBER DURING ROCKY MARKETS

A boat that doesn’t rock doesn’t move

 

INSURANCE INDUSTRY BATTLES BACK AGAINST FIDUCIARY STANDARD

“The three leading insurance and agent associations are working in tandem to support a state ‘standard of care’ proposal for agents that rejects fiduciary responsibility for agents and advisors. At stake, they say: middle-class investors.”

Of course, why on earth would middle-class investors deserve to be provided a fiduciary relationship?

LINK

 

BARRON’S RANKED ADVISOR DIRECTORY

Barron’s publishes this ranking four times a year that it says is based on “…a deeply researched, quantitate approach.” Assuming I counted correctly, I found that the following large commission-based brokerage firms represented about 58% of the total.

Morgan Stanley –     23%

Merrill Lynch –           21%

UBS –                                  6%

Wells Fargo –                  4%

J.P. Morgan –                   4%

Fee-only fiduciary firms were just a small fraction of the listings. Go figure.

Of course, with the ranking Barron’s notes: “The list of highlighted advisors below is a special advertising section.” That might have something to do with it.

MORE FROM BARRON’S

Maybe their crystal ball isn’t so great, but I’ll give them credit for honesty. In an article reviewing the publication’s 2018 stock picks titled “A Mixed Year for Barron’s Stock Picks,” they wrote: “Shares of the 71 companies we wrote about bullishly fell 10.5% on average, versus 9.5% for their benchmarks. Add back dividends and we were down 9.4% versus a drop of 8.5% for the benchmarks. The S&P lost 7.4% over the same period.”

GOOD TO KNOW

ANOTHER GOOD WEEK

Deena and I were honored with the Dr. A. William “Bill” Gustafson Distinguished Leadership Award, “…recognizing distinguished leadership that is consistent with the ideals of the Texas Tech Department of Personal Financial Planning and promotes the financial planning profession with commitments to developing leaders of the highest caliber and character.”

The award was presented by our department chair, Vickie, and our partners Katie and John (John won the Distinguished Alumni Award last year).

 

 

SHOW YOUR SWAGGER

We are happy to introduce a new website, Advisor on My Side (https://www.advisoronmyside.org/), where investors can get reliable information from ethical financial advisors who truly have their clients’ interests at heart. Here’s an excerpt:

It’s a fact. Objective and competent financial advice can be life-changing. Yet with confusing information from the industry and regulators, it can be tough to figure out who’s who. To know which advisors are on your side. Advisors who are actual fiduciaries.

All advisors talk the talk. Only some can walk the walk.

Advisor On My Side brings together the best tips from investors, fiduciary advisors, and experts.

The mission: to help investors learn what they need to know to protect themselves.

Be sure to look at the short video to understand what we mean by “swagger.”

 

THE ANSWERS

 

FINAL FOOD FOR THOUGHT

Also from my friend Alex.

Hope you enjoyed this issue, and I look forward to “seeing you” again.

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

For Previous Issues:

Vol. 12, No. 1 – January 2019

Vol. 11, No. 7 – December 2018

www.Evensky.com