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Year-End Planning

It’s hard to believe that we’re nearing the end of 2018. The year-end presents a unique opportunity to review your overall personal financial situation.  With factors like tax reform, life changes or just working towards your goals, now is an especially important time to evaluate things. The following are some ideas you might want to consider before the year ends. 

Income Tax Planning – Ensure you are implementing tax reduction strategies like maximizing your retirement plan contributions, tax gain/loss harvesting in portfolios and making adjustments for the new Tax Cuts and Jobs Act.   

  • Each dollar contributed to your retirement plan (i.e.: IRA, 401K 403B) is a dollar reduction in your taxable income for the year.  This can be a powerful tax savings tool immediately, and provides tax deferred growth for years to come.
  • Many investors experienced volatility in their portfolios this year, which may present opportunities for tax-loss harvesting, or selling investments at a loss, which can be offset against an equivalent amount of capital gains or up to $3,000 of ordinary income.
  • If you have low income this year (below $38,600 for single taxpayers or $77,200 for joint filers), you may want to consider taking advantage of the 0% tax bracket for long-term capital gains by harvesting some capital gains before year-end.
  • It may be prudent to check with your CPA before the year is over to see if there are adjustments you should make given the new tax law such as taking advantage of new benefits or adjusting for tax deductions no longer allowed.   

Charitable Giving – There are many ways to be tax efficient when making charitable gifts. For example, donating appreciated stock could make sense in order to avoid paying capital gains taxes. Further, you may want to consider “bunching” charitable deductions, or grouping several years of future donations together at one time by contributing to a donor advised fund, set up by you. The bunching strategy may allow you to qualify for tax itemization in a year you might not otherwise meet the higher threshold under the new tax law.  Utilizing bunching, you’ll receive an immediate tax deduction for the year you make the contribution to the donor advised fund.  However, you can donate from the donor advised fund anytime, allowing you to keep your annual gifting consistent, if that is important to your church or temple, for example.  

Estate Planning – Be sure that your estate planning documents are up to date – not just your will, but also your power of attorney, health care documents, and any trust agreements – and that the beneficiary designations are in line with your desires. If you have recently been through a significant life event such as marriage, divorce or the death of a spouse, this is especially important right now. It may be useful to take an overall review of your estate and review how each asset would be passed on and how the current tax law would impact you. 

Investment Strategy– Recently, we’ve seen increased market volatility and it may feel uncomfortable.  Market declines are a natural part of investing, and understanding the importance of maintaining discipline during these times is imperative. Regular portfolio rebalancing will allow you to maintain the appropriate amount of risk in your portfolio. If you are retired and living off your portfolio, you also want to maintain an appropriate cash reserve to cover living expenses for a certain period of time so that you do not have to sell equities in a down market and lock in losses.

Retirement Planning – Whether you expect a typical full retirement or something different, determining an appropriate balance between spending and saving, both now and in the future, is important. There are many options available for saving for retirement and it is important to understand which option is best for you.  You may want to employ a strategy of contributing to your employer sponsored work plan, a Roth IRA and an after-tax savings vehicle in different percentages depending on the goals for each savings bucket.  

Cash Flow Planning– Review your 2018 spending and plan ahead for next year. Understanding your cash flow needs is an important aspect of determining if you have sufficient assets to meet your goals.  If you are retired, it is particularly important to maintain a tax efficient withdrawal strategy to cover your spending needs. If you have not yet reached age 70.5, it is prudent to ensure you are making tax-efficient withdrawal decisions.  If you are over age 70.5 make sure you are taking your required minimum distributions (RMDs) because the IRS penalties are significant if you don’t. Remember, you can donate your RMD via a Qualified Charitable Distribution (QCD) if you want to avoid having the RMD increase your taxable income which could affect other things like Medicare premiums or social security tax rates to name a few.

Risk Management – It is always a good idea to periodically review your insurance coverages in various areas. Recent catastrophic events like hurricanes and wildfires serve as a powerful reminder to make sure your property insurance coverage is right for your needs. If you are in a Federal disaster area, there are additional steps necessary to recover what you can and explore the tax treatment of casualty losses. Other areas of risk management that may need to be revisited include life and disability insurance.

Education Funding – Funding education costs for children or grandchildren is important to many people.  While the increase in college costs have slowed some lately, this is still a major expense for most families. It is important to know the many different ways you can save for education to determine the optimal strategy. Often, funding a 529 plan comes with tax benefits, so making contributions before the end of the year is key.  With the added flexibility of utilizing 529 savings funds early for k-12 years (set at a $10,000 limit), 529 accounts become even more advantageous.

Elder Planning – There are many financial planning elements to consider as you age, and it is important to consider these things before it’s too late. Having a plan as to who will handle your financial affairs should you suffer cognitive decline is critical.  Making sure your spouse and/or family understands your plans will help reduce future family conflicts and ensure your wishes are considered.

The decisions you make each year with your personal finances will have a lasting impact. Be sure to reach out to your CPA and Financial Planner early to put plans to action and get timely feedback.  We wish you a safe and happy holiday season. 

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.

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2019 Inflation and Social Security Adjustments

Annually, the US government adjusts various investment and benefit thresholds based on the inflation rate.  Inflation, or the rising of prices that we pay for goods and services, can directly affect the standard of living for retirees on a set income. Given inflation has been relatively low during the last 10 years, most of the annual adjustments to benefit thresholds have been small.  However, below are some of the changes to come in 2019.

Tax-Deferred Savings Thresholds

The contribution limit, or maximum amount that can be contributed, to 401k, 403b, most 457 plans, and the federal government’s Thrift Savings Plan (TSP) will rise from $18,500 to $19,000 in 2019[i].  Employees age 50 and older will continue to be able to contribute an additional $6,000 as a ‘catch-up’ provision.  However, the catch-up contribution limit did not increase between 2018 and 2019.

The IRS also raised the contribution limit for IRA accounts for the first time in six years!  Starting in 2019, the contribution limit will increase from $5,500 to $6,000.  The catch-up contribution for IRAs of $1,000 was also unchanged between 2018 and 2019.

Traditional IRA contributions are tax-free (you get a deduction on your tax return) if you aren’t eligible to contribute to an employer-sponsored retirement plan.  If you are contributing to an employer-sponsored plan, the deduction for making a contribution is phased out starting at $64,000 in income as a single tax filer or $103,000 if married filing jointly.  It may be beneficial to check with your CPA whether an IRA or Roth IRA is better suited to you given your income and investment goals.

Roth IRA contributions are also now capped at $6,000, but your ability to contribute phases out completely at $137,000 of income for single tax filers or $203,000 for married filing jointly tax filers.

Social Security Adjustments

Annually, in mid-October the Social Security Administration determines what Cost of Living Adjustment (COLA) will be made to benefits in the coming year.  This is immensely important for millions of Americans who depend upon social security benefits to help provide them with retirement income.  Some good news to share is that social security beneficiaries will receive their biggest cost of living adjustment in seven years!  In 2019, the COLA will increase benefits by 2.8% over last year. For the average social security recipient, that amounts to an increase of approximately $39 a month or $468 a year.[ii]  In 2019, a retired worker reaching full retirement age would receive a maximum of $2,861 a month—an increase of $73 a month, or $876 a year.[iii]

The age that the Social Security Administration defines as “full retirement age” will also increase by two months, to 66 years and six months for people who will turn 62 in 2019.  The full retirement age will increase in 2-month increments over the next two years until it reaches age 67 for everyone born in 1960 or later.[iv] 

Given social security benefits and their annual inflation factors are modest, it is important for those still in their working years to take advantage of the higher savings thresholds available.  It can be difficult to save given the high cost of living and rising cost of goods and services.  My father, Alan Kondo, CFP® often quoted the saying, “pay yourself first.” In other words, route a set amount of each paycheck directly to your retirement savings account before you receive your paycheck.  In such a way, you are paying yourself before you start paying your monthly living expenses and discretionary purchases. 

The decisions you make each year with your personal finances will have a lasting impact. Be sure to reach out to your CPA and Financial Planner for help implementing your savings plans or as a financial sounding board. 

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.



[i] https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000

[ii] https://www.aarp.org/retirement/social-security/info-2018/new-cola-benefit-2019.html

[iii] https://money.usnews.com/money/retirement/articles/social-security-changes-coming-next-year

[iv] https://money.usnews.com/money/retirement/articles/social-security-changes-coming-next-year

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Politics & Investing

Politics bring out the best in people, right? Well, politics certainly brings out a very passionate side of Americans. Unfortunately, politics has done more to divide us rather than unite us lately.

For the weeks leading up to the midterm election, the stock market whipped back and forth in anticipation of changes to come. By the end of October, the S&P closed down 7%[i], rattling a few investors, but bringing a sigh of relief to many who had long anticipated a market correction.

Some investors cashed out their portfolio, worried of doom ahead due to the political climate. However, Warren Buffet has been quoted saying, “If you mix politics and investing, you’re making a big mistake.” Truly, whenever decisions are based more on emotion or opinion over fact, the results can be damaging to your investment portfolio. Therefore, when the market is volatile, it’s important to focus on the facts.

Since 1946, there have been 18 midterm elections.  At the one-year mark following those midterm elections, the stock market has been up 18 out of 18 times! The stock market has been agnostic in regard to party lines. Despite the midterm election results, Republican President & Republican Congress, Republican President & Democratic Congress, Democratic President & Republican Congress, Democratic President & Democratic Congress, the market has had a positive return, one-year out.[ii] 

The average one-year return following the mid-term election has been 17%. If you calculate gains from the mid-term low, the historical return was even higher at 32%.[iii] This gives good reason for investors not to panic, but rather, ride out the short-term volatility.

Focusing on historical trends, the second year of presidential terms have been the lowest performing year, which would be 2018 in our current presidential term. The third year of presidential terms has shown to be the highest performing year, potentially giving us something to look forward to in 2019[iv].

Despite current market volatility, the US economy is quite strong.  As such, the Fed has raised interest rates 3 times so far in 2018, and has suggested they will raise interest rates a quarter point one more time before the year is over.  While each interest rate increase creates market volatility, the Fed feels the economy is strong enough to sustain the higher interest rates, and the process heeds off inflation, which is important for a strong economy in the long-term.

An influencing factor on market performance at year-end is consumer spending.  If consumer outlook is positive, spending tends to be higher and corporate profits follow suit. This often leads to what is affectionately called the Santa Claus Rally. Costco already has Christmas decorations up and Amazon, Target and Walmart are competing hard for online retail sales.

Aggressive investors who believe Presidential Cycle Statistics might be itching to buy stocks now. It is prudent to remember that past results are not indicative of future results. However, a diversified portfolio that balances both US holdings, international equities and some fixed income for downside protection would give you the ability to capture market rates of return without banking on one company or industry to “hit it big.”

If you’re feeling anxious, or excited, talk to your financial sounding board for a second opinion. A CPA can ensure your next move makes sense from a tax perspective, and a CFP® can ensure the investment suits your risk tolerance.   

On a more somber note, you may have heard about Utah mayor, Maj. Brent Taylor, who was fatally shot last week while serving in Afghanistan. His body returned home to his wife and seven young children (ages 13 to 11 months old), draped under the American flag on Election Day. While in Afghanistan, Maj. Taylor helped to protect the democratic process, protecting Afghani citizens from physical violence so they may cast their ballot. In one of his last Facebook postings, Maj. Taylor wrote, “I hope everyone back home exercises their precious right to vote. And that whether the Republicans or the Democrats win, that we all remember that we have far more as Americans that unites us than divides us. “United we stand, divided we fall.” God Bless America.”[v]

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.



[i] https://www.msn.com/en-us/money/markets/opinion-this-is-what’s-happened-to-stocks-after-every-midterm-election-since-world-war-ii/ar-BBPmZiQ?ocid=spartandhp

[ii] https://www.msn.com/en-us/money/markets/opinion-this-is-what’s-happened-to-stocks-after-every-midterm-election-since-world-war-ii/ar-BBPmZiQ?ocid=spartandhp

[iii] https://grow.acorns.com/midterm-election-stock-market-performance/?gsi=A3ZbRa8

[iv] https://www.schaeffersresearch.com/content/analysis/2018/09/26/this-presidential-cycle-stat-says-to-buy-stocks-now

[v] https://www.newsweek.com/afghanistan-soldier-killed-us-1200422

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The Failure of Healthcare for Profit

Americans spend more on healthcare than residents of any other developed country in the world. As a result, 14% of the U.S. market cap is weighted in this profitable sector, compared with 9% for the rest of the world. 

The U.S. healthcare system is a $2.5 trillion industry, one of the most profitable in the world. Between 2015 and 2016, the net income of health insurers jumped 46%, according to insurance company rating firm, A.M. Best.¹ In the second quarter of 2017, the nation's top six health insurers reported $6 billion in profits, up more than 29% from a year ago.² In the second quarter of this year, publicly-traded health care companies amassed $47 billion in profits on $545 billion of revenue.³ As a result, U.S. healthcare costs 17.8% of Gross Domestic Product, nearly double that of other nations.⁴

Ironically, this high cost has brought us worse, not better, outcomes. Compared to other developed nations, the U.S. ranked last in life expectancy, and experienced the worst maternal mortality rates (triple that of the United Kingdom), and more infant deaths.⁵

Even more shameful, a 2009 study by the U.S. Centers for Disease Control and Prevention found that life expectancy varies significantly according to your skin color. The average African American can expect to live to just 75, the same life expectancy that white Americans enjoyed back in 1979.⁶

The Commonwealth Fund, which ranks the health systems of developed countries, found similar results. Americans pay the most for healthcare but have a healthcare system that has ranked dead last for the last 20 years.⁷ It concluded that in the U.S., health care is a privilege, not a right. Today, 27 million Americans remain without healthcare coverage, often because they can't afford coverage, or live in a state that didn't expand Medicaid (state-sponsored coverage for those with low income and assets).⁸ 

In the U.S., life-saving drugs cost a fortune. Americans often pay thousands of dollars more for their drugs than people in other countries pay for the exact same pills. Unlike other countries, where the governments haggle with drug companies for lower prices on behalf of its citizens, Medicare is forbidden to negotiate with drug companies.

This already dire situation is likely to take a turn for the worse. Trump's recent tax law gave several big gifts to corporations. It included repatriation at a low 15.5% of $620 billion that corporations held tax-free overseas. In addition, Trump gave corporations a permanent tax cut from 35% down to 21%. According to the Congressional Budget Office, this will add $1.8 trillion to the national deficit over the coming decade. How do they plan to reduce this massive deficit? House Speaker Paul Ryan said, "We're going to get back to entitlement reform, which is how you tackle the debt and the deficit."⁹ 

The lynchpin in "entitlement reform" is an attack on Medicare benefits. Medicare is a very popular program even among Trump supporters, but after the election, Republicans won't have to worry about retribution. After the midterms, we can expect efforts to cut Medicare benefits and increase premiums during the lame duck session before the next Congress is sworn in on January 2019.

The slashing of social protection benefits adds to a growing gap between rich and poor in an economy where the top 1% of the U.S. population already owns 38.6% of the total wealth.¹º Therefore, an effort to reform healthcare in America is actually a demand for large-scale income redistribution, which is one reason the U.S. political system will be so resistant to a fundamental change.

 

¹ FactCheck.org 10/20/2017

² CNBC 8/5/2017

³ Axios 8/3/2018

⁴ ⁵ The Guardian 3/13/2018

⁶ Business Insider 6/23/2017

⁷ The Atlantic 6/22/2018

⁸ Bloomberg 4/4/2018

⁹ Washington Post 12/1/2017

¹º Los Angeles Times 6/1/2018

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Stock Market Plunges in Fear

If you’re a superstitious investor, you might be blaming the recent decline in the stock market on the October Effect, or the theory that stock prices decline in October.  This Wednesday, the Dow Jones Industrial dropped nearly 832 points or 3.15%, the third-worst point decline in the history of the market[i].  Don’t start selling all your stocks just yet.  To keep things in perspective, the Dow fell 23% on Black Monday in 1987 (also in the month of October, out of interest)[ii].  We’re nowhere near that and the current US economy is quite strong.  We’ve experienced numerous mini-corrections in the stock market since the bottom of the Great Recession in March 2009.  This is hopefully another mini-correction that was overdue and will bring momentum driven stock prices back to their true valuation. 

So, what caused the stock market to tumble?  There are a multitude of factors that have brewed from concern to fear, consummating the market correction we witnessed this week. 

One major concern is rising interest rates.  The Fed has been slowing and consistently raising interest rates since 2015[iii].  During the Great Recession, the Fed was holding the economy together with all-time low interest rates.  Now that the economy is stronger, the Fed is raising interest rates to heed off rampant inflation.  The fact that the Fed feels the economy can withstand higher interest rates is a positive indicator that the economy is on track. 

Rising interest rates create a ripple effect. Corporations have benefited from 10 years of ultra-low borrowing rates to fund business operations and growth.  Those days are no-more and the cost of future borrowing will certainly come at a higher cost.  Further, during the recession, banks and bonds were offering customers less than 1% in return, so investors were driven to the stock market for better earnings.  Now that the 10-Year Treasury is yielding 3.21%[iv], some investors are cashing out their stock investments for a very dependable investment backed by the full faith and credit of the US Government.  This drives stock prices down and, in theory, hurts a company’s ability to raise more capital through equity markets cheaply. 

Another stock market concern weighing on investors all year has been the possibility of the US in a trade war.  On September 30th, the US signed a new trade agreement with Canada and Mexico that replaced the prior North American Free Trade Agreement (NAFTA).  The new United States-Mexico-Canada Agreement (USMCA) brought about some relief to investors.  However, the US and China have imposed tariffs and retaliatory tariffs on each other throughout the year, giving investors concerns that the tit-for-tat behavior is nowhere close to resolving soon.  The rising cost of inputs for US corporations on imported goods paired with higher labor costs, could potentially cut into profit margins and investor returns.  This hesitation was evident as stock prices swung up and down weekly, despite strong quarterly earnings reports by corporations. 

These conditions created unbearable tension that was finally released through a mini-correction in the stock market this week. 

So, what’s an investor to do?  The recent stock market volatility can be battled with a well-balanced and highly diversified portfolio.  When the stock market declines rapidly, many investors sell their equity investments and reposition into more secure investments like bonds or fixed income.  Investors who have been disciplined in asset class investing and held their fixed income allocation during the booming 2017 and volatile 2018 market benefit from this shift.  That’s because asset class investors already hold fixed income in their portfolio, so while market movers are jumping in and driving the price of fixed income higher, those who already hold the position benefit from the gains. 

Further, those who have employed a diversification strategy don’t have all their eggs in one basket.  This week, we saw the technology sector take a sharp decline.  Tech stocks have been the darling of the market this year, setting new market highs daily.  Apple made headlines for reaching $1 trillion in market capitalization in August of this year.  However, on Wednesday, it was one of the most actively traded stocks of the day, losing 4.63%[v] in value.  Likewise, Twitter lost 8.47% and Netflix lost 8.3%[vi] in value.  Investors who employ a diversification strategy have been locking in gains in the tech sector systematically throughout the year and repositioning those gains into sectors of the market that were underheld and undervalued.  With broad diversification, when one sector of the market declines, the impact on the overall portfolio is nominal. 

Some news outlets or market pundits will make bold, attention-grabbing headlines announcing the end of a long-run bull market or the start of a new recession.  However, their goal to draw viewership or get more clicks online can be irresponsible and self-serving.  More responsible commentators will state the obvious – No one can tell the future. 

Market corrections are normal and healthy for the overall economy as these “brake checks” prevent market bubbles from developing.  Economists have reiterated that the US market is fundamentally strong.  This September, unemployment moved to a 49-year low[vii].  Wage growth is starting to pick up, with the median base pay for workers in the United States climbing 1.6% in June[viii].  Corporate profits are high and consumer spending has been strong.  Despite increased market volatility, economists feel that good long-term returns are possible over the next couple of years. 

These moments present an interesting opportunity for investors to re-examine their portfolios and overall investment philosophy.  For ambitious investors, it might present a buying opportunity.  If you feel your investments need a review, reach out to a Certified Financial Planner™ or a trusted investment advisor for a second opinion.  They’ll be happy to ensure you’re on the right track for the market to come. 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.



[i] https://www.cnn.com/2018/10/10/investing/stock-market-today-techs-falling/index.html

[ii] https://www.cnn.com/2018/10/10/investing/stock-market-today-techs-falling/index.html

[iii] https://www.cnn.com/2018/10/10/investing/why-stock-market-down/index.html

[iv] https://ycharts.com/indicators/10_year_treasury_rate

[v] https://finance.yahoo.com/quote/AAPL/history?p=AAPL

[vi] https://finance.yahoo.com/most-active/

[vii] https://www.cnn.com/2018/10/10/investing/why-stock-market-down/index.html

[viii] https://www.usatoday.com/story/money/economy/2018/07/05/us-wage-growth-in-june-was-2018s-strongest-so-far/36579285/

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Fiduciary Rule Protecting Investors is Dead

Here's a proposition to you -- how would you like to work with a financial advisor who doesn't have to work in your best interest, and is able to increase his or her profitability by steering you towards retirement investment products that have hidden payments to the advisor, contain fees that are concealed from you, and under-perform other less expensive choices?

No? How about a relationship in which your financial advisor is legally required to act in your best interest, has to fully disclose how he or she is being compensated, and must place your interests before their own?

This last choice recently suffered a slow and painful death under the Trump administration. It is called the Fiduciary Rule, which was approved under Obama, and was supposed to be implemented in April 2017. It demanded that retirement advisors act in the best interests of their clients, and put their clients' interests above their own. It left no room for advisors to conceal conflicts of interest, and stated that all fees and commissions for retirement plans and retirement planning advice be clearly disclosed in dollar form to clients.

Wall Street banks and brokerage firms fought it from the beginning, because it limited commissions and protected consumers from high-risk investment products. They longed for the good old days, which the Council of Economic Advisors (CEA) described as "A system where Wall Street firms benefit from backdoor payments and hidden fees if they talk responsible Americans into buying bad retirement investments -- with high costs and low returns -- instead of recommending quality investments." ¹ The CEA report found that the abuses cost working and middle-class families $17 billion per year in losses.

In a height of cynicism, the Wall Street firms argued that the Fiduciary Rule would prevent brokers and annuity agents from giving advice to their clients, at the same time maintaining that the same brokers and annuity agents are actually salespeople who are not obligated to have a relationship of trust with their clients.

One of the first things that Trump did after taking office was to call the Fiduciary Rule into question, and delay its implementation for 180 days, giving Wall Street additional time to wield its wealth and power to lobby Congress. Then in June, a U.S. District Court threw out the Fiduciary Rule. The Consumer Federation of America called it "a terrible day for retirement savers."

What can you do now to protect yourself? First, sort through all the alphabet soup. There are many designations used by financial salespeople that sound impressive, like financial consultant, wealth manager, vice president, financial planner, financial advisor, and many more. Some designations only require that the salesperson sit though a one-day course. Check out a potential advisor's background, and find out what their credentials mean.

A Certified Financial Planner™ has to serve as a fiduciary when doing financial planning in order to maintain the certification. A CPA is also required to act as a fiduciary to retain the license. A firm that is a Registered Investment Advisor (RIA) must also act as a fiduciary.

Even if an advisor is a fiduciary, it makes a difference where they work. The firm that the fiduciary works for may restrict what investments he or she can pick from. An independent Registered Investment Advisor can choose from the whole universe of investment products, including low-cost mutual funds and exchange-traded funds. However, fiduciaries who work for some brokerage firms or banks must select their recommendations from house funds or lucrative mutual fund partners that are more profitable to the firm.

Don't be afraid to ask a lot of questions. If what the salesperson is pushing sounds too good to be true, it very often is. Ask how much the advisor gets paid, how they get paid, and what the various fees mean. Ask if he or she is legally obligated to act in your best interest, as a fiduciary. And then ask them to put it in writing.

¹ Forbes 7/20/2018

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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New Tax Rules Affect Parents

The Tax Cuts and Jobs Act of 2017 went into effect on January 1, 2018 and started the year off with a bang.  Most notably, the tax reform act imposed a new cap on state and local tax deductions at $10,000 for married filing jointly couples and $5,000 for single filers.  In other words, if you’re single and the sum of your property, state and local taxes exceeded $5,000 during the year (which is easily achievable in California due to high property values), too bad – you don’t get to deduct all the expenses you paid!  Corporations received a huge tax break due to the lowering of the top tax bracket from 35% down to 21%, mostly on the backs of the Middle Class.  The threshold for itemizing taxes went up, and many expenses that qualified for a tax deduction in prior years were eliminated or phased-out, making taxes “simpler” but also resulting in a larger expense, for many. 

 

529 Flexibility

However, one positive outcome of the Tax Cuts and Jobs Act (TCJA) is new flexibility created around 529 College Savings Plans.  A 529 plan is an education savings vehicle that functions much like a Roth IRA.  You put after-tax money into the account, and the growth on the investment is tax-free if the money is utilized for qualified education expenses.  Qualified expenses include tuition, room and board, books and supplies, to name a few. 

 

Previously, the earmarked 529 savings was meant for higher education costs such as university or trade school expenses.  Under the new law, you can now draw annually up to $10,000 per child, tax-free, to pay kindergarten through 12th grade tuition at a public, private or religious school[i].  Given the new benefit, many parents and grandparents are interested in starting the tax-free savings plans as soon as a child is born rather than waiting until traditional college planning has begun.

 

The Tax Cuts and Jobs Act is a federal law, but not all states and educational institutions sponsoring 529s have been able to adopt the new flexibility standards allowing distributions for K-12 education.  In California, legislative change is still pending, therefore, it is important to check with your CPA and 529 sponsor prior to making any withdrawals, so as not to trigger a 10% early withdrawal penalty unexpectedly. 

 

Like many other tax benefits that disappeared, the TCJA rules eliminated tax deductions for interest paid on home equity loans or home equity lines of credit.  For those in a pinch to put their kids through college, the equity loans were an appealing option because the interest paid was tax deductible.  With the removal of any benefits to carry equity loans, many parents are turning towards saving early to stretch hard-earned dollars.

 

Student Loan Interest Deduction Saved

The new law leaves the student loan interest deduction unchanged at $2,500.  However, as mentioned, the threshold to qualify for itemization is higher.  Also, when student loans are cancelled due to death or disability, they are now tax-exempt[ii]

 

Alimony Taxation Changes

New divorcees (divorced post-2018) are also affected significantly under the new TCJA rules.  Under the new laws, alimony is no longer considered taxable income to the recipient[iii], essentially lowering their taxable income and possibly making it easier for the family to qualify for needs-based financial aid.

 

While the new tax laws were supposed to make taxes simpler, change always seems complicated.  The finance industry is scrambling to learn and be complaint with the new rules before the 2018 tax filing season rolls around.  There is still time to initiate planning this year that could reap tax benefits or avoid tax pitfalls.  Consult your CPA or Certified Financial Planner™ before the year is over to make sure you’re on track and taking advantage of available options. 

 This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.


[i] https://www.irs.gov/newsroom/529-plans-questions-and-answers

[ii] https://www.studentdebtrelief.us/news/discharging-student-loans-no-longer-taxable-income/

[iii] https://www.marketwatch.com/story/new-tax-law-eliminates-alimony-deductions-but-not-for-everybody-2018-01-23

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What to do in this record bull market

This week capped the longest bull market in the history of the Standard and Poors 500 Index. Technically, a bull market is the period that starts at the bottom of the previous bear market (a drop of at least 20%) and continues moving up without a new bear market drop of 20%. In the current case, the bull market has gone for 3,453 days.¹

In that span of time, the S&P 500, not counting dividends, grew by an impressive 321%. It's not the strongest rally in history (from October 1990 through March 2000 the market gained 417%), but it's still very respectable.²

The lowest previous point in the market was March 9, 2009, the end of the Great Recession, so-called because it was the worst recession since the Great Depression. It may seem distant now, but at the time, the future of the U.S. economic system was in doubt. Two of the major brokerage houses, Bear Stearns and Lehman Brothers, went under. Merrill Lynch was forced into a sale. Hundreds of thousands of Americans lost their homes and savings.

In the depths of the recession, no one would have guessed that this tragedy would be followed by a buoyant period in which U.S. stocks would quadruple in value. Tech companies, like Apple, Amazon, and Google parent Alphabet, have led the charge, becoming dominant business powerhouses. One of the current largest players in technology, Facebook, didn't even enter the market until 2012.³

On the other hand, the news on the political front is not very comforting. Trump's former campaign manager, Paul Manafort, was convicted by a jury on eight charges. His personal attorney, Michael Cohen, pled guilty on eight criminal charges, including campaign finance violations. Allen Pecker, publisher of the National Enquirer, under protection of immunity, corroborated that Trump knew about the hush-money payments. Finally, the Trump Organization's financial gatekeeper, Allen Weisselberg, has also been granted immunity in testimony before a federal grand jury. By all accounts, Weisselberg "knows where all the bodies are buried."⁴ All this is happening just a few months before the midterm elections. Midterms often upset the balance of power in government and damage a sitting President. This election could be monumental, and could cause additional volatility in the stock market.

If you're an investor, it would be natural to feel some unease sitting at the top of the market. Does this mean it's going to be all downhill from here? Is it time to get out of the market? In reality, the length of a market upturn is not a good indicator for a market downturn. Better warning signs are declining corporate profits and revenue, high inflation, and a struggling economy. None of this is occurring right now, and few economists expect a recession soon.

Nevertheless, if you're a cautious investor, you might be feeling that you want to hedge your bets. If you are, it's generally better to make small, gradual and reversible steps in your investment strategy rather than large, dramatic ones that you might regret later.

For example, if you're approaching retirement, you might want to increase the proportion of fixed income (bonds) in your asset allocation. This tends to create more stability in your investment, and enhance downside protection.

If you have some extra cash that you're hesitating to put into the market, but you have a remaining mortgage balance, you might want to utilize the cash to pay down your mortgage. You'll save on mortgage interest at zero risk.

You might use Dollar Cost Averaging, an investing strategy that is very effective when the market is volatile. Instead of investing a large, lump sum all at once, break it up into smaller pieces and invest it in equal amounts gradually: monthly, quarterly or semi-annually. If the market is down, your money will buy more shares. If the market is up, you will be buying fewer shares. Statistically, this will give you a better rate of return.

Whatever you decide to do, it's wise to get professional advice. Talk to your estate planning attorney, CPA, or Certified Financial Planner™ for a second opinion on whether your strategy is appropriate for your circumstances and goals.

¹ Business Insider 8/2018

² Bloomberg.com 8/23/2018

³ Wall Street Journal 8/22/2018

⁴ Chicago Tribune 8/22/2018

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Capital Gain Tax Change Looms

Earlier this month, President Trump announced that he and US Treasurer, Steven Mnuchin, were determining if they had authority to unilaterally pass a massive and permanent new tax cut related to capital gains.  While the 2017 Tax Reform Act was spun as a “tax cut for the middle class,” this new proposed tax cut clearly benefits the wealthiest in America.  In fact, according to the Wharton School of Business, over 63%[i] of the new proposed tax cut would benefit just one tenth of one percent of the richest families in America.   

Under current law, when you buy a stock or mutual fund, the price you pay today is marked as your cost basis or taxable basis.  The price you sell that holding for in the future is the market value.  The difference between the market value (what you sold the investment for) and the cost basis (what you bought the investment at) is the capital gain, subject to taxation at both the Federal and State levels.  President Trump’s new capital gains tax proposal would increase the base purchase price (basis) every year by an inflation factor.  This would inherently decrease the gain, and related capital gains tax.  

As an example, say you purchase a stock for $10,000 in 1990.  It’s grown in value and if you sold it in the market today, you would receive $25,000 for that same stock, resulting in a gain of $15,000.  Under the current tax laws, a California resident might be subject to a tax expense of $3,750 (Federal capital gains tax rate of 15% + estimated CA tax rate of 10%).  However, under the new proposed tax law, the basis of $10,000 would get marked up every year since the time of purchase for inflation.  If we used the CPI index as the inflation factor[ii], the adjusted basis would be closer to $20,000.  The resulting gain after inflation would be reduced to $5,000 instead of the original $15,000 gain and the tax might be closer to $1,300; a tax savings of $2,450 or a 65%.  According to the Wharton Budget Model, if the capital gains tax change is pushed through, the tax reform would cost the US more than $100 billion in tax revenue over the next 10 years and the top 1% of US earners would take 86% of the benefit[iii].

Democrats are already pledging to fight the measure due to the bias of the capital gains tax bill to benefit the wealthy and the consequential strain on the national budget.  Normally changes to the tax code go through Congress, but President Trump knows his tax cut proposal would die there.  As such, he and Treasurer Mnuchin are investigating whether the office of the Treasurer has the authority to make this tax change unilaterally.  The last time changes to the capital gains taxes were considered was under President George H. W. Bush in 1992[iv].  However, at that time, it was determined that the US Treasury office did NOT have the authority to make changes on its own.  Therefore, if President Trump proceeds to circumvent congress and push his tax cut through, his bill will definitely face legal challenges. 

Noise regarding the capital gains tax-cut has quieted for now.  However, if the tax cut is pushed through, even for a short window of time, the change will unleash a wave of volatility in the stock market.  People who have long held stock positions fraught with unrealized gain may sell large stakes of ownership to take advantage of what is sure to be a limited tax-savings opportunity. 

Unfortunately, the Tax Reform Act of 2017 and the newly proposed capital gains tax cut benefit the ultra-wealthy at the detriment of valuable government programs like Medicare, Medicaid and Social Security.  The gap between the rich and the poor is widening and the middle class is shrinking.  The President’s divisive behavior continues to pit people against each other rather than bring them together.  Only time will tell where this newest idea settles. 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 


[i] https://www.usatoday.com/story/opinion/2018/08/08/trump-capital-gains-tax-plan-helps-rich-hurts-america-column/916377002/

[ii] https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/

[iii] https://www.usatoday.com/story/opinion/2018/08/08/trump-capital-gains-tax-plan-helps-rich-hurts-america-column/916377002/

[iv] https://www.nytimes.com/2018/07/30/us/politics/trump-tax-cuts-rich.html

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Growth for Whom?

This week, President Trump was forced to back off on his aggressive trade war, defend himself against recorded audio discussing a payoff to a Playboy model, and fret over the Trump Organization financial chief, Allen Weisselberg, testifying before a federal grand jury. Understandably, Trump has seized on relatively good news that U.S. economic growth hit 4.1% in the second quarter of 2018. Nevertheless, 40 million Americans live in poverty, and remain without healthcare coverage¹. It begs the question, "Who is the growth benefiting?"

The apparently good numbers come in the wake of a massive tax cut from 35% down to 21% that Trump gave corporations at the beginning of the year. Although previous administrations have used economic stimulus in order to avoid recessions, Trump's gift came at a bullish period of economic expansion, falling unemployment and rising home values. Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, calls it a "temporary sugar-high" that has long-term negative consequences because it pushes the federal deficit to over $1 trillion.² 

The biggest beneficiaries of this largesse have been corporate executives. Corporate profits after taxes are at the highest level ever seen in this country.² Earlier this year, the United Nations Human Rights Council reported that the top 1% of the U.S. population owns 38.6% of the total wealth in the country, and that "the U.S. already leads the developed world in income and wealth inequality." ³

Only a trickle has gone towards employee raises or bonuses. $800 billion is going towards stock buybacks to boost share prices and dividends. Stock shareholders have benefited, but 84% of all stocks are owned by the wealthiest 10% of households. 40% of Americans (125 million people) have hardly any investments at all.⁴

Trump’s trade war has also created an artificial spike in growth. In anticipation of U.S. tariffs and retaliatory tariffs being implemented, foreign companies have been stockpiling goods and raw materials in order to buy before prices jump. This has temporarily boosted U.S. exports.

A 10% tariff on $400 billion of imports is $40 billion that goes into the U.S. Treasury, a welcome pay increase for the government. But who pays for the trade tariffs? For American consumers, the trade war is a new financial hit, because it raises prices. The import tax on automobiles would raise the cost of a Toyota Corolla, Honda CRV or Ford F150 by about $1,000 due to the tariffs on car parts manufactured outside the U.S. It would add about $5,000 to the cost of imported cars.⁵

In addition, General Motors estimates that because of the proposed tariffs, they would have to eliminate 195,000 jobs over the next three years. With retaliatory tariffs, these job losses could increase to 624,000.⁶

It appears that “growth” means even more wealth to a small number of already-wealthy Americans. For the vast majority of the population, it means paying more for food, housing, clothing and healthcare, including the possibility of losing their jobs.

Although Trump characterizes the quarterly number as “an economic turnaround of HISTORIC proportions,” it is actually more modest and fleeting. During the Obama administration, the economy exceeded 4.1% four times.⁷ And because of the unusual confluence of events that created last quarter’s surge, it’s likely the economy will soon return to the average 2 to 2.5% rate that we’ve experienced since 2009.

 

¹ Bloomberg 4/3/2018

² New York Times 7/25/2018

³ Los Angeles Times 6/6/2018

⁴ CNN Money, 2/16/2018

⁵ CBS News 7/2/2018

⁶ CNBC 7/3/2018

⁷ New York Times 7/27/2018

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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U.S. Stock Market Improves in Second Quarter

The first half of this year was shaky, and made some people wonder if the positive, bull market was coming to an end. Thankfully, the market stabilized in the second quarter, and made back much of the losses. The U.S. equity markets are back on the positive side.

The broadest measure of the U.S. market is the Wilshire 5000 Total Market index. For this last quarter, it finished up 3.83%. For the first half of the year, it was up 3.04%.¹

There are two closely-followed indices for the U.S. large company market: the Wilshire U.S. Large Cap index, and the Standard and Poors 500 index of large company stocks. The Wilshire index was up 3.41% in the last quarter, and up 2.62 from the beginning of the year.¹ The S&P 500 index was up 2.93% in the last quarter, and up 1.67% for the year.² The generous tax cut that Trump gave these companies, from 35% all the way down to 21%, took awhile to kick in, which is one reason why the second quarter performance was better than the first. 

Over a longer period of time, small companies tend to grow faster than large companies. This makes sense, because it's easier to double in size if you're a small company, compared to doubling in size as a mega-company. Small U.S. companies are starting to have their day in the sun. The Wilshire U.S. Small Cap index rose 7.87% in the last three months, and is up 7.08% for the year. ¹ A comparable index is the Russell 2000 Small Cap index. It is up 7.66% since the beginning of the year.³

International stocks have been hit badly by the Trump trade tariffs. Because the U.S. economy is the strongest in the world, it's like the 800-pound gorilla. Trump is likely betting that in an all-out trade war, weaker global economies will feel the pain more than the U.S., and so far this is happening. The EAFE (Europe, Australasia and Far East) index, which represents companies in developed foreign markets, lost 2.34% in the last quarter. The performance for the year is even worse, down 4.49%. Europe by itself has a loss of 2.74% over the last three months, and an overall loss of 5.23% for the year.

Emerging markets indices represent small, less-developed but quickly-growing economies, like China, India, Brazil and Russia. These suffered most of all from the trade war in the last quarter. The Shanghai Composite is already in a bear market, down more than 20% from its 52-week high. MSCI's EM index is down 8.66% for the quarter, with a loss of 7.68% for the year.⁴

Trade tariffs act like an extra tax on the people. When the U.S. slaps tariffs on goods coming into the U.S., it doesn't go into our pockets -- it goes into the U.S. Treasury as extra revenue. Because domestic producers are not forced to reduce their prices from increased competition, U.S. consumers are left paying higher prices as a result. In a round-about way, the tariffs are helping the government pay for the tax cut to corporations, and Americans are paying the price at the cash register.

Jerome Powell, the chairman of the Federal Reserve Bank, has raised interest rates a couple of times already this year. He also announced possible further interest rate increases for September, December, next March, and next June. This has a direct impact on the bond market. Typically, when interest rates go up, bond values go down, with long-term bonds affected the most. When bond values go down, the coupon rate (which is relative to the lower value) goes up. Consequently, the coupon rate on 10-year Treasury bonds has risen to 2.86%, and for 30-year Treasuries, 2.99%.⁵

You'll notice that the coupon rate between 10-year and 30-year Treasuries is not that different. This is called a "flattening yield curve," and is a concern to economists because it's an indication that the current bull market, which started in March of 2009, is running out of steam.

The stimulus given to corporations in the recent Tax Law gave an artificial boost of adrenalin to the U.S. market and economy. The benefits could be short-lived, but the long-term impact of the additional $1 trillion deficit can have dire consequences, especially if the Trump administration attempts to take it out of Medicare, Social Security and other programs that benefit everyone.

¹ www.wilshire.com/indexes/calculator

² www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf-p-us-1

³ www.ftse.com/products/indices/russell-us

⁴ www.msci.com/end-of-day-data-search

⁵ www.bloomberg.com/markets/rates-bonds/government-bonds/us

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

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Strong Dollar and Trade Tariffs Play Chicken

The Dow Jones Industrial Average got an awakening this last week when two consecutive days of losses wiped out the year's gains. Down by 1.8% for 2018, it marked the worst half-year performance for the index since 2010.

Ironically, the losses were due to the strong U.S. economy and dollar, and the sluggish performance of overseas markets. More than half of the 30 companies that make up the DJIA receive 50% of more of their revenue from outside the U.S. By comparison, only 30% of the 500 companies that make up the Standard & Poors Index receive significant overseas revenue. The S&P 500 is still positive for 2018.¹

Since March 2009, when the U.S. pulled out from the bottom of the Great Recession, the domestic market benefited from one of the strongest rallies in history. The strength of the dollar increased in tandem. In order to thwart rampant inflation, the Federal Reserve Bank steadily raised interest rates. Chairman Jerome Powell recently raised interest rates for the second time this year, and indicated his intention to raise them two more times before the end of the year. Consequently, the dollar's value is at its highest since June 2017, compared to other global currencies -- up 5.5% against the Euro, and up 4.2% against the Japanese yen.¹

The dollar gained even more steam when mega-corporations were granted a "tax holiday" on profits held overseas in the latest tax law. $175 billion in profits were repatriated in the first quarter of 2018. Economists estimate that eventually, $450 billion will return to the U.S.¹

Emerging market countries, like Brazil, India, and Russia have been hammered by the strong dollar because in past years, they borrowed heavily in dollars to service their debt. Now, they have to repay the debt with dollars that cost even more. The Brazilian real is down 14% in value, the Indian rupee is down 7%, and the Russian ruble is down 9%.²

The firm dollar may be one of the reasons that Trump has decided to spark a trade war. Because the U.S. is in a stronger position than its global rivals, it may be hurt less than China or Europe, and can afford to "play chicken." The administration is even drafting a bill to exit from the World Trade Organization so it can impose tariffs with a freer hand, and without the consent of Congress.³

The tariffs have crippled markets outside the U.S. The Shanghai composite is in a bear market, down more than 20% from its 52-week high. The German DAX index is down 9% since January. The European market is down 6%, and Europe-focused funds lost $25 billion in assets in just the second quarter of the year. By comparison, U.S.-focused equity funds gained $3.2 billion in inflows in Q2. Of global investment portfolios, U.S. stocks and bonds now have a 60% share, the highest allocation since early 2017.⁴

U.S. Treasury bonds have also benefited from the turmoil. In a "flight to safety," investors have been drawn to the security of government bonds. The higher interest rates have made them even more attractive.

What does this mean for your personal investments? The money pouring into the U.S. market seems like a vote of confidence for strong, future growth. Because stocks are currently a little cheaper, this may be a buying opportunity. Volatility (the ups and downs of the market) may increase in the short-term because of the upcoming mid-term elections, and the continued uncertainty over how the trade war will play itself out. However, if you are investing to support 25 to 30 years of retirement, short-term volatility may be inconsequential to you.

The bottom line is, don't panic. This level of volatility is normal for the market, and is one of the reasons why the market holds out the potential for returns that are better than stashing money in a bank account. A strategy of broad, global diversification can be an effective way to reduce volatility, by spreading your risk. That way, no matter which of the many global markets is doing the best, your investment can benefit from it.

 

¹ Wall Street Journal, 7/2/2018

² Reuters 6/29/2018

³ Marketwatch 7/2/2018

⁴ Institute of International Finance 7/2/2018

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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U.N. Study Exposes American Poverty

In his "campaign rallies," and in Twitter, Trump often credits his economic approach for creating "the greatest economy in the HISTORY of America." However, on June 21, U.N. investigator, Philip Alston, presented a report to the U.N. Human Rights Council that told a very different story --

* 40 million Americans live in poverty. 5.3 million Americans live in "Third World conditions of absolute poverty."

* Among Organization of Economic Cooperation and Development countries, the U.S. has the highest youth poverty rate, and the highest infant mortality rate.

* Four out of ten Americans cannot cover an emergency expense of $400 without borrowing money or selling possessions.

* The top 1% of the U.S. population owns 38.6% of the total wealth.

Alston's study, carried out last December, included Skid Row in Los Angeles, African American communities in Alabama, the hard-hit coal country in West Virginia, and hurricane-racked Puerto Rico. He described, "people who have lost all of their teeth because adult dental care is not covered in programs for the poor," and Puerto Ricans living next to mountains of toxic coal ash. In Alabama, he found cesspools of sewage that have led to a resurgence of hookworm, which thrives in conditions of poor sanitation. A recent study found that more than one-third of people surveyed in Alabama tested positive for hookworm.

Alston found that, "the U.S. already leads the developed world in income and wealth inequality, and is now moving full steam ahead to make itself even more unequal," citing the $1.5 trillion in tax cuts that Trump passed in December of 2017, which "overwhelmingly benefited the wealthy and worsened inequality." Simultaneously, Trump cut a third of the food stamp program, and proposed to triple the base rent for federally subsidized housing. Alston said, "It's a very deliberate attempt to remove basic protections from the poorest, punish the unemployed, and make even basic health care into a privilege to be earned rather than a right of citizenship." He concluded that the U.S. is "building a society where wealth and privilege will dominate everything. The persistence of extreme poverty is a political choice made by those in power, amounting to a violation of civil and political rights."

In an interview with the Los Angeles Times,¹ Alston elaborated -- "There's been a systematic effort by conservatives to promote the notion that anyone who is receiving money from the government is shameful and offensive. Yet the rich receive vastly more money from the government, and that's not considered shameful." He pointed out "caricatured narratives" that hold up the rich as drivers of economic progress, while slamming the poor as "wasters, losers and scammers."

The report takes special note that the inequalities "affect African Americans in particular, where they just come out worse on every possible indicator, and policies are clearly designed to hit them harder." On the flip side, it cautions that "the equality of opportunity, which is so prized in theory, is in practice a myth, especially for minorities and women, but also for many middle-class White workers." Nobel prize-winning economist, Joseph Stiglitz added, "Can you believe a country where the life expectancy is already in decline, particularly among those whose income is limited, giving tax breaks to billionaires and corporations while leaving millions of Americans without health insurance?" Stiglitz warned that Trump's assault, "bodes ill for society as a whole. The proposed slashing of social protection benefits will affect the middle class every bit as much as the poor."²

"The American dream is rapidly becoming the American illusion," is the scathing message that the report delivered to the U.N. Human Rights Council. That message was scorned and dismissed by the Trump administration. Republican Party leaders like House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell and the Republican committee chairs have declined to comment. Rather than addressing the contents of the report, Trump's U.N. Ambassador, Nikki Haley, chose instead to criticize the U.N. Human Rights Council.

¹ Los Angeles Times 6/6/2018

² The Guardian 6/1/2018

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Charitable Gifts and the New Tax Law

One of the unexpected consequences of the new tax law is that charitable organizations are going to be struggling. Under the new tax law, charitable contributions are expected to drop by about half.¹

This is because the Standard Deduction has nearly doubled, from $13,000 to $24,000. At first blush, this would appear to be good news, but this is how it pans out for some taxpayers --

Let's say we're back in 2017, when the Standard Deduction for a married couple was $13,000. Your mortgage is paid off, and your only itemized deduction is $10,000 for state and local taxes.

It would make sense to make a $10,000 charitable contribution, because your tax deductions would total $20,000, $7,000 greater than the Standard Deduction.

However, for 2018, you would probably want to take the Standard Deduction of $24,000, because it's higher. Consequently, you might not do a gift to charity because there would be no tax benefit to you. In the past, roughly 30% of taxpayers were itemizers. That number is expected to drop to 10% by the time we start filing this year's taxes.² It's a tough decision, because you may still want to support your favorite church, temple or charitable organization, and help preserve the community.

There is still a way to support the community, take advantage of the higher Standard Deduction, and also receive additional tax deductions -- it's a strategy called "bunching," and it uses the unique advantages of the Donor-Advised Fund.

A Donor-Advised Fund is a fund in your name created inside a public charity. You receive an immediate federal (and sometimes state) tax deduction for the full value of your donation. Then, you can decide which charities, how much, and when to make distributions from the account later on.

In "bunching," (continuing the example above), instead of gifting $10,000 each year, you do $20,000 every other year. That gets your Itemized Deductions above the level of the Standard Deduction, but you have full control over when to make grants from the fund.

Because the investments continue to grow inside the fund, you could give away only the earnings each year, and preserve the principal. Or you could give away some or all of the principal. You can even wait several years, letting the money in your account grow before making grants. The main restriction is that the charities must be IRS-approved.

It gets even better. Suppose you donate stock that you bought at $10 a share, and now it's worth $50 a share. If you sold it yourself, you would have to pay capital gains taxes on the $40 per share gain. However, when you donate the appreciated stock to a Donor-Advised Fund, you escape paying the capital gains taxes. Nevertheless, you still receive a tax deduction based on the full $50 a share, as long as you’ve held the stock for at least a year. In this example, because of the tax savings, it would only cost you about $9,000 to make a $20,000 gift to your favorite community organization. 

You don't need to be a millionaire to consider Donor-Advised Funds. Minimum initial donations are typically in the $5,000 to $10,000 range.  Subsequent contributions can be much smaller. Donor-Advised Funds can accept any one of a variety of assets as a charitable contribution --  cash, wire transfers, stocks, mutual fund shares and bonds all are acceptable. 

When choosing a Donor-Advised Fund, you should carefully examine management fees, donation restrictions and investment choices.  A Certified Financial PlannerTM or CPA who is involved in the community can provide advice on the local needs of your community as well as a feature comparison of Donor-Advised Funds.

¹  http://cct.org/2018/02/giving-after-the-tax-cuts-jobs-act-a-charitable-conversation-guide/

² https://www.aefonline.org/blog/new-tax-law-bundling-gifts-donor-advised-funds

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Graduation Gifts for a Successful Future

It’s incredible how fast the year goes by; it’s already June.  Kids all over the country are graduating and starting new chapters in their lives.  Traditional gifts like an envelope of money or a Hawaiian lei are the norm, but it wouldn’t hurt to consider a few non-conventional gifts that might be equally as meaningful.    

In America, Land of the Free, higher education is anything but free.  In fact, the U.S. actually leads in having the highest average annual tuition fees, worldwide[i].  However, with education being the pathway to future career opportunities, many are willing to take on debt they would not normally consider.  Today, 70%[ii] of college graduates are leaving school with debt.  That means roughly one in four American adults are paying education loans, which amounts to approximately $1.5 trillion in student debt.  Studies have shown that young adults have delayed buying homes, starting families and other major life decisions until they are more financially stable, due in part to the burden of debt. 

With that in mind, it may not hurt to consider the traditional graduation gifts in combination with a few practical ones as well.  Here are a few ideas:

Gift Card to Purchase Books

Text books and course materials can be shockingly expensive.  For high school grads heading to college, a little help with books could go a long way.  Many colleges still sell books in the campus bookstores, but often schools also use the services of education material suppliers. These suppliers provide students print and digital content that can be ordered online and picked up at school or downloaded.  If you know where the student is going to college, you can buy a campus bookstore gift card.  Other textbook gift card options could include Amazon or Follett.  

A Professional Suit

Whether graduating from high school or college, having a quality suit in your closet is essential.   

I remember being invited to a networking event with possible future employers by the Dean of the accounting school.  As a Sophomore in college, my wardrobe consisted mostly of jeans and hooded sweatshirts.  In need of a presentable suit, I went to a local department store and came home with an economical suit, to which my roommate commented, “I’ve never seen a suit made from this material before.”  

Economical suits may work out in the short term, but an affordable quality suit might be an ideal gift that keeps on giving.  

Introduction to a Financial Planner

Schedule your graduate’s first meeting with a financial planner.  While they might not know what questions to ask now, the more powerful tool is that they’ll know who to ask when they have a question – in addition to their sounding boards: mom and dad.  A financial planner can give them advice on how to receive financial assistance for education expenses in the most tax efficient manner or how to effectively put savings away when they get their first real job.  Once employed, a financial planner can help customize an investment allocation for their work sponsored retirement plan and advise on a budget for paying down student loans.  The earlier people start saving for retirement, the more financially sound they’ll be the rest of their adult lives.  An introductory meeting with a financial planner can run in the range of $300-$500, which can be prohibitive for a young adult on a budget.  Some financial planners will offer a complimentary introductory meeting if they’re already working with members of the family.

Roth IRA

Roth IRAs are one of the most powerful ways for a young person to invest.  That is because young adults have the power of time on their side.  If you look at the history of the stock market, including the Great Depression or the more recent Great Recession, there is no 10-year investment window where you would have lost money if you stayed invested the whole time.  In other words, as long as you implemented a buy-and-hold strategy for an investment period of 10 years or longer utilizing a globally-diversified portfolio, you would not have lost money[iii], even if that 10-year window included a dramatic market decrease like the Great Recession.  The stock market is resilient.  Some of the best market surges in history were immediately following a dramatic stock market downturn.  If you are invested in a Roth IRA, not only will you benefit from market growth, all the gains in your investment account are tax-free.  There are many rules about investing in Roth IRAs such maximum annual contributions, participation limits based on your total income, etc.  Consult your Financial Planner or CPA if you feel the Roth IRA might be the right savings vehicle for your graduate. 

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For advice on any of the above strategies, gifting appreciated assets, or investing in preparation for college through the use of a College Savings 529, reach out to your Certified Financial Planner™ or CPA.

Congratulations to your graduate and best wishes to their future! 



[i] http://www.oecd.org/education/education-at-a-glance-19991487.htm

[ii] https://www.cnbc.com/2018/02/15/heres-how-much-the-average-student-loan-borrower-owes-when-they-graduate.html

[iii] https://loringward.com/blog/its-about-time/

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

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Stock Buybacks and the American Dream

President Trump, trumpeting the new tax law that took effect this year, promised that the massive corporate tax cut from 35% down to 21%, on top of the "tax holiday" on approximately $2.1 trillion of corporate profits held tax-free overseas would result in increased investment in factories, workers and wages, and would invigorate the American economy.

The numbers are now in -- only 4% of workers are getting salary increases or bonuses. 80% of the tax windfall is going toward stock buybacks, in which corporations use the cash on hand to buy back their own stock.¹ Because this removes stock from the open market, it creates a scarcity value and drives up the share price.

This is good for the senior executives of these corporations, who tend to be big owners of their companies' stock. It also benefits the 10% wealthiest Americans who own 84% of all stocks.² However, the bottom 40% of Americans (125 million people) own nearly nothing in stocks, and continue to balance the rent, the grocery bill, and the rising cost of gas and electricity.

Until the early 1980s, stock buybacks were considered illegal because they were an artificial way to manipulate share prices.³ They were an easy way to create phantom profits, compared to hiring workers, spending on research and development, and building new plants.

Corporations tend to put share value first, ahead of customers, employees, the community or public interest, but wield control over the American economy and politics. In order to understand how corporations got this powerful, we have to go back to the end of the Civil War. The 14th Amendment was passed to protect fundamental human rights. It granted emancipated slaves full citizenship, and protection of life, liberty, property, and due process of law. However, using lies and a twisted interpretation of the Amendment, railroad barons pushed Congress to grant corporations the status of "persons." Corporations used the shelter of the 14th Amendment to overturn economic regulations, child-labor laws, zoning laws, and fair wage laws. 

150 years later, "corporate personhood" has snowballed into an overturn of the democratic system. In the last 4 years, the Supreme Court dramatically expanded corporate rights, and in 2010 ruled that corporations have full rights to spend money as they wish in candidate elections -- federal, state and local. It unleased a flood of campaign cash and corporate influence over elections, the budget and public policy. Corporations play it both ways -- they reap the benefits of "personhood," but unlike real people they can keep and grow their assets in perpetuity, and are not subject to the laws of inheritance.

Much of what Americans perceive to be wrong with America has roots in this ideology -- rising income and asset inequality, swings from boom to bust, unemployment, crumbling infrastructure, and unaffordable education.

Corporate stock buybacks are just one manifestation of this ethic. When corporations' primary role is to boost short-term shareholder value at the expense of everything else, what's lost is a long-term investment in the future. To get the largest "return on investment," corporations want the biggest return from the smallest investment. Costly new factories are a no-no. Investing in education for the surrounding community is irrelevant. Hiring expensive workers who receive health and retirement benefits is counter-intuitive. Corporations as "job creators" is a myth -- creating shareholder value and creating good jobs is incompatible. Stock buybacks, though, are a no-brainer -- they create profits out of thin air.

What does this mean for the American Dream? Wages are stuck. College degrees are out of reach. Medical costs are skyrocketing. A recent study by a team of the nation's leading economists at Stanford, Harvard and the University of California Berkeley reported that for the first time, it's extremely unlikely that this generation of American children will earn more than their parents, after adjusting for inflation. Much of the anger fueling last year's presidential election stemmed directly from the concerns of Americans who feel they are losing ground economically. Corporations pumped over $2 billion into the 2017 elections⁵, and found scapegoats to target -- immigrants, people of color, unions, international trade agreements, and workers in other countries.

One positive aspect to the current administration is that many Americans have received an education about the political system. They didn't receive the tax cuts that they expected. Jobs that were promised did not materialize. The vulnerability of the electoral process to social manipulation became exposed. The swamp overflowed. The coming mid-term elections may be an opportunity for an energized electorate to take back the democratic system, and roll back a fake prosperity that only benefits a few at the top.

 

¹ Americans for Tax Fairness, 4/9/2018

² CNN Money, 2/16/2018

³ New York Times, 2/26/2018

⁴ Washington Post, 12/8/2016

⁵ Fortune, 3/8/2017

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

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Social Security Options Remain

In November 2015, President Obama signed into law the Bipartisan Budget Act of 2015.  One significant byproduct of the legislation is the elimination or curbing of two Social Security filing strategies that married couples may have been planning to use to optimize their lifetime Social Security benefits.  The two programs include the “File and Suspend” and “Restricted Application” for spousal benefits filings. 

Training about the new legislation was meager at its onset and just weeks before the new rules became effective, many Social Security benefits coordinators were still uninformed.  In January 2017, the Social Security manual was updated to guide benefits coordinators to better service the public and allow those born before 1954 to take advantage of the Restricted Application benefit that remains.[i] 

 

Expired Benefits

File and SuspendThis was when an individual, who was at least at Full Retirement Age (age 66 for most claimants), filed for his or her own retirement benefit and then immediately suspended receipt of those benefits with the Social Security office.  This allowed a spouse or dependent to collect benefit payments based upon the original filer’s record, without affecting their own benefits. 

Under the Bipartisan Budget Act, as of May 1, 2016, no future claimants were allowed to access this benefit.  Those already using the strategy were grandfathered under the old rules.
 

Limited Benefit Remaining

Restricted Application – When an individual is at least Full Retirement Age (FRA), has not filed for any previous benefits, and has a spouse who is collecting Social Security benefits, they may file a Restricted Application (RA) to receive ONLY the spousal benefit based upon the spouse’s record.  Collection of Social Security benefits under the Restricted Application does not affect the individuals’ own pool of benefits. 

This strategy allows a person to collect spousal benefits and concurrently delay their own future retirement benefit so it may grow 8% per year.  Upon reaching age 70, the Restricted Application filer would switch from the spousal benefit income to their own Social Security benefit. This strategy increases the filers benefit to be 32% greater than if they had simply collected their own benefit at age 66.  For example, say you were eligible to collect $1,360/mo. of benefits at age 66.  By employing the RA strategy and deferring collection to age 70, your monthly benefit would increase to $1,795/mo., or an additional $5,220/yr. of income.  For those dependent upon Social Security in retirement, the benefit increase can make a big difference. 

Restricted Application on Ex-Spouses – It may be possible to file a Restricted Application to claim Social Security benefits on an ex-spouse if you were married for 10 years or more and have not remarried.  Your ex-spouse does not have to file for their own Social Security benefits in order for you to file your Restricted Application, but they do have to qualify for Social Security benefits.  The maximum benefit you could receive on an ex-spouse is limited to 50% of their Social Security benefit at Full Retirement Age, regardless of when they actually claim their benefit.  Filing for RA benefit on an ex-spouse in no way affects their own pool of benefits.

 

Under the Bipartisan Budget Act, the Restricted Application filing is no longer available to anyone born Jan. 2, 1954, or later. However, it is still available for those born Jan. 1, 1954, or earlier who have not yet collected their Social Security benefits.  In the next two years, the last of those eligible for the Restricted Application benefit will reach Full Retirement Age and hopefully take advantage of this remaining benefit. 

Many who went to the Social Security office to claim on this benefit were initially, and incorrectly, told the Restricted Application benefit was eliminated when the File and Suspend benefit expired in May 2016.  That is not true. 

New literature and training has been conducted within the organization to help Social Security recipients claim benefits they rightfully deserve.  However, if after speaking with a Social Security representative, they give you an answer that is different than your understanding of your benefits, ask for a Tier 2 representative who might be better trained. 
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Determining when and how to claim Social Security benefits has always been a challenging task. A Financial Planner can help you determine how to best align yourself and take advantage of the benefits you’ve earned.  If you are age 66 now, or will turn 66 within the next couple of years, speak with your Certified Financial Planner™ or CPA about taking advantage of these claiming strategies before you lose the option to do so.

Source/Disclaimer:

Financial Ducks in a Row, “File & Suspend and Restricted Application are NOT Equal”

Market Watch, "Millions of Americans just lost a key Social Security strategy"

Market Watch, “New Social Security Rules Change Claiming Strategies”

U.S. News & World Report, "How the Budget Deal Changes Social Security"

Wall Street Journal “A Strategy to Maximize Social Security Benefits”

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.


[i] https://www.forbes.com/sites/kotlikoff/2017/05/29/ask-larry-%E2%80%8B%E2%80%8B%E2%80%8B%E2%80%8B%E2%80%8B%E2%80%8Bcan-i-still-file-a-restricted-application-for-spousal-benefits-only-at-fra/#4904207226bc

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The First Quarter & The Market Outlook

Is the bull market over? In the first quarter of this year, the U.S. investment markets have experienced the first correction (a decline of 10% or more) in three years. The VIX index (known as Wall Street's "fear index") had its biggest quarterly jump since 2011, rising 81%.

The downturn hit most parts of the market, both domestically and globally --

  • The Wilshire Total Market Index finished the quarter down 0.76%.¹
  • The Russell 1000 Large-Cap Index fell 0.69%.²
  • The Russell Midcap Index dropped 0.46%.²
  • The Wilshire U.S. Small-Cap Index lost 0.73%¹
  • The EAFE (Europe/Australasia/Far East) Index went down 2.37%.³
  • The Wilshire U.S. REIT (Real Estate Investment Trust) Index fell 7.42%¹

The reasons are varied. Some are due to Trump's self-inflicted wounds --

  • The White House is in chaos. Thirty-seven staff have been fired by President Trump, or have left on their own since the inauguration, eleven just since January.
  • Trump is at risk for impeachment for one or more violations -- collusion with Russia, obstruction of justice, and/or illegal campaign financing.
  • Trade tariffs on steel and aluminum and on Chinese products announced by Trump have created uncertainty. Even if these tariffs are quietly walked back and amount to little in the end, they have caused a temporary roiling of the markets.

Some of the volatility has resulted from a strong economy --

  • The unemployment rate is near record lows.
  • Salaries have risen 3%, and 18 states have increased their minimum wages.
  • Companies in the Standard and Poors 500 index of the largest U.S. firms are enjoying a 7.1% boost in earnings in the first quarter of this year, the quickest rise since 1996.⁴

Because of the robust economy, Jerome Powell, the chairman of the Federal Reserve Bank, has announced that he will likely increase interest rates at a faster pace than he did in 2017. This is a reasonable and prudent move. The Fed would like to see controlled growth, as opposed to runaway growth that could spark inflation. However, his announcement was one of the causes of the current volatility.

One of the keys to understanding the current market is not to panic, and to view current events from a long-term perspective --

  • The VIX "fear index" although higher than last year, is now near its historical average. In other words, the current volatility is "normal" compared to the steady, uninterrupted growth we had last year.
  • A big concern last year was that stocks were overvalued. That is, the Price Over Earnings (P/E) ratio was inflated at 18.6. That means that the price of one share of stock was 18.6 times projected annual earnings. After the correction in the last quarter, the P/E ratio is at a more reasonable 16.1. Because of this, we might be able to avoid a more severe bear market later on.⁵
  • Corporations profited from a huge tax cut, from 35% down to 21% in the new Tax Law. The benefits of the tax cut are going to be felt later in the year. Consequently, the strong earnings by corporations in the first quarter can only get better.

Most investors are trying to accomplish long-term goals, intending for the growth of their investments to fund college for their children, a home purchase, or retirement. Because of a better diet, more exercise, and improved medical care, many couples spend 25 to 30 years in retirement. Over a long period of time, the ups and downs of the market even themselves out, and the potential for a good return becomes more predictable.

The increased volatility in the first quarter is just a reminder that the market never goes up in straight line. The bull market that we had last year was only temporary. If we enter a bear market, when stocks go down, that will end too. In the context of long-term goals, the performance of the market during a quarter or even a year shouldn't scare you from sticking to your plans.

¹ Wilshire index data: http://www.wilshire.com/Indexes/calculator/

² Russell index data: http://www.ftse.com/products/indices/russell-us

³ International indices: https://www.msci.com/end-of-day-data-search

⁴ S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–

http://money.cnn.com/2018/04/01/investing/stocks-week-ahead-valuation/index.html

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Trade Tariffs and Your Investments

Earlier this month, President Trump roiled the stock market by announcing that he would impose a 25% trade tariff on steel imports coming into the U.S. from foreign countries, and a 10% tariff on aluminum imports. The Dow Jones Industrial Average stock market index immediately dropped 2%.

Then last week, Trump proclaimed additional tariffs on $60 billion of imported goods from China, sending the market tumbling further.

The worst-case scenario would have been a global trade war, in which countries engage in a tit-for-tat retaliation against each other. The European Union, for example, would impose tariffs on U.S. motorcycles, bourbon, peanut butter and orange juice.

Trump used national security as a justification for imposing these tariffs. He would have had difficulty getting approval from the World Trade Organization. Many of the countries he targeted, like Canada, Japan and the European Union, already have mutual defense treaties with the U.S. A tariff on aluminum would have no impact on national security. The manufacturing process for aluminum requires bauxite, and the last U.S. bauxite plant closed 30 years ago.¹

Even from the point of view of protecting jobs in the U.S., the tariffs make no sense. Steel tariffs, for example, might have benefited 140,000 American steel workers, but it would have endangered the jobs of 6 1/2 million workers in construction, auto manufacturing, oil and gas pipelines, beer cans, agriculture and food processing.²

Already, Trump has granted exemptions to the foreign metal tariffs to Canada, Mexico, the European Union, Australia, Argentina, Brazil and South Korea. These exempted countries account for more than half of the $29 billion in steel sold to the U.S. in 2017. He also left the door open to other allies, like Japan, that did not get an initial exemption. Instead of tariffs, Trump is now talking about quotas. Quotas, compared to tariffs, might be welcomed by foreign exporters, since they would benefit from higher prices. With tariffs, the U.S. government collects the higher duties.³

It may be that Trump had no intention of actually imposing broad tariffs, but wanted to use the threat of tariffs as a bargaining chip to wrest concessions from other countries. The U.S., Canada and Mexico are in the midst of renegotiating the North American Free Trade Agreement (NAFTA). South Korea is also renegotiating its own free-trade agreement with the U.S.

One of Trump's main beefs with China was its requirement for U.S. companies manufacturing or trading in China to have a Chinese corporate partner, who would own 51% of the joint venture, and would have access to the American company's trade secrets and intellectual property. Even before the tariffs were announced, the Chinese government had agreed to lift the majority stake rule for U.S. securities firms and insurance companies. After three years, all caps would be removed. It will be the largest liberalization of China's financial services industry in eleven years.⁴

Global currency markets are very sensitive to trade flow because currency pricing is dependent on the stability or disruption of trade. However, the South Korean won, the Taiwanese dollar and Singapore dollar are all trading near their strongest levels in three years. World trade overall is expanding at the fastest rate in six years. China has responded with their own tariffs against U.S. products, but in a very muted way -- $3 billion in tariffs against U.S. products, versus $60 billion in tariffs against Chinese products.⁵ 

Since the initial panic, investor sentiment has warmed, and the market has already made back half of its initial losses. It seems as though the President is pursuing his common pattern of tapping out a dramatic tweet, followed by quietly walking back from his initial pronouncements. In the end, the "tariff turmoil" may turn out to be much ado about nothing.

¹ Wall Street Journal 3/9/2018

² Marketwatch 3/5/2018

³ New York Times 3/22/2018

⁴ South China Morning Post 11/10/2017

⁵ www.bobveres.com 3/1/2018

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

 

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Medicare Under Attack

In our last article, we talked about a cynical aspect of the Social Security "Cost of Living Adjustment." The 2% increase is actually fully offset by a simultaneous increase in Medicare premiums. We have seen other "give with one hand, take with the other" strategies in the new tax law. For example, the increase in the Standard Deduction is cancelled out by the repeal of the Personal Exemption. 

However, these shell games pale in comparison to the overall impact of the new tax law. The main beneficiaries of the tax law are mega-corporations. Not only did they receive a "tax holiday" on $620 billion of tax-free profits sheltered overseas, but they were granted a massive tax cut from 35% down to 21%. Unfortunately, only 6% of this windfall has gone towards employee raises and bonuses.¹

Back in 2008, the government bailed out banks with taxpayer money during the recession. In a similar way, the new tax law gifts mega-corporations but leaves taxpayers to pay for the resulting $1.5 trillion federal budget deficit. Lawmakers have been somewhat vague about what they will do to reduce the federal debt, but deficits have consequences, and what they have already said is telling --

House Speaker Paul Ryan said, "We're going to get back to entitlement reform, which is how you tackle the debt and the deficit."²  Senator Marco Rubio (R-Fla), after voting to create the gigantic deficit, announced, "The driver of our debt is Social Security and Medicare."² It seems likely that Congress will use the pretext of higher deficits to attack Medicaid (Medi-Cal in California), Medicare, Social Security and anti-hunger programs.

Medicare began in 1965 when seniors were unable to go out and buy health insurance on their own. Insurance companies did not want to sell affordable policies to older people because they were more expensive to insure. We have now come full circle -- Republicans are proposing that seniors get a voucher in place of Medicare. The voucher would defray some of the cost of buying a health insurance plan, but once again, elderly Americans would be on their own to try to get coverage.³

Before he resigned last September, Secretary of Health and Human Services, Tom Price, wanted to replace the Federal Medical Assistance Percentage, which is the federal government's commitment to fund Medicaid. Instead, he proposed block grants given to states. Block grants are typically small and fixed, and shift the healthcare burden to states. In the event of an economic downturn or emergency health crisis, states would find it difficult to fund necessary services. Price is gone, but Congress continues to promote his policies.

The existing cost of Medicare is already a significant burden to many people. The National Committee to Preserve Social Security and Medicare reports that, "45% of retirees spend more than 1/3 of their Social Security benefits on health care, from co-pays, to premiums, deductibles, and out-of-pocket fees for services -- such as going to the eye doctor, dentist or audiologist -- that are not provided."³

Indicative of things to come, Trump signed into law a dismantling of Medicare's Independent Payment Advisory Board. This board was authorized to serve as a check to prevent higher Medicare premiums.

It's fairly certain that cuts to Medicare and Social Security will be the next target for Trump and the Republican leadership. It's only a question of when. It will be difficult for Republicans to press for these cutbacks ahead of the 2018 midterm elections. There is an anti-Trump wave building in many of the swing states and districts that Republicans want to hold onto, and there is a growing contingent of well-funded Democratic challengers, many of them women. Republicans recognize that Medicare is a very popular program to the very people that voted for Trump. After the midterm elections, however, GOP representatives won't have to worry about retribution from angry voters and can proceed with, "entitlement reform."

If the 2018 midterms result in a Democratic surge, the soon-to-be replaced Republican majorities may try to push through cuts to Medicare and Social Security during a lame duck session after the November elections, but before the next Congress is sworn in in January 2019. 

[1] http://money.cnn.com/2018/03/05/investing/stock-buybacks-inequality-tax-law/index.html

² https://www.washingtonpost.com/news/wonk/wp/2017/12/01/gop-eyes-post-tax-cut-changes-to-welfare-medicare-and-social-security/?utm_term=.754575565af9

³ http://www.truth-out.org/news/item/39715-you-re-on-your-own-republicans-plan-attack-on-medicaid-medicare-and-social-security

https://www.washingtonpost.com/news/monkey-cage/wp/2017/01/18/republicans-want-to-fund-medicaid-through-block-grants-thats-a-problem/?utm_term=.ca16b768bde8

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

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2018 SOCIAL SECURITY & MEDICARE: Give with one hand, take with the other

In October 2017, the Social Security Administration (SSA) announced that it would be increasing the social security benefit payments in 2018 by 2% for a Cost of Living Adjustment (COLA)[i].  In dollars, that means the average retirement benefit will increase by $27 to $1,404 per month and the average retired couple will receive a $46 raise to $2,340 per month[ii].  

Many retirees were thrilled at the news, as this was the most generous COLA increase in 6 years.  In 2010 and 2011, the COLA was 0%, making the average increase in the last 9 years a whopping average of 1.2% per year.  During the same period, however, the cost of food, energy, gas, entertainment, and medical coverage seemed to tick up faster.  In 2018, it is estimated that Medicare expenses will go up by 2.8%[iii] meaning that for a retiree, any increase in Social Security Income will be spent in full to try to cover increasing Medicare premium costs.  That just doesn’t make sense, now does it?

Medicare Premium Surcharges

Since 2006, Medicare Part B premiums, the medical insurance portion of your care (i.e.: for doctor’s visits) have been subject to a tiered premium schedule where higher earners pay higher premiums.  In 2018, the surcharge starts at an extra $53.50/month (on top of the baseline payment of $134/month) and can rise as high as an extra $294.60/month for those whose Modified Adjusted Gross Income (MAGI) exceeds $85,000 for individuals, or above $170,000 for married couples.[iv]  As a part of the Bipartisan Budget Act of 2018, in 2019, a 5th level will be added, bringing the premium surcharge to as high as 85%, or $321.40/month on top of the base of $134/month for a total monthly premium of $455.40/month.  

What does that mean for me?

For some unfortunate retirees, even if your income didn’t change much year over year, due to the new tax tables, your Medicare Part B premium might have.  This year’s premiums are based on last year’s taxes, but the new tables will take effect shortly, so it would be prudent to discuss what the future might hold when you sit down with your CPA to file your 2017 tax return.  

The consistently rapid and rising costs of medical care certainly exceed the average return on money market accounts at the bank, but also the COLA used for Social Security benefits and pension payments.  The average annual US inflation rate since 1914 has been approximately 3.24%[v], but the US Department of Labor tracks medical care costs to have increased at a higher rate of approximately 5% per year[vi] during roughly the same period.  This makes the case that in order to keep up with inflation, retirees need to find investments vehicles that allow them to protect their standard of living in retirement with returns that meet or exceed average inflation.  One of the safest ways to achieve this historically, has been a portfolio of diversified investments that captures both domestic and international equity market returns, but also offers protection from fixed income on the downside.  Your Certified Financial Planner™ can help construct a customized portfolio that suits your investment risk tolerance and retirement goals.

One of our clients said she was happy to hear that her Social Security Income was going to increase in 2018, only to find out her Medicare Premiums did too.  She estimates netting an $8 gain at year’s end.  Come to find out, she might have been one of the lucky ones!

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.



[i] https://www.ssa.gov/news/cola/

[ii] http://www.investmentnews.com/gallery/20180102/FREE/102009999/PH/2018-social-security-and-medicare-changes&Params=Itemnr=2

[iii] https://www.kiplinger.com/article/business/T019-C000-S010-inflation-rate-forecast.html

[iv] https://www.kitces.com/blog/bipartisan-budget-act-2018-irmaa-medicare-premium-surcharges-tuition-and-fees-deduction/

[v] http://www.usinflationcalculator.com/inflation/historical-inflation-rates/

[vi] https://data.bls.gov/pdq/SurveyOutputServlet

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Don't Forget About Inflation Risk

At a time when we're experiencing renewed volatility in the stock market, it's easy to be influenced by fear. When you turn on the news, the media tends to focus on just one risk -- stock market risk. They rarely mention a risk that may be even greater -- inflation risk.

The annual rate of inflation averages out historically to 4 – 4 ½% per year. It doesn't sound like much. However, over the course of 25 to 30 years of retirement, it can become a big deal. When the market is in the midst of a correction, it's tempting to move retirement assets to the low, but guaranteed, interest offered by banks, or the somewhat higher income presented by fixed annuities.

Returns from the stock market are not guaranteed. That's why your investment prospectus tells you, "Past performance is no guarantee of future results." However, it is this risk that forces the stock market to give the potential to receive much higher returns than guaranteed, fixed investments. When there is a growing gap between rich and poor, and the middle class is paying for big tax breaks to corporations, the stock market may be one of the few ways for average people to participate in the growth of the economy.

In order to not lose ground financially, we have to find ways for our assets to grow at least as fast as inflation. To give you an idea of the impact of inflation over a long period of time (like your retirement), check out this free, online calculator at:

            https://www.calcxml.com/do/ret05

Input your current age, the income that you are receiving, and the year in which you think you might pass away. Don't be too conservative about your life expectancy. A study by the Society of Actuaries Committee on Post-Retirement Needs and Risks stated that, "For a couple 65 years old, there’s a 25% chance that the surviving spouse lives to 98!"¹ The calculator will tell you what your income will need to be at some point in the future in order to maintain your purchasing power, and maintain your current lifestyle.

For example, suppose that you are age 65 today, and you are receiving an income of $100,000 per year from an annuity, and that income stays the same over your lifetime. How much of your future lifestyle will that annuity sustain by the time you're 90? The calculator shows that when you assume an inflation rate of 3% per year, you would need $209,378 at age 90 to enjoy the same lifestyle you enjoy today. In other words, the annuity would provide less than half of what you need at age 90.

Remember that I said that average inflation is closer to 4 to 4 ½% per year. If we use a 4% inflation rate, the future income needed to match today's $100,000 rises to $266,584.

I'm not saying that all annuities are bad. There are good annuities and bad annuities (we'll get into that at another time).  A good annuity is appropriate in the right circumstances as part of an overall retirement strategy, especially for people who aren't so fortunate to retire with a pension. However, when you see the results of your own calculation, you can understand why it makes sense for many retirees to assume a moderate amount of risk in a broad, globally-diversified portfolio.

Investments that grow over time may make it possible for you to afford a comfortable future retirement. The safety of bank CDs and guaranteed fixed income from annuities can have a place in your retirement strategy, but if they are the only assets you have, you may be swapping a guarantee not to lose money for a guarantee that you will run out of money in retirement.

¹ USA Today, 10/5/2016

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Happy Birthday Roth IRAs

2018 marks the 21st birthday for the Roth IRA retirement account – officially marking it a young adult, ready to go out and conquer the world!  The Roth IRA was originally passed in the Taxpayer Relief Act of 1997 and named after then Senator William Roth of Delaware[i].  Today, Roth IRA investments account for approximately $660 billion, or just 8.4% of the total IRA investments on record[ii].  Many wonder why the Roth IRA, with all its tax benefits, has not been more popular among investors.

What is a Roth IRA?

A Roth IRA is a type of retirement account for individuals.  Most are familiar with the traditional IRA in which the original contributions are generally tax deductible and the account benefits from tax-deferred growth until withdrawals are taken.  A Roth IRA operates opposite, but with the same end-goal of saving for retirement.  Roth IRA contributions are not tax deductible in the year made.  However, the after-tax dollars contributed to the Roth IRA benefit from tax-free growth, meaning both the original proceeds contributed plus all the accumulated growth during the years of investment can be withdrawn tax-free in retirement.  Depending on the life and gain on the investment, this tax-free benefit could be huge.

Who should open a Roth IRA?

Although each scenario should be independently analyzed, typically Roth IRAs are beneficial investments for:

1.      Young Investors – Youth is an advantage in this scenario because a 40-year-old investor could have 25+ working years and annual contribution opportunities during which their investment may grow.  Approximately 31% of current Roth IRA owners are under age 40[iii].

2.      Households Subject to a High-Income in Retirement – Although the future tax code is undeterminable, if a household expects a combination of retirement income (i.e.: pension income, social security income, dividends and interest, Required Minimum Distribution proceeds) that is equivalent to or greater than their working income, utilization of a Roth IRA may be a desirable strategy to control taxable income in retirement.  That is because Roth IRA withdrawals are generally tax-free, meaning you can take as much as you need, whenever you need, without worrying about taxation.  Unbeknownst to many, high income in retirement can result in a great deal of complexities such as increased taxes on Social Security benefits, higher Medicare premiums, a higher overall tax bracket and IRS required quarterly estimated tax payments. 

3.      Estate Planning – Roth IRAs are excellent estate planning tools.  Roth IRAs are not subject to Required Minimum Distributions, and therefore, can be left alone to grow tax-free.  Then, they can be passed tax-free to children or grandchildren through an Inherited Roth IRA account, extending the tax-free growth for another generation.

Additional Roth IRA Benefits[iv]

  • No Age Limit – After age 70½, the IRS does not allow individuals to contribute to their IRAs.  However, Roth IRAs are not subject to the age rule and contributions can continue as long as the person has eligible working income
  • Roth’s Utilized Alongside Work Sponsored Plans – An investor can participate in their company’s work sponsored plan, such as a 401K, and still contribute to a Roth IRA concurrently.
  • Easy Withdrawals – Generally speaking, as long as the Roth contribution has been invested for 5 years+, the account holder can withdraw gains from the account tax-free and penalty free. The basis, or original investment amount, is not subject to the 5-year rule, and may be withdrawn at any time.  

Roth IRA Contributions and Conversions

Annually, an investor can contribute a maximum of $5,500 per year to a Roth IRA, plus another $1,000 per year catch-up contribution after turning age 50.  Between January 1, 2018 and April 15, 2018, you may be able to make Roth IRA contributions for both 2017 and 2018. If you are getting your taxes prepared, ask your CPA.  

Keep in mind that Roth IRA contributions and conversions are different animals.  A Roth IRA conversion is the transfer of money from a pre-tax IRA account, to an after-tax Roth IRA account.  As the titles might suggest, the conversion is a taxable event and the transfer amount is considered earned income by the IRS.  Therefore, before making the conversion, check with your CPA how much a conversion of say $5,000, $10,000 or $15,000 might create in tax liability and only transfer what you are comfortable with.  Unlike Roth IRA contributions, conversions need to be completed before December 31st to count for that taxable year.

Due to the low Roth IRA annual contribution limits and phase out limits (if your Adjusted Gross Income is too high), many people are not able to make substantial investments directly into the Roth IRA.  Therefore, to take advantage of the Roth IRA tax benefits, investors may want to consider a Roth IRA conversion.  Consult with your CPA, attorney or Financial Advisor to ensure you are taking full advantage of opportunities.  

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.


[i] https://en.wikipedia.org/wiki/Roth_IRA

[ii] https://www.ici.org/pdf/ten_facts_roth_iras.pdf

[iii] https://www.ici.org/pdf/ten_facts_roth_iras.pdf

[iv] Financial Planning: Why aren’t more clients using Roth IRAs?

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The Past, the Present, and Your Long-Term Goals

The past year, 2017, was by any measure, an amazing year. The U.S. and international markets ignored North Korean missile threats, Presidential fire and fury, hurricane devastation, a ballooning national deficit, and yet produced the following broad market gains:

* The Wilshire 5000 Total Market Index -- the broadest measure of U.S. stocks -- finished the year up 20.99%.¹

* The Standard and Poors 500 Index of large company stocks returned 19.42% by the end of 2017.²

* The Russell Midcap Index finished 2017 up 18.52%.³

* The Russell 2000 Small-Cap Index gained 14.65% for the year.³

* The technology-based Nasdaq Composite Index rose 28.24% for the year.⁴

* In international stocks, the broad-based EAFE Index of developed foreign economies ended the year up 21.78%.⁵

* Emerging market stocks of less developed foreign countries, represented by the EAFE EM Index, posted a 34.35% gain for the year.⁵

* In the bond market, the coupon rate on 10-year U.S. Treasury bonds rose 2.41%.⁶

* Thirty-year municipal bonds yielded 2.62%.⁷

Last year's market performance caps a span of time from 2009 up to the present in which there have been no significant downturns, and returns have been generally upward. The questions on many people's minds are "How long can this last?" and "When should I get out?" Many investors who tried to time the market concluded over a year ago that the party was over, and cashed out their holdings. Then, they watched on the sidelines as the Dow Jones Industrial Average captured record high after record high. It's a demonstration of how difficult it is to predict market performance. 

Timing the market is made even more difficult by the fact that you have to be right twice -- when to get out, and when to get back in. The result for most people is missing out on periods of exceptional returns, taking a hit to the value of their portfolios, and suffering a setback on achieving their most important life goals.

The penalty for mistiming the market is high. For example, investors who stayed in large cap stocks for all 5,218 trading days between the beginning of 1997 and the end of 2016, achieved a compound annual return of 7.7%. If they missed only the 10 best days of stock returns in 19 years, they would have received only 4.0%. If they missed the 50 best days, they would have lost 4.2% per year.⁸

Trying to avoid bear markets (markets when stock values go down) is not that productive for long-term investors because bear markets tend to be short, and eventually come to an end. Bear markets have lasted on average less than two years since 1970. As long as you didn't panic, even the terrible Great Recession of 2008 and 2009 was not a disaster. You would have recovered in four years.⁹ By comparison, many people spend 25 to 30 years in retirement.

A broad, globally-diversified portfolio that balances all the asset classes is effective at tempering market fluctuations, and is well-suited to achieving long-term goals. Rather than stewing over when to get out of the market, your time and energy may be better spent maintaining a long-term outlook for your investment strategies, and working with your advisor to develop a comprehensive financial plan that is aligned with your life goals.

¹ www.wilshire.com/Indexes/calculator/

² www.standardandpoors.com/indices/sp-500/en/us

³ www.ftse.com/products/indices/russell-us

⁴ www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx

⁵ www.msci.com/end-of-day-data-search

⁶ www.bloomberg.com/markets/rates-bonds/government-bonds/us/

⁷ www.bloomberg.com/markets/rates-bonds/corporate-bonds/

⁸ Loring Ward, 360 Insights, winter 2018

⁹ Associated Press, March 5, 2013

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

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Tax Reform Highlights

On December 22, President Trump signed into law H.R.1, the Tax Cuts and Jobs Act.  People are calling the new law the most significant tax reform in 31 years since the Tax Reform Act of 1976 passed by President Gerald Ford.  The difficulty is the original law was passed in the House with tweaks, then passed in the Senate, with more tweaks.  Then the House and Senate versions of the law needed to be reconciled into H.R.1, which also underwent eleventh hour changes before its final presentation on the 22nd, just in time for Christmas.  Not surprisingly, many have not had the chance to read the full 500-odd page brand new law and so the details are sparse and whatever we thought we did know might not have made it into the final version of the passed law.  Here are some highlights of what we do know:

How will tax reform impact individual taxpayers?[i]

The impact of the bill from 2018 through 2025 on individual taxpayers include: 

1.      The top individual tax rate is reduced from 39.6% to 37%;

2.      In 2017, the standard deduction for a single taxpayer was $6,350, plus one personal exemption of $4,050.  Under the new tax code, those deductions are combined into one larger standard deduction for 2018: $12,200 for single filers and $24,400 for joint filers[ii];

3.      Personal exemptions are no longer deductible;

4.      The individual Alternative Minimum Tax (AMT), which is meant to prevent high income earners from paying too little in taxes, has now been eased with a higher exemption amount and increased phase-out levels;

5.      The mortgage interest deduction limit is reduced to $750,000 on new mortgages (previously, no limit) and home equity loan interest (HELOC) is no longer deductible;

6.      Individuals are capped at deducting up to $10,000 in total state and local taxes, which include income or sales tax plus property taxes (previously, no limit);

7.      The child tax credit is increased from $1,000 to $2,000; 

8.      Medical expenses in excess of 7.5% of Adjusted Gross Income (AGI) are deductible in 2017 and 2018, and then in excess of 10% of AGI thereafter;

9.      Moving expenses are no longer deductible;

10.  Alimony payments are no longer taxable or deductible starting in 2019;

11.  Miscellaneous itemized deductions are no longer allowed;

Did Estate Taxes Go Away?

Eliminating the estate tax was high up on the Republican tax agenda and was part of the original Republican Blueprint and the House version of the Tax Reform presented back in November.  However, the final version of the Tax Cuts and Jobs Act does not eliminate the estate tax.  Rather, the tax exemption amount is doubled from $5.6 million to $11.2 million per person for 2018 through 2025.  In other words, a married couple can pass up to $22.4 million of assets to their children upon their death, estate tax free.  

How Does the Tax Reform Affect Small Businesses?

Small Businesses were one of the major parties affected by the Tax Reform.  Changes to the individual taxes are temporary and expire after 2025, but the tax code changes to businesses are permanent.  

Pass-through entities are companies such as S-Corporations or LLCs where the profits of the business flow through to the owner’s personal tax return.  These entities are taxed at the owners’ individual tax rate, which was as high as 39.6% before the Tax Reform.  Under the new legislation, pass-through entities could receive a deduction to their Qualified Business Income (QBI) as high as 20%, subject to limits, restrictions and phase-out[iii].  

C-Corporations are entities with their own tax rate and tax filing.  Shareholders pay taxes at their individual tax rates for dividends or distributions from the company, which created the double taxation adage.  Under the new Tax Reform, Corporations will have a flat tax rate of 21%.  Prior Corporations were subject to a tiered tax table that ranged from 15% to 35%[iv].

Long story short, while the Tax Cuts and Jobs Act was meant to simplify tax filings and remove loopholes, filing taxes for businesses just got more complicated.  If you think you may be affected, reach out to your CPA or attorney to get ask for their advice as to how you can benefit from the new tax code.  

How will this affect me?

For high tax states like California, the cap on your ability to deduct state and local taxes and property tax could reduce your eligible itemized deductions and therefore increase your taxes.  You should consult your CPA to determine if you are affected.  

The National Association of Realtors argues, anytime you make home ownership less appealing, home owners suffer through reduced or stagnant home values.  The new Tax Act puts a cap on the amount of mortgage interest that can be deducted in your tax return and no longer allows home equity loan interest to be deducted.  Only time will tell how much these changes truly affect the personal real estate market.  

Other analysts have said the newly passed tax reform will greatly benefit corporations and stock holders which in turn benefits the stock market and ultimately mass America – Trickle Down economics theory.  Since the passage of the Tax Reform act in the House, we have seen the stock market react positively to the reduced taxation and therefore higher corporate profitability anticipated in the years to come.  

Our hope is that the truly neediest Americans are able to benefit from Corporate Tax cuts.  The changes discussed will affect your 2018 tax year which you will file in 2019.  However, businesses considering a corporate structure change need to act by March 15th to have that change apply for the 2018 tax year.  Consult with your CPA, attorney or Financial Advisor to ensure you are taking full advantage of opportunities.  

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.



[i]https://www.aicpa.org/taxreform?utm_source=Tax_SpecialAlert_A17DC902&utm_medium=email&utm_content=tax13&utm_campaign=TaxDec17&tab-1=2

[ii] http://www.businessinsider.com/tax-brackets-2018-trump-tax-plan-chart-house-senate-comparison-2017-11

[iii] https://www.forbes.com/sites/kellyphillipserb/2017/12/22/what-tax-reform-means-for-small-businesses-pass-through-entities/#5a83e26f6de3

[iv] https://www.fool.com/taxes/2018/01/03/heres-who-got-the-biggest-tax-rate-break-from-corp.aspx

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Balance

Balance is important in your portfolio, just like balance between work and play, office and family are important to your life and personal well-being.

Because we use a strategy for our clients based on broad, global diversification, regular rebalancing is especially important. Our portfolios typically contain many different "asset classes" --  U.S. large, medium, and small companies, international large, medium and small companies, emerging market holdings (such as China and India), real estate and bonds. There are often more than 6,000 different companies represented in a broadly, globally diversified investment. Diversification spreads your risk, and is just the opposite of "putting all your eggs in one basket." It tends to give you more consistent performance and good downside protection.

As you might expect, all these different asset classes don't all go up together -- they take turns, and each asset class usually has its day in the sun at different times. In a diversified strategy, rebalancing helps you to take advantage of the individual performance of each asset class.

You probably know that your investment portfolio is being rebalanced on a regular basis, but you might not know why.  Is it for higher returns?  For maintaining the agreed-upon balance of investments that is in your risk tolerance comfort zone?  Does rebalancing help manage portfolio risk?

The answer to the above is “yes,” “yes,” and “yes,” but with a qualification.  Rebalancing an investment portfolio is most importantly a form of discipline, a way to reduce the impact of those dangerous emotions of greed and panic in the investment process.

During a bull market, stock prices rise faster than bond values, causing them to make up a larger percentage of the portfolio than you signed on for.  Similarly, in a bear market, stocks will fall, while bonds often rise, causing your portfolio to become more conservative.  Real estate investments and commodities often rise or fall at different times than stocks or bonds, pulling your overall percentage allocations away from the target mix.

When you rebalance, you’re selling some assets that rose in price and buying the ones that went down. For us, if an asset class rises in value more than 2 to 5% in a 3-month period, depending on the asset class, we will usually sell some if it while it's up high, locking in some of the gains. Then, we use the proceeds from the sale to buy some of another asset class that looks like a bargain at the time. This discipline results, over time, in consistently buying low and selling high.

 

THREE WAYS TO REBALANCE  

1) The easiest is to use whatever new money is coming into the portfolio, monthly or quarterly, to buy the assets that have gone down, allowing you to make consistent adjustments that keep the portfolio at its recommended allocations.

2) Another possibility is to rebalance at certain times of the year—every three, six or twelve months.

3) Or you could follow a more sophisticated process, and rebalance whenever assets deviate by more than certain set percentages from the baseline asset allocation.

Using a simple mix of 60% stocks and 40% bonds shows that rebalancing using the percentage deviation method tends to lead to higher overall returns from the beginning of 2000 to January 2016.¹  Wider bands sometimes produce higher returns (and fewer rebalances), although of course there is no guarantee that this would be the case in the future.

Perhaps most importantly, rebalancing brings you back, over and over again, to the allocation that you established when you started your investment. If you are working with a Certified Financial Planner™ or CPA, this allocation was designed to give you the long-term returns that would best accomplish your most important goals in your comprehensive financial plan. 

When it comes to making decisions in a time of crisis, having a rebalancing policy in place ensures that buys and sells will be made with discipline, rather than emotion.

¹ 5/22/2017 Seeking Alpha

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

 

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BITCOIN 101

It’s hard to turn on your TV or read the paper without some hype about becoming a millionaire off of Bitcoin investments.  Usually it ends with a scare tactic, call-to-action like, “If you don’t act now, you’ll be left behind!”  For many, the next couple of questions are, “What is Bitcoin?” and “How safe is it?”

Bitcoin is a “new” type of cryptocurrency - or more simply put, a form of digital money.  In 2009, Bitcoin was created by Satoshi Nakamoto as the first decentralized cryptocurrency.  All forms of prior digital currency were centralized, through an authority or middle man such as a banking institution.  Bitcoin’s decentralized model uses miners or record-keepers who transfer coin and record transactions in a public distribution ledger.

How Bitcoin works

Currency exchanges exist online, all over the world, where Bitcoin can be purchased in one’s native currency.  Your Bitcoin balance is digital and accessible online through any technology such as your home computer or phone.  Theoretically, you can use your Bitcoin to purchase anything, like you would with regular cash, but your Bitcoin is not subject to cash limitations such as dollar limit of purchase, currency exchange, international borders, transfer limits and fees, etc. It is touted by Bitcoin users that more everyday vendors such as restaurants and movie theatres are accepting Bitcoin payment around the world.   

Bitcoin in a nutshell

Bitcoin Advantages:

-          Payment is transferred person to person online, rather than through an institution, such as a bank.  The peer-to-peer structure theoretically removes fees that a bank would charge for facilitating the transfer, currency exchange, etc.

-          No pre-requisites or limits

-          Your account cannot be frozen

-          The upside potential for growth and acceptance of Bitcoin could yield a hefty return for the initial investors.

Bitcoin Disadvantages:

-          There is currently little to no regulatory oversight over the cryptocurrency industry, nor protections in place for the investors

-          The primary current uses of Bitcoin are rumored to relate to illegal drugs and illicit weaponry

-          The value of Bitcoin is arbitrary in an unregulated market.  Therefore, the risk of a bubble or sudden drop in value is high.

Bitcoin bubble?

Bitcoin excitement circulates around the unknown potential of the new currency.  Some Initial Coin Offerings (ICOs) have even hired celebrities like Floyd Mayweather and Paris Hilton to promote their projects and endorse virtual money – a move highly criticized by the Securities & Exchange Commission[i].  

Perhaps unfair, but some have compared the Bitcoin buzz to the likes of the Dutch Tulip Mania of the 17th Century or the Dotcom Bubble of 2000.  Bitcoin (BTC-USD) is trading near 12,700, up approximately 1,300% in 2017[ii], compared to the Dow Jones Industrial which was up a stingy 21%[iii] during the same period.  In 1999, tech stocks with negative earnings were going up in value, on what was coined as “the new norm” because net earnings were deemed less relevant than internet traffic and future potential.  The normal rules about prudent investing were thrown out the window.  In hindsight, the tech phase was not different, but a bubble that burst.  The Bitcoin craze is showing signs of the same rapid growth, but with no regulation at all.    

The consensus of many investment professionals is that buying Bitcoin now would be late in the game (buying high), and the highly speculative investment could end in financial hardship to the average person.  

Digital currency is still in its infancy.  The idea of a currency medium that transcends international boundaries and is tracked and exchanged online is transformative.  However, it is too early to know who the winners and losers will be in the cryptocurrency horse race.  Going back to the Dotcom timeframe, many of our current household names like Facebook and Twitter, didn’t even exist until after the crash.  However, they were birthed from the innovative foundations (and subsequent deaths) of trailblazers like Classmates.com, Friendster and MySpace.

Before you make a large financial decision about a speculative investment, consult your Financial Advisor to ensure you are investing in a manner that matches your risk tolerance and not compromising your overall retirement planning.  When you have a network of professionals working together to provide you sound recommendations, you are more likely to create a plan that provides you and your family peace of mind.  

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.


[i] https://www.nytimes.com/2017/11/01/business/sec-warns-celebrities-endorsing-virtual-money.html

[ii] https://finance.yahoo.com/chart/BTC-USD

[iii] https://finance.yahoo.com/quote/%5EDJI?p=^DJI

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Easy Estate Planning Tips

In the juggle of daily life, many have a running list of To-Do’s that they steadily chip away at.  Some agenda items take priority, like grocery shopping or paying the bills, and inadvertently, some are pushed to the bottom of the totem pole to achieve “tomorrow.”  Unfortunately, estate planning is often in the latter category due to what we perceive as too complex or not urgent.  However, these are simple tips that can make estate planning effective and ensure that your kids, not the IRS are your biggest beneficiary after you pass away.    

Review your living will and trust regularly

Time flies by in the blink of an eye.  We recommend that you meet with your attorney at least every 5 years (max 10) to ensure that your trustees, executors, guardians, beneficiaries, and healthcare agents are all up-to-date.  Equally as important, you should ensure that your trust takes advantage of the most recent tax rules, which seem to be changing rapidly these days.  In the year 2000, the estate tax exclusion was $675,000[i].  Today, the estate tax exclusion is $5.49M[ii] per person, and under the Trump Tax Proposal, the gift tax exclusion may double to nearly $11M[iii] per person or nearly $22M per couple.  Meeting with your attorney regularly will ensure that your trust is taking advantage of the current tax code and structured to pass assets to your beneficiaries in the most efficient manner.  

A revocable trust provides privacy over a will

Sometimes people feel that their finances are too simple to require a trust and their wishes can be captured in a will alone.  What many don’t realize is a will does not protect your privacy.  When you pass away, your estate transfer is a public record that anybody can have access to.  That can lead creditors to tie up your estate in probate if they claim rights to your assets.  On the other hand, a revocable trust will provide you privacy and pass assets to your heirs upon your passing, escaping probate. 

Fund your trust

Often people go through all the steps to create a thorough and well thought-out trust but then fail to actually retitle assets into the trust name.  Consult with your attorney regarding which assets should be transferred into the trust title for protection if you pass away.

Provide titling consistency

Review the beneficiary designations on accounts such as retirement accounts, life insurance policies and annuities.  Your beneficiary designation will take precedence over your will or trust if there is a discrepancy.  For example, if the beneficiary of your life insurance policy is your ex-spouse, proceeds will go to that person, no matter what the will or trust dictates.  

Pre-tax or qualified assets such as IRAs typically have individuals listed as beneficiaries instead of your trust.  That is because IRA assets afford better tax benefits to the beneficiaries if they are inherited directly, rather than being inherited through the trust.  For example, if a parent lists a child as the primary beneficiary of their IRA, when he/she passes away, the child can receive the money in an Inherited IRA and continue to benefit from the same tax deferral treatment.  If the trust is the primary beneficiary instead, the IRS can take income taxes from the account which has grown tax deferred all these years and only the net proceeds may be disseminated per the trust language.  

Utilize the annual gift tax exemption

Under the current tax code, you can gift up to $14,000 per year, per person, gift-tax free.  For a couple, that means you could gift a total of $28,000 to each person annually without triggering gift taxes.  For a family of four, that could amount to a total gift of $112,000, tax free, every year!  This annual gifting strategy does not tap into your lifetime gift tax exemption (currently $5.49M per person).  

Future tax law changes

Tax laws are currently in limbo and could change within the next year.  However, delaying your estate planning for future tax changes could leave you or your loved ones in financial disarray if no planning is completed and something unexpected happens.  Even if the estate tax exemption is repealed in full, there’s no telling if the next administration will put estate taxes back in effect.  When drafting a living will and trust, you can draft a durable power of attorney over health and finances to designate someone to act on your behalf if you become incapacitated.  In addition to wills and trusts, there are many estate planning tools available that provide protection of assets against lawsuits and claims.  

What’s next?

If you don’t have a will and trust in place, ask an attorney if creating one would be appropriate for you.  If you have a will or trust already, look at the last time it was updated and make an appointment with your estate planning attorney if it’s time to revisit the good planning you’ve already done.  Often, you can update your trust with an amendment rather than recreating the entire trust from scratch.  

Once the new tax laws are finalized, consult with your attorney, CPA and Financial Advisor to ensure you are taking full advantage of opportunities available.  When you have a network of professionals working together to provide you sound recommendations, you will create an estate plan that provides you and your family peace of mind. 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.



[i] https://www.thebalance.com/exemption-from-federal-estate-taxes-3505630

[ii] https://www.thebalance.com/exemption-from-federal-estate-taxes-3505630

[iii] https://www.cnbc.com/2017/11/03/the-good-the-bad-and-the-money-what-the-gop-tax-plan-means-for-you.html

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Giving Thanks

How did we get to the end of the year so quickly? Now that they start playing Christmas music after Halloween, the years seem to fly by more quickly than ever.

This has been an eventful year for the market, which has built on gains that have totaled 359%¹  since the beginning of the rally in March 2009. Our clients have been happy with the performance, but also a little nervous. They are aware that every eight to ten years on average, the U.S. market goes through a correction or downturn in the market. It's actually healthy for the market to find its correct price, cool down, and eventually go on to hit new highs.

We believe the expected correction will be a relatively mild one, because the underlying U.S. economy is very strong, much stronger than most global economies. On that basis, many economists feel that the market should do well for at least the next couple of years, even if we have a correction.

Investors who have a broad, globally-diversified portfolio should do well. Diversification means spreading your risk as widely as possible, just the opposite of putting all your eggs in one basket. This approach helps alleviate a correction because different assets behave differently, often just the opposite of one another. When the U.S. market goes through a rough patch, the international market tends to do quite well, and pick up the slack. It's fortuitous that currently, the international market is already doing very well, hitting record highs.

Thanksgiving is also the time of year that we send out Required Minimum Distributions on retirement accounts (like an IRA, 401k, 403b, etc.) for our clients who are age 70 ½ or older. This is mandatory, and the penalties for non-compliance are harsh -- if you don't take your RMD like you're supposed to, the IRS can penalize you 50% on what you should have taken out. If your financial advisor is on top of things, he or she should have already calculated your RMD for this year, and let you know that it will be sent to you before the end of the year. If you haven't already received this notice, you may want to be proactive and make sure that your RMD is in the works.

Your Required Minimum Distribution is re-calculated every year. Your financial advisor will take the value of your retirement account on December 31, 2016, and divide it by a factor based on your age. At age 70 ½, your RMD is about 4%. The percentage gradually increases as you get older. Many people think that the value of their retirement account will decrease once they start taking RMDs, but this doesn't have to be the case. It's not unreasonable for a retirement account to grow 7% per year or more on the average in a highly-diversified strategy. Even if you have to take a 4% RMD, your account can still grow. This can give you the peace of mind that you're not going to run out of money in retirement.

The end of the year is a good time to harvest losses in your investment. Tax loss harvesting is the practice of selling a security that has experienced a loss. You are able to offset taxes on both gains and income. If you have a passive gain (e.g., from selling an investment or real estate), you can wipe out or reduce the taxes by harvesting a similar loss. If you have no passive gains, you can reduce up to $3,000 per year of ordinary income with a long-term passive loss.

If you have carry-over passive losses from previous years, you can take advantage of those losses by selling some investments at a gain. Your Certified Financial Planner™ and CPA can collaborate to match gains and losses. This way, you can sell some investments on which you would normally pay capital gains taxes, and pay no taxes at all!

Finally, this is a good time of year to consider supporting your favorite community organization, church or temple with a charitable contribution. If you donate appreciated investments, you can escape paying capital gains taxes, and the charitable organization (because it pays no income or capital gains taxes) will receive the full amount. It's a win-win. 

If you haven't decided which organizations you want to benefit, but want to take the tax deduction this year, think about opening a Donor Advised Fund. You'll be able to take an immediate tax deduction, and decide later on who you want to gift to. Because you can keep the money invested and growing in a Donor Advised Fund, it's the type of gift that can keep on giving.

You can donate your Required Minimum Distribution as well. One of the most effective ways to do this is through a Qualified Charitable Distribution. The QCD is written directly from the investment to the organization. This way, your Required Minimum Distribution bypasses the calculation for Adjusted Gross Income, and helps to keep down the taxation of your Social Security benefits, and your Medicare premium.

Consult with your Certified Financial Planner™ or CPA to determine what type of contribution would benefit you the most.

We hope you have a happy and healthy holiday season!

¹ WSJ 11/18/2017, based on the performance of the Standard & Poors 500 index

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

 

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Behavioral Finance Takes Nobel Prize for Economics

This month, University of Chicago economist Richard Thaler was awarded the 2017 Nobel Prize in Economics by the Royal Swedish Academy of Sciences. This was a controversial decision, for a number of reasons. 

Thaler is a proponent of behavioral finance, which is the study of economics and finance from a psychological perspective. Up until recently, mainstream economic theory was based on the assumption that people behave rationally. Professor Thaler's theories, on the other hand, pioneered the view that people, especially when it comes to personal finance, often behave in ways that contradict traditional economic rules and reason. 

The traditional economic approach was to view human financial choices like particles in physics. The outcome could be predicted by a few established rules. All of us—and especially professional financial planners—know that these assumptions are far from what we have observed in the real world. After receiving the award, Professor Thaler commented, "In order to do good economics, you have to keep in mind that people are human." 

Thaler spent his entire career exploring the differences between these unrealistically idealized economic assumptions and actual human behavior.  He demonstrated that people take mental short-cuts—called “heuristics”—when they make what they believe to be logical decisions.  He showed that in the real world, human decisions are often impulsive, and self-control is more often an aspiration than a reality. Although investment selection and globally-diversified asset allocation are important investing tools, it is often behavior that ultimately determines whether a portfolio will help an investor achieve fulfillment and satisfaction in life.

Thaler also developed a theory of “mental accounting,” which explained how people make financial decisions by creating separate accounts in their minds—one for college funding, say, and another for retirement, and still another for vacations or a new car.  He explored those mental short-cuts and found that people tend to expect more in the future of what they’ve recently experienced (short-term bias), and often believe they have more knowledge about their decisions than they actually do. 

Although his views have been regarded by radical by some traditionalists, they have already had broad impact in the real world. In his 2008 book, "Nudge," Thaler and his co-author Cass Sunstein discussed ways to help people make better financial decisions, and argued for public policy changes that would help average people by "nudging" their behavior in a positive direction. For example, there was a pervasive problem that most people were not saving enough for retirement. It was difficult for many people to control their impulses. If they had money in their hands, the tendency was to spend it, rather than put it away for the future.

Thaler suggested "opt-out" retirement savings plans. Previously, employees had to take individual action to enroll in their company's 401(k) retirement plan. Even though the money they contributed to the 401(k) would grow tax-deferred, would reduce their taxable income, and in many cases would be supplemented by an employer's matching contribution, many employees failed to enroll. Thaler's studies sparked a sweeping shift towards automatic enrollment into employer-sponsored retirement plans. In other words, participation is now the default option, and you have to take individual action if you choose not to enroll. This shifted inertia to the side of the preferred decision.

Thaler's thinking is especially relevant today. In a perfectly rational world, all-knowing investors and consumers would never have market bubbles or market crashes, since every market price is right and fair at any particular moment. We have had 8 years of fairly-sustained growth in the market, but we know that every 8 to 10 years on the average, we have a market correction of 10% or more. This is normal and healthy for the market, and is a way for stocks to find their true value. If we were perfectly rational people, we would recognize that the market has always recovered from these corrections, and will likely proceed to hit new highs. However, the emotional, irrational side of us could take over, and cause us to sell all our holdings at the bottom on the market. Not only would we be locking in the losses, but losing the long-term growth could prevent us from accomplishing important, long-term goals. As financial advisors, we do our most important and valuable work when markets are down, guiding our clients through those difficult periods and helping them manage their behavior.

Thaler’s prize suggests that the world of economics is starting to catch on to the messy decision-making that actually goes on in the real world.

 

Sources:

* Washington Post, 10/9/2017

* The Guardian, 10/11/2017

* New York Times, 10/9/2017

* The Economist, 10/23/2017

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

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ADJUST YOUR ASSET ALLOCATION FOR CHANGING TIMES

These days, it's difficult for me to watch the news without a feeling of dread.  The Breaking News is a stream of political turmoil, division, violence and geopolitical stress.  If it's not a mass shooting next door, it's a prediction for World War III around the corner.  It makes for exciting evening news headlines, but I would prefer calm, reason and compassion.  

When something unexpected happens, it’s important to understand the facts and risks without panicking.  In the short term, political disorder may result in temporary market disruption, or a fluctuation in the stock market.  For younger investors who have a long investment window, stock market turmoil isn’t as concerning because they have time on their side and can ride out the temporary ups and downs.  However, retired investors who have less time to recover from market volatility, and rely on their investment portfolio for steady income, may want to consider making a conservative adjustment to their investment portfolio.  

Analyzing Your Asset Allocation

As we know, financial markets can be unpredictable, no matter how much we might hope for comfortable stability.  Although good times can make us exuberant and tough times can make our stomachs churn, reacting to market ups and downs isn’t useful.  There are few guarantees in life, but taking sensible precautions and staying focused on your important long-term goals can make a real difference as change inevitably comes.

A practical starting point is reviewing your asset allocation to ensure it is still appropriate for your life circumstances.  Typically, investors start with an asset allocation that is appropriate for them with a balance of US equities and International equities for growth, and fixed income or bonds for downside protection when the market experiences a decline.  A well-constructed asset allocation can reduce the volatility of your portfolio, and serve you well over reasonable fluctuations in the market.  

However, when significant life events occur, such as retirement, it is important to review and revise your asset allocation to reflect the change in your goals.  During your working years, your investment goal may have focused primarily on growth.  In retirement, the goal of preservation may take priority instead.  

Understanding Fixed Income

Fixed income or bonds are often a significant portion of an investor’s portfolio.  Commonly investors will say, “That bond fund hasn’t been doing well – maybe it’s time to sell it!”  However, fixed income is never added to a portfolio with the intent that it will be the best performing fund in the batch.  Rather, fixed income is in your portfolio to give you downside protection if the stock market goes south.  When uncertainty arises, the value of fixed income tends to increase and counteracts the loss on the equity side of your portfolio.  Fixed income is meant for protection.  

In years past when interest rates were at moderate levels, we often suggested individual tax-free municipal bonds, or corporate bonds for our clients.  Individually-held tax-free municipal bonds, or corporate bonds are great fixed income products that provide stable interest income to investors and return of principal at maturity.  However, we are now in a period of record low interest rates and buying moderate or long-term bonds today essentially means you are locking in yesterday’s low rates.  The Federal Reserve has increased interest rates twice this year and four times since 2015[i].  In other words, if you bought a 10-year Treasury at 2% at the beginning of the year, the same investment would be paying a higher return of 2.5% today.  Consequently, if you had to redeem your 2% bond prior to maturity, you would probably have to sell it at a loss. 

In a rising interest rate environment, like we are currently experiencing, short-term fixed income mutual funds work well.  Short-term is considered anything with a maturity of 5 years or less.  In this "basket" of many individual bonds, there are bonds maturing every week.  As they mature, they are replaced with new bonds at the (probably higher) market interest rate.  This allows your fixed income fund to keep up with rising interest rates and still provide you downside protection if the equity market dips.

When interest rates go back up to normal levels, you can reposition from fixed income mutual funds into individual bonds. The advantage of an individual bond is that it can lock in high interest, and as long as you hold onto it until it matures, the return of principal can be guaranteed. 

Ask for a Second Opinion

As you get older or transition into retirement, you may want to reduce volatility in your portfolio and take a more conservative stance.  Act proactively, and have your financial advisor review your asset allocation (the balance of the different elements that make up your investment).  He or she may recommend that you increase your fixed income holdings now while the market is at a high.  Making changes to your investment portfolio as your life changes is natural and prudent, and is the opposite of market timing.   

It may feel like today’s news headlines are more alarming than ever.  However, keep in mind that over the history of the stock market, the Dow Jones Industrial Average has recovered from what nay-sayers have called the end-of-investing…. many times.  From the Great Depression, to Black Monday of 1987 to the Dot-com Bubble and through the Great Recession in 2008 and 2009, the market has shown resilience and strength.  If you feel it’s time, ask your Certified Financial Planner™ for a check-up, and for candid answers to your concerns.  If you don’t have a financial sounding board already, many financial planners will offer you a free initial consultation where you can ask questions and get timely feedback, no (financial) strings attached.  

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 


[i] http://www.npr.org

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Dissecting Turmp's Tax Reform

On Wednesday September 27th, President Trump and Republican leaders in Congress unveiled a new tax plan that, if passed in its current form, could create dramatic changes to the current tax code.  

Highlights of the new tax reform include[i]:

  • Compression from the current 7 income tax brackets (ranging from 10% to 39.6%) to 3 brackets: 12%, 25% and 35%.  Congress can add a fourth bracket above 35%.

  • Doubling the standard deduction from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for married couples

  • Boosting the child tax credit from $1,000 to an unspecified higher amount

  • A new $500 credit for caring for elderly relatives

  • Reducing the corporate tax rate from 35% to 20%

  • A lower top tax rate for small businesses at 25%

  • Taxpayers in high tax states such as California and New York could lose the ability to deduct state and local income taxes and property taxes on their federal return 

  • Elimination of the corporate and individual Alternative Minimum Tax

  • Elimination of estate taxes on large inheritances

  • Elimination of many other (currently) non-specified tax deductions

How will this affect me?

President Trump declared his proposal will “protect low-income and middle-income households, not the wealthy and well-connected.”  However, Democrats are already opposed to the tax reform, calling it a tax break for the wealthy.  

On the surface, it appears that the lowest tax bracket is increasing from 10% to 12% and the highest tax bracket is lowering from 39.6% to 35%.  However, the specific income levels tied to each of the new tax brackets is yet to be revealed, so it’s not certain where everyone will fall or how they’ll be affected.  Republicans say those who are paying 10% now might not be subject to taxation at all under the new plan, so they are going down to 0%, not pushed up to 12%.  

The National Association of Realtors argues that having a higher standard deduction could make home ownership less valuable in comparison to renting.  Further, it could decrease the value of existing homes.  This is because as the standard deduction rises, people are more likely to take the standard deduction and less likely to itemize their taxes.  Mortgage interest expenses and property taxes can only be deducted if a person itemizes their taxes.  

Other analysts have said that the proposed tax reform will greatly benefit corporations and stock holders.  Although the details aren’t clear yet, the plan proposes a shift from a worldwide tax system to a new territorial system.  International companies based in the U.S. would not be taxed on income earned overseas.  This would allow companies to bring back the profits earned overseas without incurring additional taxes.  To discourage companies from shifting all profits to countries with low tax rates, the plan also includes an unspecified minimum foreign tax.  The goal is to make US companies more competitive internationally and for foreign profits to reinvest back into the US market, furthering the economy and job growth.  

Analysts believe that other tax deductions and credits must be eliminated to make up for the tax cuts proposed in the reform.  However, exactly which deductions will be eliminated is yet to be seen.  Some worry that public programs and benefits for the countries neediest will be eliminated.  The elderly are particularly worried about the benefits under Social Security and Medicare; programs and benefits they depend on to make ends meet.  

Experts predict that the current tax reform proposal could reduce government revenue by more than $2 trillion dollars[ii] over the next decade.  This will add to the current $20 trillion dollars of debt carried by the US currently.  

What’s next?

President Trump’s goal is to implement the new tax code by the end of 2018, but it’s unknown what revisions will be made to gain more support for passage.  Next week the Senate is to begin deliberating the new tax bill.  Currently the Republicans dominate both the House and the Senate.  Some guess that the President has left areas for negotiation that will help to gain greater support from Democrats – such as the possible fourth tax bracket.  

Truly, nothing is certain at this point and each proposal is a bargaining chip for the Republican and Democratic parties until the reform is passed.  However, the economic market and stock market are never predictable.  This further reiterates the need for an investment strategy that is highly diversified and balanced.  Rather than trying to predict where the market will go, investors should have a predetermined exposure to each asset class and capture gains wherever they arise.  

Once the new tax laws go into effect, consult with your CPA or Financial Advisor to ensure you are taking full advantage of opportunities.  Hopefully the new tax system will benefit all Americans. 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.


[i] https://www.cbsnews.com/live-news/trump-tax-plan-remarks-live-updates/

[ii] https://www.nytimes.com/2017/09/27/us/politics/trump-tax-cut-plan-middle-class-deficit.html?mcubz=1

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EQUIFAX BREACH

These days it’s harder than ever to protect our personal information.  I get phishing emails daily alerting me I am the lucky lotto winner in a foreign country – all I need to do is send my bank information to have the proceeds deposited into my account.  Those scams are pretty straight forward.  While the everyday person might not have all the right security measures in place to protect themselves, we assume the big businesses and government do – they have a whole IT department that focuses on that kind of stuff, right?

Apparently, not so.  This month, we found out that Equifax, one of the nation’s three major credit reporting agencies had a data breach that lasted from mid-May through July in 2017[i].  During that time, hackers accessed personal information data including names, social security numbers, dates of birth and addresses.  The data breach affects as many as 143 million people[ii] in the US, Canada and United Kingdom.  In the wrong hands, this data could be used by identity thieves to rack up debt in your name and potentially ruin your credit. 

A week after the Equifax breach, the Securities & Exchange Commission (SEC), the nation’s top financial markets regulator, admitted it had also been a victim of computer hacking.  Although just recently discovered, the data breach occurred in 2016.  The top securities regulator said hackers accessed corporations’ financial information before it was made public (financial statements, quarterly earnings reports, IPOs, mergers and acquisitions, etc.) in its’ corporate filing system EDGAR (Electronic Data Gathering, Analysis and Retrieval).  According to the SEC, that data could have been used to make “illicit gains” through stock trades[iii].  Somewhat ironic, the SEC had been pressuring investment advisors and broker dealers to beef up their cybersecurity protections.  At the same time, the Government Accountability Office which audits the SEC found that the organization had not implemented 11 of 58 security recommendations related to its own computer network that would have helped to detect intrusion[iv].  

Am I at risk?

You can visit the Equifax website, www.equifaxsecurity2017.com to find out if your information was exposed.  Under the “Potential Impact” tab, you will be asked to enter your last name and the last six digits of your Social Security number.  The site will tell you if you’ve been affected by this breach.  

If Equifax feels your data was compromised they will encourage you to enroll in TrustedID Premier, a credit file monitoring and identity theft protection program.  There are five types of credit monitoring offerings, complimentary.  You can customize which of the below services you want to utilize.  You will be asked for a great deal of personal information so make sure you are on a secure computer and encrypted network connection. Credit monitoring options include:

1.      Equifax Credit Report – Copies of your Equifax Credit Report.

2.      3 Bureau Credit File Monitoring – Credit file monitoring and automated alerts of key changes to your Equifax, Experian and TransUnion credit files.

3.      Equifax Credit Report Lock – Allows you to prevent access to your Equifax credit report by third parties, with certain exceptions.

4.      Social Security Number Monitoring – Searches suspicious web sites for your Social Security number. 

5.      $1M Identity Theft Insurance – Up to $1 million in ID theft insurance. Helps pay for certain out-of-pocket expenses in the event you are a victim of identity theft.

After signing up for TrustedID Premier, you will receive an email with a link to finalize your enrollment and activate your customized security protection.  Due to the recent breach, traffic to the Equifax website is quite high and they warn it might take several days before the confirmation email arrives in your inbox.  

In a highly criticized move, Equifax added an arbitration clause to the free credit monitoring service that required users to give up their right to sue or join class-action lawsuits.  Due to public backlash and social-media shaming, the arbitration clause was rescinded[v].  

What else can I do?

If after visiting the Equifax website, you are told your data was not compromised, US consumers still have the option to obtain one year of free credit monitoring.  Due to high volume on the website currently, you will be given a date to come back to enroll in the future.  You have up until November 21, 2017 to enroll for this benefit.  

Other steps you might consider to protect yourself could include the following:

  • Placing a credit freeze on your files – A credit freeze locks your credit file with a PIN that must be used for anyone to add new credit in your name.  The freeze won’t stop someone from fraudulently charging to your existing credit lines.  You will have to enroll with each of the three credit agencies individually to initiate the freeze.
  • Active monitoring – Above and beyond annual credit report reviews, you should also monitor your existing credit cards and bank accounts regularly and question any charges you don’t recognize.
  • If you have minor children, consider checking their credit history regularly.  It is counterintuitive because minors should not be issued debt.  However, some young adults have applied for their “first” credit card, only to find their credit is shot because identity thieves have been using their social security for years, undetected.
  • File IRS taxes early – The Federal Trade Commission (FTC) recommends you file your tax return as early as possible to avoid tax identity theft which occurs when someone uses your social security to collect your tax refund before you do.  The FTC recommends that you respond to any IRS notifications timely, but remember that the IRS only sends letters.  They do not call you and ask for your personal information.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.


[i] www.consumer.ftc.gov

[ii] http://www.latimes.com/business/la-fi-sec-hack-20170921-story.html

[iii] https://www.sec.gov/news/press-release/2017-170

[iv] http://www.latimes.com/business/la-fi-sec-hack-20170921-story.html

[v] http://www.latimes.com/business/lazarus/la-fi-lazarus-equifax-arbitration-clauses-20170912-story.html

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HOW CAN I PROTECT MY FAMILY?

Lately we’ve noticed an increased interest in life insurance.  Client’s ask: When should I buy it?  Why do I need it? When is it too late?  I attribute some of the increased interest to the demographic shift as Generation X’ers (those born between 1965 and 1976) begin to think about estate planning and Generation Y’ers or Millennials (those born between 1977 and 1995) are starting families of their own.

Risk Factors

There are three main risks that life insurance aims to address.  Not coincidentally, these are the three biggest risks to the Gen XY groups mentioned.  The first risk is income replacement, as many want to ensure that their spouse or partner are financially stable should they pass away prematurely.  

The second risk is debt coverage.  Debt, or the idea of leveraging money, has become engrained in the American culture.  With the high cost of homes, cars, college and kids, it is nearly impossible to be debt free in today’s age.  The average American carries $137,000 in debt[i], mostly attributable to home mortgage debt.  In L.A. County, the median home price is $550,000[ii].  Life insurance can play a vital role in providing peace of mind that your family can stay in their home, even if you aren’t around.  

Another common concern is education or financial support for children.  A college degree is often a minimum requirement for employment these days, and many kids go on to get upper level education or specialization thereafter.  The average cost of attending a UC school for California residents is currently $34,700 per year and $61,444 for non-residents[iii].  To add to that headache, education costs increase at an average of 6% annually, or about double the general inflation rate[iv].  Life insurance can ensure your children will have education funding until they are financially independent. 

When should I buy?

Timing tends to work itself out organically for each person.  When I bought a house, I knew I should consider life insurance.  When I had my second child, I knew I was taking on more risk than I was comfortable with, so I purchased a life insurance policy.  

Life insurance premium pricing is carefully constructed by actuaries, but generally, it's based on age and health. The older you get, the more expensive a policy becomes. You also want to insure before you have a serious medical illness that would make you uninsurable or make a policy too expensive.  

Depending on the type or severity of illness, some insurers will still consider you for insurance after a significant health change after you show two years of stable health with medication or recovery without reoccurrence, but each case is independently analyzed.  

Theoretically, some insurers will insure a person in good health up to their 80’s, but the cost benefit analysis of the policy then comes into play and the policy might not be worth the premium payment.

Term or Permanent Insurance?

Term and permanent insurances have different purposes.  Term gives you the greatest leverage of your money, dollar for dollar, and is usually used to cover a time sensitive risk such as a mortgage. Permanent insurance protects against premature death as well, but can also be used as an estate planning tool because the intent is to hold the policy until you pass away, rather than to cover a temporary risk.  

Permanent insurance such as Whole Life, Universal Life and Variable Universal Life have features that can cater to a variety of needs.  In recent years, the cost of insurance (COI) within Universal Life policies have increased, causing policyholders to pay more in premiums than originally anticipated.  

One of the best ways to shop for life insurance is through an independent agent who is not tied to a company, but rather, can shop the entire market and quote the policy that best suits your needs.  Certified Financial Planners and CPAs are Fiduciaries, meaning they have pledged to act ethically in the client’s best interest, and can recommend a company or policy for you.   

What else should I consider?

Another tool to protect the assets you’ve worked hard for is a living will and trust.  People often think they are one and the same, but they serve different purposes and can work together well. A living will is for medical affairs and allows you to state wishes for care in case you are not able to communicate your decisions.  A trust takes effect as soon as you create it, and can be utilized to hold title of property for the future benefit of your loved ones.  After you pass, a trust does not need to go through the timely and expensive probate process and the settlement of your estate is private.  An attorney can assist you in customizing a will and trust.

Your attorney can also bundle your living trust with a durable power of attorney, with which you can authorize someone to act on your behalf if you become incapacitated.  Ensure it is HIPAA compliant so doctors, hospitals and medical staff will communicate with your designated person.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.


[i] https://www.nerdwallet.com/blog/average-credit-card-debt-household/

[ii] http://www.latimes.com/business/la-fi-home-prices-20170523-story.html

[iii] http://admission.universityofcalifornia.edu/paying-for-uc/tuition-and-cost/index.html

[iv] http://www.finaid.org/savings/tuition-inflation.phtml

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Little-Known IRA Penalty Could Cost A Lot

A 2015 ruling by the Tax Court can affect your flexibility in moving from one Individual Retirement Account (IRA) to another, and it's still catching people by surprise today. It's easy to become confused, because the Internal Revenue System's own Publication 590 took awhile to catch up with the new ruling and gave contradictory recommendations. It's important to understand the stricter interpretation of the law, because making a mistake can subject you to unnecessary taxes and penalties, and could cause you to lose your IRA.

A couple of years ago, moving money from one IRA to another was fairly straight-forward, as long as you followed the "60-day rule". What this meant was, you could withdraw money from an IRA, but as long as you deposited the money into another IRA within 60 days, you would not be taxed on the distribution, and your money would continue to grow tax-deferred in the new IRA. This gave valuable flexibility to many people -- they could take money out of their IRAs and use for 60 days tax-free. If they put it back into an IRA within 60 days, it was like it never even happened. 

Before 2015, the understanding was that you could apply the "60-day rule" to multiple IRAs in the same year. Let's say you have $50,000 in IRA 1, and $100,000 in IRA 2. You decide to liquidate the $50,000 IRA, and within 60 days, you put it back into another IRA. Later that year, you liquidate the $100,000 IRA. Same as with the first IRA, you deposit the money back into an IRA within 60 days. No taxes, and no penalties. 

That was under the old rules. Unfortunately, the Tax Court felt this was a loophole they needed to close. Now, you can only apply the "60-day rule" to ONE IRA within a 12-month period, no matter how many IRAs you have. Using the same scenario above, the first IRA transfer of $50,000 would be allowed, but the second IRA transfer of $100,000 would be disallowed. The IRA owner would have to pay tax on $100,000, and the IRA would come to an end. To make matters worse, the IRA owner could also incur a 6% annual penalty for excess contributions because annual IRA contributions are limited to $5,500 ($6,500 if you're over 50 or older). The penalty would continue until the excess contribution was corrected.

You should also be aware that there are many different types of IRAs -- there are Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. Among all of these IRAs, only ONE rollover can occur every 12 months, NOT one rollover for each type of account.

The good news is that there is a way to move from one IRA to another IRA that avoids the restrictions and penalties. It's called a "trustee-to-trustee" (also known as a "custodian-to-custodian" transfer). Every IRA has a trustee or custodian.  The trustee-to-trustee transfer is not considered a distribution because the IRA owner doesn't have direct access to the money. And because it's not considered a distribution, it's not subject to the only-1-per-12-month limit. 

The trustee-to-trustee transfer is best done by direct transfer. This means the money goes directly from Trustee A to Trustee B and never touches your hands. From the IRS' point of view, this is clearly not a taxable issue. Another way to do the trustee-to-trustee transfer is to have the check written payable to the trustee. For example, the check might read "Payable to Charles Schwab, custodian FBO Your Name." FBO means "For the Benefit Of." Unlike the IRA-to-IRA rollover, there are no limits on the number of trustee-to-trustee transfers that can be made each year.

Because the consequences can be dire if you make a mistake, and there is little recourse once you've made an error, it may be wise to consult with a CPA or Certified Financial Planner™ when you want to do an IRA rollover or transfer.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Penalties Retirees Can Avoid

For those of you who are contemplating retiring soon, you will be joining the approximately 10,000 Baby Boomers who are turning age 65 every day. By 2060, there will be 98 million Americans age 65 or older, making up 25 percent of the general population.¹

This large group of retirees will have to make many important decisions. You only get one chance to make some of these decisions. The errors can be costly, but are easily avoided. I'd like to explore some of these danger areas, as well as ways to stay out of trouble.

DON'T CLAIM SOCIAL SECURITY BENEFITS TOO EARLY

Although it's possible to start receiving Social Security benefits as early as age 62, it might not be the best thing to do, depending on your circumstances. When you start taking Social Security benefits at age 62, you receive a reduced level of benefits permanently for your lifetime. This is because you're triggering benefits before your Full Retirement Age. If you were born between 1943 and 1954, your Full Retirement Age is 66. If your birthday falls between 1955 and 1959, your Full Retirement Age is 66-67. Finally, those born in 1960 or later have a Full Retirement Age of 67. 

As a rough rule-of-thumb, your Social Security benefits increase by about 8% for every year that you wait to start benefits. Therefore, if you start Social Security at age 67, your benefit will be about 40% higher than if you started it at age 62. This can make a significant difference in your lifestyle if you live a long time.

If you wait to age 70 to collect Social Security, your benefit will be about 64% higher compared to age 62. However, it doesn't pay to wait beyond age 70, because there are no increases after that point.

ENROLL IN MEDICARE AT THE RIGHT TIME

If you're already enrolled in Social Security and you're approaching age 65, you will automatically receive your Medicare card 3 months before your 65th birthday, and your coverage will start at the beginning of the month in which you turn 65. 

However, if you have not yet started Social Security when you turn 65, you have to remember to enroll yourself. You have to do it within a six-month window, starting 3 months before your turn 65, to 3 months afterwards. It's best to pay a visit to your Social Security office 3 months before your turn 65, so your coverage can start as soon as you turn 65. 

If you miss the six-month Initial Enrollment Period window, you will pay a penalty of 10% of the Part B premium for every year that you delay. This penalty is permanent, for as long as you receive Medicare.

DON'T FORGET TO TAKE YOUR REQUIREMENT MINIMUM DISTRIBUTION (RMD)

Want to avoid a 50% penalty? Don't forget to take your annual Required Minimum Distribution, starting at age 70 ½. If you don't take your RMD like you're supposed to, the IRS can take 50% of what you were supposed to take. 

This rule applies to the money in your retirement accounts, like Individual Retirement Accounts (IRAs), employer-sponsored plans like 401(k)s and 403(b)s, and those created by self-employed individuals, like Simplified Employee Pensions (SEPs). Because the Internal Revenue Service wants to collect taxes on this money, it requires you to start taking out some money (and being taxed) from these accounts every year starting at age 70 ½. 

The annual RMD is not a large amount, about 4% at age 70 ½. For example, if you were age 70 ½ this year, you would take the cumulative value of all of your retirement accounts on December 31, 2016, and divide this sum by a denominator based on your age. At age 70 ½ the denominator is 27.4, making your RMD about 4%. In reality, your investment management company or Certified Financial Planner™ should do this calculation for you each year, and make sure you receive your distribution before the end of each year. 

Fortunately, the rest of your money can continue to grow, tax-deferred. Many people are under the impression that once they turn 70 ½, the value of their retirement accounts will dwindle each year. This is certainly possible if you have your retirement accounts in a bank savings account or CD. If you have to take out 4% or more each year, and the account is earning 1% or less, the balance will eventually disappear. However, in a broad, globally-diversified portfolio of investments, it's very possible to get an average return higher than 4% per year. Even though you have to take Required Minimum Distributions, you retirement accounts can still grow. Potentially, you can pay for your retirement expenses and still leave a legacy for your children or grandchildren.

Of course, the best choice for you on these decisions depends on your personal circumstances and goals. Consult with your CPA, Certified Financial Planner™, or estate planning attorney for advice when you are entering retirement. They can help you make the right decisions to maintain your lifestyle in retirement, and avoid needless penalties and taxes.

¹ Population Reference Bureau 1/2016

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Aren't Record Highs a Good Thing?

I hope you are enjoying the dog days of summer!  Global stock markets delivered robust gains in the second quarter of 2017 as stronger earnings growth, upswings in global economic data and diminished political uncertainty in Europe all buoyed markets around the world.  The S&P 500 rose 3.1%[i] while domestic economic data continued to plug along at a healthy, if not exciting, pace.  It’s wonderful to have positive economic data to reflect upon.  However, whether the headlines this week are about the new market high or a looming market correction, the most important takeaway is to stick to your long-term investment plan and concentrate on the big picture.

This week the Dow Jones Industrial, arguably the most frequently referenced stock market index in the world, reached an all-time high of 22,000.  Since the bottom of the recession in March 2009, the Dow has more than tripled in value, creating one of the strongest bull markets we’ve ever seen.  However, our current bull market reached a milestone 8 year run this March[ii].  While some are finally comforted to get back into the market, others are warning that the sky is falling and to lock in gains while you can.  While a typical market timer might move from stocks into bonds when they expect the market to pull back, other financial experts caution that bonds are the wrong move in a rising interest rate environment.  All the warnings and predictions make the initial exuberant Dow record a frightening position to be in.  

So what do you do? 

My father and mentor, Alan Kondo, has always liked the adage, “The market timer’s Hall of Fame is an empty room.”  It’s true that an 8 year bull market does give rise to concern.  However, perfectly timing the top of the market so you can sell to lock in gains and then predicting the exact time to reenter the market before it picks up again is as likely as winning the lotto – twice in a row.  

What has historically worked more effectively to provide reliable returns and protect your nest egg is to create a long-term investment plan that you can stick to, in both good and bad markets.  Construct a balanced portfolio of equities and fixed income (bonds) that will capture market growth when it occurs, but also provide you a measured amount of downside protection if the market has a pull-back.  The exact weighting of equities to fixed income depends on a variety of factors like your retirement date, the return you hope to achieve annually and your personal risk tolerance.  A Certified Financial Planner™ can help you customize an asset allocation that is tailored to you.  

Success in Short-Term Fixed Income

For some, fixed income has been a difficult component to keep in their portfolio during the last 8 years as equities have climbed at a remarkable pace.  Further, with rising interest rates and inflation, long-term bonds may have a difficult road ahead.  We should be mindful of how we invest in fixed income these days.  The Federal Reserve has already increased interest rates twice this year and four times since 2015[iii], signaling that they believe the economy is still strong.  That means you don’t want to lock in a 10 year Treasury at 2.25% now if the going rate is going to be 2.50% by year-end and even higher next year.  Instead, now is the time to invest in short-term fixed income, with maturities of less than 5 years and preferably 1-3 years.  Employ a laddering strategy where multiple bonds are purchased, each with different maturity dates.  Having short-term laddered fixed income means that each quarter, some of the bonds in your portfolio or bond fund will mature.  The matured bonds will be replaced with new short-term fixed income at the going market interest rate, allowing your fixed income fund to keep up with rising interest rates and still provide you downside protection if the equity market dips.  

Why Market Pullbacks are Good

A market pullback is defined as a temporary market decline in what was otherwise an upward trend in the stock market.  Some are claiming that a market pullback is on the horizon that will wipe out the Trump Rally[iv] which has amounted to a whopping 3,000 points on the Dow since President Trump took office last November.  A market correction can be as much as a 10% decline, but it’s important to remember that market corrections happen often and are actually indicative of a healthy stock market.  Just as the economy has peaks and valleys, so too does the stock market.  When the market goes too long without a correction, the risk of stock prices deterring too far from their actual value grows.  

Keeping a big picture perspective, in a 20 or 30 year investment window, a market correction is hardly a blip on the retirement radar.  So if you have set up a good investment allocation, let your investment ride out that temporary trough and get back on track.   Don’t sweat the small stuff.  

In the last 20 years, the S&P 500 returned an annual average of 7.68%.  However, during that same window of time, the average U.S. stock investor earned just 4.79%. That is an almost 3% difference each year[v].  Mostly this is the detriment of market timing and locking in lows due to panic.  Many investors are smart people who could do a good job at investing their retirement funds if they dedicated themselves to it full-time.  The benefit of a good financial advisor is the experience, objective advice and guidance that can help keep investors on track and stop them from potentially cutting their long-term returns in half.  

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.


[i] http://www.marketwatch.com

[ii] http://fortune.com/2017/03/09/stock-market-bull-market-longest/

[iii] http://www.npr.org

[iv] https://www.cnbc.com/2017/03/24/a-health-care-bill-setback-may-create-a-great-buying-opportunity-raymond-james.html

[v] http://360.loringward.com/rs/303-IYC-235/images/Blog_Don%27t_Just_Do_Something.pdf

 

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Leaving Debts After Death

For many parents, the last thing they want is to leave their children debts after they are gone. However, this is becoming more and more common. The Federal Reserve's Survey on Consumer Finances showed that for families headed by seniors age 65 to 74, those that had debt rose from 50% in 1989 to 66% in 2013. Not only that, during the same period of time, the debt load doubled.

Some of the main reasons for this trend is the rising cost of healthcare, people living longer, and the reality that about 40% of your lifetime expenditure on healthcare occurs after age 70. For those seniors who don't have a Long Term Care policy or adequate healthcare protection, those costs are paid from credit cards, or from refinancing their homes.

It's not uncommon for surviving children to discover that their parents left dozens of credit cards with overdue payments, and large mortgage balances. What happens to unpaid bills when you die? What debts are passed onto the next generation? Here are some answers to these questions.

What happens to unpaid debts after you die?

Typically, when a person passes away, the person's estate owes the debt. If there is not enough in the estate to pay the debt, the debt goes unpaid.

What happens to credit card debt?

Children are usually not responsible for any remaining credit card debt that their parents owed, no matter what the reason is for the debt. However, a child who is a co-owner of the credit card would still be liable for the debt.

What about loans that were taken out by parents for the children's education?

For a parent's federal student loan, or Parent Plus loan, any balance remaining at their death is taken off the books. However, according to the Education Department, their estate could be required to pay taxes on the forgiven loan.

How do I protect retirement assets from creditors?

Many attorneys will advise their clients not to name their living trust as the beneficiary of their retirement accounts, such as Individual Retirement Accounts, 401(k)s, 403(b)s and 457 deferred compensation accounts. What can happen is that the Internal Revenue Service would tax these accounts, and only the net amount after taxes would be distributed to family members.

It's often better to name real people (like children or grandchildren) as beneficiaries of retirement accounts rather than the trust. This way, the children can create Inherited IRAs after the parents have passed away, the money can be transferred from the parents' IRAs to the children's IRAs tax-free, and the money is able to grow tax-deferred for another life expectancy. Even a modest IRA, when it benefits from 2 generations of tax-deferred growth, can balloon to an impressive value. The owner of the Inherited IRA has to take a Required Minimum Distribution each year, but it's age-weighted and can be quite small.

Similarly, if the living trust is named as the beneficiary of a retirement account, existing creditors can attach the estate even before it gets to the children. However, a retirement plan that has real people as beneficiaries cannot be touched by the creditors of the deceased.

Consult with an attorney that specializes in wills, trusts, or estate planning if your parents passed away with significant debt. He or she can give you advice for your specific circumstances and goals.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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How to Prepare for a Downturn

This is an unusual time for the market. Our clients have been happy about how well their accounts have been growing, even in conservative portfolios. At the same time, many are unnerved about the daily chaos coming out of Washington, and worry about an impending crash if Trump should do something unexpected that would upset the U.S. market.

There is reason for concern. The U.S. market has been on a tear for the last 8 years, and we know that on the average, we have a market crash every 8 to 10 years.¹ A correction in the U.S. market would be a normal and healthy occurrence, and is overdue.

Moreover, U.S. companies are currently overvalued. The ratio of a company's share price to its per-share earnings, known as the Price-Earnings or P/E Ratio, is an average 23.8 for U.S. companies. Since 1988, the average P/E ratio has been 18.8.¹

However these statistics don't tell the whole story. When the media and pundits talk about the market, they tend to put the blinders on, and focus on the U.S. market alone. However, the U.S. market represents only 36% of the world’s total stock market capitalization.² An investment strategy that is based on broad, global diversification keeps this fact in mind. Under this approach, you are not invested just in the U.S. market, but in every market around the world -- just the opposite of putting all your eggs in one basket.

We saw first hand in the Great Recession of 2007 how lack of diversification can be a disaster. The Standard and Poors 500 Index, representing the 500 largest companies in the U.S. based on capitalization, fell 60%. Many investors who had only the S&P 500 or similar investments in their portfolio panicked and sold everything at the bottom of the market. They not only locked in their losses, but failed to benefit from the strong rally from 2009 to the present.

Yes, the U.S. market is overvalued, but the media has been saying that every year for the last 10 years, and the market has continued to rise. If you have a diversified portfolio, you would also have international investments that have reasonable valuations (the P/E for German companies is 16)², and also in emerging market investments (countries like China and India) where the P/E is even lower. In fact, emerging market investments were among the best-performing asset classes in 2016.

We learned valuable lessons from the Great Recession that we would do well to remember at this time:

•  Don't try to time the market and pick stocks. They say "the Hall of Fame for market timers is an empty room".

• Don't try to skew your investments in anticipation of expected future events, no matter how plausible they sound -- they might not happen for a very long time, if ever.

Warren Buffett stated it best when he said there are 3 certainties in life: death, taxes, and rising markets. The Great Recession was the worst crash we had seen since the Depression, but as long as you didn't panic and sell everything, you would have broken even in 4 years, 5 months.³ That would be just a blip, compared to the 25 to 30 years we are likely to spend in retirement. For many people, a diversified investment portfolio makes it possible to maintain their lifestyles in retirement. By comparison, avoiding all risk by keeping all your money in the bank could make running out of money a guarantee.

Buffett looks forward to market downturns as a buying opportunity. Remember when Bank of America stock was $3 a share in 2008? When you employ automatic quarterly rebalancing, you can buy low automatically. Here's how it works -- when you have a globally-diversified investment, you have about 15 distinct asset classes in your portfolio. They don't all go up and down at the same time -- they take turns. If any asset class increases 4% or more in a 3-month period, you sell some it while it's up high (like taking some of your winnings off the table in Vegas) and put the proceeds into another asset class that is a bargain at the time. Just doing quarterly rebalancing can make a dramatic difference in long-term performance.

In a volatile and uncertain market, diversification and rebalancing can be your best friends. Not only do they allow you to sleep better at night, but they will make it possible to stick to your plan, accomplish your long-term goals, have a comfortable retirement, and pass something on to your children and grandchildren.

¹ Investment News, 5/2017

² CNBC, 3/13/2017

³ Bloomberg, 6/2017

⁴ Business Insider, 11/6/2016

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Target-Date Funds After Retirement?

If you worked for a large company and participated in their 401(k), 403(b) or 457 retirement plans, they may have put you in one of their Target-Date Funds. This type of fund uses your projected retirement date as a "target," and works backwards. When you are young and many years away from retirement, the asset allocation is more growth-oriented. Every few years, as you get closer to retirement, the fund adjusts its asset allocation to gradually become more conservative (i.e., a greater proportion of bonds to stocks). The reasoning is that as retirement approaches, you want a more defensive stance in case the market goes down just when you're about to retire. For this reason, target-date funds have become a popular choice when you're in the accumulation phase of your life. About half of all 401(k) participants now use target-date funds, according to the Investment Company Institute. But is leaving your retirement nest egg in target-date funds the best choice after you leave your job?

A strategy for accumulating money for retirement can be very different from the one you use once you're in retirement. A target-date fund can be very appropriate for accumulation because it runs by itself and you don't have to think about it -- it's like being on auto-pilot.

However, once you retire, everyone has different goals -- some people want to catch up on travel and need a lot of income in the first several years of retirement; some people retire early and need to maintain the growth of their retirement nest egg in order to fund 25 to 30 years of retirement; some are fortunate to have more than enough income and assets, and can put all the retirement money in the bank.

Target-date funds, on the other hand, are one-size-fits-all. The target-date fund picks an allocation that it thinks is "right" for the average person. One of the largest target-date funds holds only 38% in stocks at the retirement date. This might be too conservative for those employees who retire early, or whose families are very long-lived, because they need the money to keep growing in order to not run out of money in retirement.

Most employees don't look "under the hood" at their target-date fund to see what mutual funds and asset classes are actually in the portfolio. They might be surprised if they did. There are over 15 different asset classes that make up a broad, globally-diversified portfolio. We have seen many target-date funds that are quite skimpy, and completely exclude U.S. small companies or international investments. In a year like 2016 when the Russell 2000 small cap index went up 19.5%¹, the omission of an asset class can significantly hurt performance.

There are also conflicts of interest in target-date funds. The brokers who sell 401(k)s to companies often fill up the target-date fund with mutual funds that offer more compensation to the broker, or make more money for the investment management firm that puts together the 401(k) plan. The investor has no discretion over the choice of those funds.

What may be one of the most important deficiencies of target-date funds is their inability to enhance growth through quarterly rebalancing. In a globally-diversified portfolio, not all of the asset classes go up at the same time -- they tend to take turns. You can take advantage of this characteristic by reviewing the performance quarterly, and selling a little of what made the most gains, and putting the proceeds from the sale into another part of your allocation that represents a bargain at the time. By doing this, you are buying low and selling high every 3 months. Just doing regular rebalancing can make a big difference in long-term performance.

The problem is that target-date funds are locked into a particular allocation. Any withdrawals are made proportionately across all of the fund's assets. You cannot buy or sell just a particular component within a target date fund. Consequently, quarterly rebalancing is not possible.

The limitations of target-date funds exist not because of bad design, but because target-date funds were meant for the accumulation phase of your life. They weren't intended for efficient withdrawals and growth after you retire. They expected that when employees retire, they would move their assets from their 401(k), 403(b) or 457 plan to an Individual Retirement Account (IRA). Not only would the transfer be tax-free, but the tax-deferred growth would continue. The retiree would then benefit from more investment choices than were available in the employer-sponsored plan, greater control and customization, and potentially better performance through lower investment costs.

Once you're retired, you can work with a fiduciary, like a Certified Financial Planner or CPA, who is required to act in your best interests. They can help you create an IRA tailored to accomplish your particular goals. Having the right IRA will help your retirement assets grow to keep pace with inflation, provide income for your lifetime, and pass remaining assets to your children and grandchildren through Inherited IRAs.

¹ Morningstar

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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So You're Turning 70...

If you're turning age 70 this year, you have a lot of company. You will be joining 2.5 million Baby Boomers, including Elton John, Glenn Close, and David Letterman. Turning 70 is not only a milestone to celebrate, it can also have financial consequences that you should be aware of.

Age 70 is an important marker in terms of your Social Security benefits. Although you can claim Social Security benefits as early as age 62, your benefits will be lower for your lifetime. The rule of thumb is that for every year that you wait to trigger Social Security, your benefits will increase by about 8% per year. However, once you turn 70 your benefits max out, so there's no advantage to wait any longer -- you'll just be passing up money you're entitled to. Contact your Social Security office a few months before you turn 70.

A closely-associated milestone is age 70 ½. This is the age at which you must begin taking annual Required Minimum Distributions (RMDs) from your retirement accounts, like Individual Retirement Accounts (IRAs), 401(k)s, 403(b)s, and 457 Deferred Compensation accounts. The IRS has many penalties for not complying with their rules, but the one governing RMDs is one of the most severe -- if you don't take your RMD like you're supposed to, the IRS can penalize you 50% on what you should have taken out. For instance, if you fail to take your Required Minimum Distribution of $10,000, the IRS can fine you $5,000.

The way to calculate your RMD is straightforward. For example, if you're turning 70 ½ this year, take the value of your retirement account on December 31, 2016 and divide it by 27.4. Therefore, at age 70 ½, your RMD will be about 4%. If your IRA was worth $500,000 on 12/31/2016, and you're turning 70 ½ this year, your RMD would be $18,248.

Each year, the amount will be different because your retirement account may have grown, and the denominator changes based on your age. Your Certified Financial Planner should be able to calculate your RMD for you each year, and make sure you receive it on time.

The very first year you take an RMD, the rules offer a little flexibility. You can delay taking your first RMD to April 1 of the year following the one in which you turned 70 ½ . However, it also means in that year, you will have to take two RMDs. This sometimes makes sense. When you retire, some companies pay out all your accrued vacation and sick time. This, combined with receiving your RMD, could push you into a higher tax bracket. Even if you have to take two RMDs next year, it could help to even out your tax liability.

Many people think that once they turn 70 ½ and they have to start taking RMDs, the value of their retirement accounts will fall every year and eventually go to zero. However, this doesn't have to happen. If you have your retirement accounts in a globally-diversified, balanced portfolio, it's not unusual to have the average growth of your account exceed 4 or 5% per year. Even after you start taking RMDs, your accounts can continue to grow. Consequently, you can not only enjoy some money from your IRAs each year, but also pass on what's left to children and grandchildren in Inherited IRAs after you're gone.

By the time you get to age 70, you may have accumulated a number of retirement accounts over a lifetime of work. When you turn 70 ½ you can take the correct RMD from each one of these accounts, but as long as the total RMD amount is correct, you can take it from any of your retirement accounts -- the IRS doesn't care. Therefore, it makes sense to take the total RMD from the retirement account that is growing the slowest, preserving the retirement account that is growing really well.

Some people have Required Minimum Distributions so large that they need to plan ahead regarding tax withholding. The assets in your retirement accounts represent money that has never been taxed before, so any distribution you take is taxed at ordinary income rates, just like you had extra working income that year. Federal and State tax withholding is optional on Required Minimum Distributions. However, if you are paying Quarterly Estimated Taxes and then receive a substantial RMD at the end of the year without any tax withholding, you could face an underpayment penalty from the IRS. You can avoid surprises at the end of the year by having the taxes withheld.

There's one important exception to the Required Minimum Distribution rule. If you're still working after age 70 ½ (and you don't own 5% or more of the company), and you have a 401(k) at the firm, you don't have to take an RMD from the 401(k) until the year you stop working. You will still need to take RMDs from your other retirement accounts.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Millennials: On Investing And Retirement

Move over Baby Boomers. These days all eyes are on Millennials, those young adults between the ages of 18 and 34 who are now America's largest living generation.1 According to the U.S. Census Bureau, Millennials in the United States number more than 75 million -- and the group continues to expand as young immigrants enter the country.1

Due to its size alone, this generation of consumers will undoubtedly have a significant impact on the U.S. economy. When it comes to investing, however, the story may be quite different. One new study found that 59% of Millennials are uncomfortable about investing.2 Another study revealed that just one in three Millennials own stock, compared with nearly half of Generation-Xers and Baby Boomers.3

On the Retirement Front

How might this discomfort with investing manifest itself when it comes to saving for retirement -- a goal for which time is on Millennials' side?  According to new research into the financial outlook and behaviors of this demographic group, 59% have started saving for retirement, yet nearly two-thirds (64%) of working Millennials say they will not accumulate $1 million in their lifetime.  Research showed that the Millennials with the more negative view of the future earn a median income of $27,900 a year.Just over a third of this group are putting away more than 5% of their income in a retirement savings account. 

As for the optimistic minority who do expect to save $1 million over time, they enjoy a median personal income that is about twice that -- $53,000 -- of the naysayers. Two-thirds are deferring more than 5% of their income and 28% are saving more than 10%.2

So despite their protestations, their reluctance to embrace the investment world, and a challenging student loan debt burden, Millennials are still charting a slow and steady course toward funding their retirement.2

For the Record

Here are some interesting facts about Millennials and retirement:

  • The vast majority (85%) of Millennials view saving for retirement as a key passage into becoming a "financial adult."

  • A similar percentage (82%) said that seeing people living out a comfortable retirement today encourages them to want to save for their own retirement.

  • Those who have started saving for retirement said the ideal age to start saving is 23.

  • Those who are not yet saving for retirement say they will start by age 32.

  • Of those who are currently saving for retirement, 69% do so through an employer-sponsored plan.

  • Three out of four said they do not believe that Social Security will be there for them when they retire.

  • Most would like to retire at age 59 – much earlier than the actual retirement age of the generation before them.

Perhaps what Millennials are forgetting is that time is their greatest weapon in the battle for a successful retirement.  The earlier they start saving, the longer their investment will benefit from tax-deferred growth and the greater the ability for long term compound growth to take effect.  A challenging entrance into the job market during the Great Recession coupled with immense and looming education loans certainly explain the pessimism of this generation.  Couple that with a volatile stock market and insurmountable hurdles to purchase a home, and it becomes clear why some Millennials are reluctant to save for retirement at all! 

However, the longer and broader their retirement savings years, the more these initial setbacks will become just a blip in the radar.  Encourage the Millennials in your life to start saving early, utilize those around them as a financial sounding board, and construct a retirement savings plan early that they can build off for years to come.  By saving now, they may be able to attain that goal of retirement at age 59 after all!

Source/Disclaimer:

1Pew Research Center, "Millennials overtake Baby Boomers as America's largest generation," April 25, 2016.

2Wells Fargo & Company, news release, "Wells Fargo Survey: Majority of Millennials Say They Won't Ever Accumulate $1 Million," August 3, 2016.

3The Street.com, "Only 1 in 3 Millennials Invest in the Stock Market," July 10 2016.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

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How To Survive Retirement

For our parents, retirement may have been less of a challenge than it is today. People didn't live as long as they do now, and tended to work longer. Consequently, they didn't have to fund so many years of retirement. In addition, many companies in those days had defined benefit pension plans for their employees. You didn't even have to contribute to the plan as an employee, and the plan guaranteed income for life! For some people, retirement planning was simple -- they put all their retirement savings in the bank, and drew from it until they passed away.

Today, it's common to spend 20 to 30 years in retirement. Here are some pointers on how to survive retirement in today's more demanding environment.

Don't be afraid of the market

It's understandable why a retiree would be leery of putting money into the stock market. There are no FDIC guarantees, and sometimes, the roller coaster ride can make you lose sleep at night. Last year was a good example. January kicked off the year with a loss of 5%. Then, there was a 5% drop in June when Britain elected to exit from Eurozone. Nevertheless, by the end of the year, the Standard and Poors index of the 500 largest U.S. companies was up 9.8%. If you count dividends, the total return was about 12.25%.

It would be nice if you could get a fairly consistent, good return while reducing some of the volatility of the market. The good news is, there is. There are 15 different asset classes in the market. They don't all go up and down at the same time, which is a good thing. You can structure your portfolio so that all the asset classes are represented, and balance those asset classes to give you the most consistent performance. This is the opposite of "putting all your eggs in one basket." This strategy has been proven to reduce market volatility and provide better downside protection when the market goes through a correction.

Have a plan

Depending on your financial circumstances, and how much you were able to save for retirement, you might be able to spend freely in retirement, or you might have to make some adjustments to stretch the money farther. How can you tell? Have your Certified Financial Planner™, CPA, or Registered Investment Advisory firm create a Comprehensive Financial Plan for you. This is especially useful just before you give notice to your employer that you're retiring. It's a financial roadmap that lets you know if all your retirement goals can be accomplished successfully. If there are gaps, your financial advisor can give you recommendations on how to fill them. Typically, the plan is updated every few years to make sure you're still on track.

Tap into your assets in the right order

Over the course of a lifetime, you probably have assets in many different places and types of investments: stocks, bonds, mutual funds, IRAs, 401(k) accounts, annuities, and pensions. Retirement is a good opportunity to consolidate these accounts, and devise a smart withdrawal strategy.

There's no one size that fits all, so your financial advisor can give you suggestions based on your unique circumstances. However, there are some general guidelines that make sense for many people --

▪  If you have bonds or CDs that have matured, they may no longer be earning interest. Since they are already liquid, this would be a good place to begin your withdrawals.

▪  Annuities are effective vehicles for accumulating money for retirement. They grow without getting taxed each year, so you have good compounding working for you. However, they are not great for passing on to the next generation. Any taxes that were due to you would also have to be paid by your beneficiaries. Therefore, it's often good to spend down annuities during your lifetime.

▪  When you turn 70 ½, you have to start taking annual Required Minimum Distributions from your retirement accounts, like Individual Retirement Accounts (IRAs), and employer-sponsored retirement plans like the 401(k), 403(b) or 457. At age 70 ½ the annual distribution is 4%. It goes up gradually. By the time you're 80, the distribution is about 5%. If your retirement account is invested in the market, it's very possible for the account to keep growing, even as you're taking out the RMDs.

▪  Finally, take withdrawals from taxable accounts. You only have to pay tax on the amount that the accounts grew, not on the principal. The capital gains tax is 15% for most people. For many retirees, it can be even better. People in the lowest two income tax brackets pay no capital gains tax at all.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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No Fiduciary Rule to Protect Consumers

This was the month that the Department of Labor's "Fiduciary Rule" was supposed to be implemented. It was intended to require all financial advisers who work with retirees to always work in their best interests, and disclose any conflicts of interest.

This was before President Trump issued a memorandum in February to delay implementation until June 9. His excuse was that "it could hurt investors' ability to access financial advice." However, from an investor's point of view, why would anyone want the advice of an adviser who isn't working in their best interest? What it means for consumers is that the Fiduciary Rule will likely be watered down until it's ineffective, or scrapped altogether.

At the same time, Trump is repealing the Dodd-Frank regulations that were designed to prevent a replay of the Great Recession of 2008 and 2009. That recession was caused by banks' greed in selling subprime mortgages, and then packaging those mortgages as A-rated investments. When the house of cards collapsed, hundreds of thousands of Americans lost their homes, but not one banker went to jail. Trump is also dismantling the Consumer Financial Protection Bureau, a government agency that makes sure that banks, lenders and other financial companies treat you fairly. It's clear that more than ever, investors have to do their own due diligence when seeking financial advice and investment management.

It's important to note that all of the following refer to themselves as "financial advisers," although they operate under different standards --

* A bank employee who is instructed to sell annuities that are expensive, and tie up an investor's money for a long time.

* A wire house employee who only sells mutual funds from a particular company that their firm wants him to use, because they are particularly profitable for the firm.

* A registered representative for a broker dealer who makes recommendations to clients based on what compensates him the most, even though there are comparable investments that are lower-cost, and have a better performance history.

In anticipation of the Fiduciary Rule being implemented, some mutual fund companies have made changes to clean up their act. One fund company came out with "clean" funds. Compared to their old (I assume "dirty") funds, the broker's commission is not built-in to the fund, but tacked on as a separate item, making it easier for investors to know how much they're paying for the fund, and how much the broker is making for selling the fund.

Another mutual fund company came out with T-shares, which carry a maximum 2.5% sales charge, which is about half the cost of their traditional funds. Even at this reduced price, they are still quite expensive.

The problem is that with the likely revocation of the Fiduciary Rule, there is little incentive for non-fiduciary financial advisers to recommend these new offerings. If you have a financial adviser, you can protect yourself by probing for conflicts of interest, and asking him or her the following questions --

* How are you paid?

* What is your criteria for recommending one investment over another?

* Are you committed to putting my interests first?

* Can I see your Form ADV? (This report discloses any regulatory problems as well as services and fees.)

If you want your adviser to make a solid commitment to act in your best interests, you can ask him or her to sign a fiduciary oath. The Committee for the Fiduciary Standard has prepared an oath that you can download at: http://www.thefiduciarystandard.org/fiduciary-oath/

If you're looking for a new financial adviser, seek one out who will act in your best interests. Registered Investment Adviser firms are held to a fiduciary standard. You can find them listed at the Security and Exchange Commission's Investment Adviser Public Disclosure website: www.adviserinfo.sec.gov.

 

Certified Financial Planners must also be fiduciaries in order to retain their credentials. You can find them listed at the Certified Financial Planner Board of Standards: http://www.cfp.net

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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How Not To Defeat Your Own Retirement Plan

Unlike previous generations of people who were planning for retirement, this time around very few have the benefit of guaranteed lifetime income from pensions. We have to rely on our own discipline to save for retirement, and we have to make decisions about what investments we put those savings into.

There are added challenges as well. Because this generation tends to live much longer than previous generations, we have to plan for 25 to 30 years of retirement, possibly longer. It's no wonder that only one in five workers is confident that they will have enough money for retirement.¹

There are many different types of employer-sponsored retirement plans:

▪  401(k) plans for profit-making corporations

▪  403(b) plans for educators, hospital workers and public employees

▪  457 deferred compensation plans for local government workers

▪  Thrift Savings Plans for federal workers

▪  Solo 401(k) plans for self-employed people

The advantages are great when you participate in an employer-sponsored plan. Not only do your contributions reduce your taxable income, the money you contribute grows without being taxed each year, taking full benefit from compound growth. Unfortunately, because participation in these plans is voluntary, there continues to be low participation. Of those who are eligible to participate in an employer-sponsored plan, only 49% make contributions.²

Many employers also put in their own money to match employee contributions, often up to 6% of employee compensation. One of our clients could not convince her son to participate in his company's 401(k) plan until she pointed out to him that he was losing the company's matching contribution. She calculated that he was leaving about $6,000 per year of free money on the table. About 20% of employees whose companies offer matching contributions are not taking advantage of it.³ Don't let this happen to you.

Even if you're not eligible for an employer-sponsored retirement plan, everyone can contribute to an Individual Retirement Account (IRA). This year, you can contribute as much as $5,500 into an IRA. If you're age 50 or older, you can add a $1,000 "catch-up" contribution, bringing the total to $6,500. Like the employer-sponsored plan, your IRA contribution will reduce your taxable income, and grow tax-deferred without an annual 1099.

When time is on your side, even a small annual contribution to a retirement plan can have impressive results. For example, if you're age 22, and you contribute $2,000 per year from age 22 to age 30 to a Traditional IRA or Roth IRA, that $18,000 will grow to $398,807 by the time you're 65 (8% per year growth assumption). If instead you started contributing $2,000 per year starting at age 31 and continued those contributions all the way to age 65 (total contributions of $70,000), the account would be worth $372,204 by age 65. In other words, the person who put in $18,000 did better than the person who put in $70,000, just because he or she started a few years earlier and harnessed the power of compound growth. Starting early pays off.

Sometimes, people do a great job of contributing to their 401(k), but then they take loans from it to buy a car or home. Loans from 401(k)s sometimes have very low interest rates, and the interest you pay can go back into your account, so taking a loan can be very tempting. Avoid it if you can. There is an opportunity cost -- the interest rate is lower than what you would likely earn in the market, so your retirement account will not grow as quickly. If you don't pay the money back in time, you will have to pay income taxes and possibly early-withdrawal penalties as well. It's generally better to create a separate emergency account holding six months to a year of your living expenses. Emergencies always happen, and if they happen when the market is doing well, you won't be sacrificing growth.

Finally, when it comes to paying for college for your children, restrain yourself from cashing out your 401(k) or suspending contributions. Among financial planners, there's a saying, "You can borrow money for college, but no one is going to lend you money for your retirement." For college, there are loans for students, loans for parents, grants, scholarships, financial aid, and work-study. College cost comparisons can be revealing -- a college that sounds more expensive initially can end up costing less because it has more financial assistance available.

Retirement is your reward at the end of many years, sometimes decades, of hard work. Like any long journey, you're likely to get blown off course. Getting there successfully depends on your ability to recover, find your bearings and get back on course.

¹ 2016 Retirement Confidence Survey, Employee Benefit Research Institute.

² Bureau of Labor Statistics, 2016

³ Plan Sponsor Council of America, 2016

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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The Trump Rally Revisited

The Labor Department had some good news for February -- 235,000 new jobs, and unemployment down to 4.7%. This caps a nearly 8-year bull rally in the stock market, and a surge of nearly 10% since last November's elections. Over the past four quarters, 71% of companies in the S&P 500 have reported quarterly earnings that beat expectations.

Although everyone is happy about the good performance, many are also worried. When is a correction coming? What can I do to take advantage of the growth, but also prepare in the event of a pullback?

The good news is that the market is already settling down from the initial euphoric highs, and moving towards more modest long-term growth. From the election to Inauguration Day, the Dow Jones Industrial Average jumped 8.2%. Since then, the DJIA has continued to move up, but at a more sedate 2.3%.

There is still room for growth. The strong and improving global economy plus above-average cash holdings held by investors supports the opinion that stocks can go even higher.¹ Consumer optimism is also high. This is important, since consumer spending drives two-thirds of the economy.² In other words, we are on a roll.

Whether the market can take advantage of the positive numbers depends a lot on the order in which President Trump implements his campaign promises. The post-election enthusiasm of the market was driven by Trump's promises of tax cuts, corporate and financial deregulation, repatriated earnings and fiscal stimulus. These moves could potentially increase earnings and drive the market to new highs. Instead, since the Inauguration he has led with protectionist trade policies, anti-immigration legislation, border taxes, and nationalism, which tend to be economic drags.

However, Trump recently indicated that in the next two to three weeks, he plans to introduce a plan to reduce corporate and individual taxes. He also signed executive orders to possibly roll back Dodd-Frank banking regulations, and the requirement that financial advisors act as fiduciaries. 

At this time of uncertainty, investors do not want to miss out on potential future growth, but would also like to protect themselves from a possible correction. The sectors that could benefit the most from economic growth include industrials, financials, energy, technology, and non-essential consumer goods. It also makes sense to put some money into defensive strategies, such as companies that pay out strong and consistent dividends. These companies tend to support strong dividends no matter what is happening to their stock price.

This would be an excellent time to rebalance your portfolio. U.S. large companies have done well in the last few months, and U.S. small cap value has leaped 35% in the last year.³ Even if you started with a balanced, diversified portfolio, it is probably now overweighted in those asset allocations. By rebalancing, you are locking in the highs, and buying other asset classes that are currently a bargain. It is a disciplined way to "buy low and sell high".

This is also a good time to review your bond investments. The Federal Reserve Bank is likely to raise interest rates this week, and may raise interest rates further before the end of the year. When interest rates go up, bond values go down. The bonds that will be most affected are long-maturity bonds that have maturities of 10, 15 years or more. If you have these in your portfolio, you may want to shift to bonds that have shorter maturities of one to three years. These short-maturity bonds still provide downside protection during a market dip, but are the least affected by increasing interest rates.

Do not let politics divert you from your long-term plan. Successful investors tend to stick to their plan no matter what is happening with the market. The market will always have volatility in the short-term, but your retirement can last 25 to 30 years. Current swings in the market may have little consequence even a few years down the road.

¹ Wall Street Journal 3/11/2017

² Kiplinger Feb 2017

³ Bloomberg 1/31/2017

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Medicare Mistakes to Avoid

Over the next few decades, there will be one American turning 65 every 10 seconds, according to AARP. This means that a record number of people will be applying to Medicare when they turn 65. Since this is the first and only time for most people, it makes sense to know the rules and plan ahead.

Medicare covers the bulk of your health care expenses after you turn 65. But Medicare's rules can be confusing and mistakes can be costly. If you don't make the right choices to fill in the gaps, you could end up with high premiums and big out-of-pocket costs. Worse, if you miss key deadlines when signing up for Medicare, you could have a gap in coverage, miss out on valuable tax breaks, or get stuck with a penalty for the rest of your life. Here are some common Medicare mistakes you can avoid.

Forgetting That You Should Sign Up for Medicare at 65

If you're already receiving Social Security benefits, you'll automatically be enrolled in Medicare Part A and Part B when you turn 65 (although you can turn down Part B coverage and sign up for it later). But if you aren't receiving Social Security benefits, you'll need to take action to sign up for Medicare. If you're at least 64 years and 9 months old, you can sign up online. You have a seven-month window to sign up—from three months before your 65th birthday month to three months afterward (you can enroll in Social Security later).

You may want to delay signing up for Part B if you or your spouse has coverage through your current employer. Most people sign up for Part A at 65, though, since it's usually free—although you may want to delay signing up if you plan to continue contributing to a health savings account. See the Social Security Administration's "Applying for Medicare Only" for more information. If you work for an employer with fewer than 20 employees, you must sign up for Part A and usually need to sign up for Part B, which will become your primary insurance (ask your employer whether you can delay signing up for Part B).

Not Picking the Right Medigap Plan

If you buy a Medicare supplement plan within six months of enrolling in Medicare Part B, you can get any plan in your area even if you have a preexisting medical condition. But if you try to switch plans after that, insurers in most states can reject you or charge more because of your health. It's important to pick your plan carefully. Some states let you switch into certain plans regardless of your health, and some insurers let you switch to another one of their plans without a new medical exam.

Keeping Your Part D Plan on Autopilot

Open enrollment for Medicare Part D and Medicare Advantage plans runs from October 15 to December 7 every year, and it's a good time to review all of your options. The cost and coverage can vary a lot from year to year—some plans boost premiums more than others, increase your share of the cost of your drugs, add new hurdles before covering your medications, or require you to go to certain pharmacies to get the best rates. And if you've been prescribed new medications or your drugs have gone generic over the past year, a different plan may now be a better deal for you.

It's easy to compare all of the plans available in your area during open enrollment. Go to the Medicare Plan Finder at www.medicare.gov/find-a-plan and type in your drugs and dosages to see how much you'd pay for premiums plus co-payments for plans in your area.

Buying the Same Part D Plan as Your Spouse

There are no spousal discounts for Medicare Part D prescription-drug plans, and most spouses don't take the same medications. Consequently, one plan may have much better coverage for your drugs while another may be better for your spouse's situation. Compare the plans based on the coverage for your specific drugs. Be careful if you and your spouse sign up for plans with different preferred pharmacies—some plans only give you the best rates if you use certain pharmacies, so you could end up paying a lot more if you get your drugs somewhere else.

Going Out-of-Network in Your Medicare Advantage Plan

If you choose to get your coverage through a private Medicare Advantage plan, which covers both medical expenses and prescription drugs, you usually need to use the plan's network of doctors and hospitals to get the lowest co-payments (and some plans won't cover out-of-network providers at all, except in an emergency). As with any PPO or HMO, it's important to make sure your doctors, hospitals and other providers are covered in your plan from year to year. After you've narrowed the list to a few plans, contact both the insurer and your doctor to make sure they'll be included in the network for the coming plan year. You can switch Medicare Advantage plans during open enrollment each year from October 15 to December 7.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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To Diversify Wealth, Think Outside the Business

Small business owners face a unique, but critical investing challenge: diversifying investment holdings outside of the business.  For business owners, diversifying your sources of wealth takes on added importance. Focusing too much on your business could leave you exposed in the event of an economic downturn or some other change in circumstances.

Luckily, there are many options to consider that can help diversify the wealth you have earned.  Earmarking funds for retirement, using a trust to bequeath your legacy to heirs, and/or broadening your investment mix may be helpful in reducing reliance on your business.

Earmark Assets for Retirement

A small-business retirement plan may help an entrepreneur divert a portion of salary for use in his or her later years.  Plans with high contribution limits, such as a 401(k) plan, may be especially helpful in this regard.  If your business elects to sponsor a 401(k) plan, traditional and Roth-style plans present different types of tax benefits.  Contributions to traditional 401(k) plans are tax deferred, which lowers taxation during the year the contribution is made.  After age 70½, required minimum distributions (RMDs) are taxable as income in the year distributed.  Contributions to Roth 401(k) plans are made with after-tax dollars, but RMDs during retirement are generally tax free.1

Entrepreneurs with the means to invest for retirement above and beyond an employer-sponsored plan may want to consider a Roth IRA.  With a Roth IRA, the maximum annual contribution for the 2017 tax year is $5,500, plus an additional $1,000 catch-up contribution for those aged 50 and older.  To contribute the full amount allowed, your modified adjusted gross income (MAGI) needs to be $118,000 or less if you are a single taxpayer or $186,000 or less if you are married and filing a joint tax return (in 2017).  Contributions are taxable, but qualified distributions after age 59½ are tax free.  RMDs are not required from Roth IRAs during your lifetime, which enhances their appeal as an estate planning vehicle.  If you desire, you can leave the assets in a Roth IRA and pass it to your heirs, income-tax free as an inherited Roth IRA when you are gone. 

Leaving a Legacy

As you age, estate planning is likely to become increasingly important.  A trust can help you maintain control of assets during your lifetime, shield assets from taxes, and create a legacy for heirs.  There are many types of trusts, and your ultimate selection may depend on whether you want the trust agreement to be revocable or irrevocable.  Depending on the type of trust selected, a trust agreement can make it possible to use life insurance proceeds income- and estate-tax free, to remove your residence from your estate, to bequeath assets to grandchildren, or to capitalize on a low-interest-rate environment and potentially reduce estate taxes.  You should discuss the many trust options available with your tax or legal advisor.

Your Investment Mix

When managing investments, the old saying about not putting all your eggs in one basket is especially important for entrepreneurs.  Exposure to equities, fixed income, real estate, and other types of assets can potentially help to diversify your investment mix and protect the wealth you have accumulated.  Although there are no guarantees, if one area within your portfolio declines in value, another could potentially increase or hold steady, possibly reducing your exposure to loss. This strategy of balancing asset classes and diversifying your holdings is known as Modern Portfolio Theory.  When implemented correctly and tailored to your individual risk tolerance, this strategy can help you achieve returns market rate returns in a conservative portfolio that also allows downside protection.   

To truly diversify when investing, small business owners need to think outside the business.  Reach out to a financial advisor that will work with you to help define an overall investment strategy that is in line with your goals and objectives.

Source/Disclaimer:

1Early withdrawals may be subject to a 10% penalty tax in addition to regular income taxes on any investment earnings.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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The American Dream and Your Investments

The "American Dream", as defined by James Adams in his 1931 book, was "a land in which life should be better and richer and fuller for everyone." A disturbing study was released recently by a team of the nation's leading economists at Stanford, Harvard and the University of California at Berkeley. The study reported that it has become extremely unlikely that this generation of American children will earn more than their parents, after adjusting for inflation.¹

The change over the last few years has been alarming and dramatic. If you were born in 1940, the probability of success was much better. Ninety-two percent of children at that time would do better than their parents. This was a virtual slam-dunk, regardless of whether the children went to college, got divorced, or suffered a layoff. The economy was growing strongly, and benefited the rich, the middle and working classes alike.

Unfortunately, this was short-lived. If you were born in 1980, only 40% of children would earn more than their parents. This lack of mobility hit the middle class more than the poor, and not surprisingly, struck the industrial Midwest states particularly hard. Going backward has now become the norm.

Paradoxically, this national glass ceiling is not due to a slowdown in growth, or a reduction of wealth. We actually have more wealth as a nation. Harvard economist, Nathaniel Hendren, found that the American economy is far larger and more productive than in 1980, and per capita Gross Domestic Product is almost twice as high.² He found that the reason for the growing gap was that nearly 70% of income gains from 1980 to 2014,went to the top 10% of the wealthy in America.

Wealth inequality is even more pronounced than income inequality. The richest 10% of American households owns a whopping 76% of all the wealth in the U.S.³ The source of net worth is also vastly different. The top 1% owns nearly half of the total wealth in stocks and mutual funds. By comparison, the bottom 90% holds most of its wealth in their principal residences.⁴ As a result, the Great Recession of 2008 and 2009 had little consequence for the wealthy, while it devastated hundreds of thousands of Americans who lost their homes.

Trump's campaign tapped into the anxiety and anger of working Americans who felt that the American Dream was slipping out of their reach. However, he did not address the inequality. Hendren's study of Trump's tax-cut plans found that they would do little to improve the finances of struggling families. Instead, they disproportionately benefit high earners. This, combined with the loss of health insurance, the privatization of education, and other proposed changes may lead to more economic insecurity for most Americans.

What does this mean for your investments? If you have investments at all, count yourself among the fortunate few. Over half of Americans have zero money in the market, including money invested through pension funds, 401(k) accounts, Individual Retirement Accounts, mutual funds and Exchange-Traded Funds, as well as individual stocks.⁵

Investing in the market remains one of the few ways that you can participate in the growth of the economy, and keep up with inflation. For example, between March 2009 and now, if you were not invested in the market, you would have missed out on one of the strongest rallies in history. The Standard and Poors 500 Index, which tracks the 500 most well known publicly-traded U.S. companies, rose over 200%.

The biggest barrier to investing in the market is fear.⁶ People feel they don't know enough about the market, or don't trust stockbrokers and banks, or think it's too risky. There are good reasons for this apprehension. Most financial advisors are not fiduciaries who are required to act in their clients' best interests in order to keep their licenses and certifications. Clients could not be sure if the advice they were receiving, or the investments that were recommended to them, were the best-performing and least expensive choice to accomplish their goals, or best for the advisor. Positive change was in motion last year when the Department of Labor passed a ruling requiring any advisor who gave advice on retirement accounts to be a fiduciary. Trump opposes this ruling, and plans to reverse it or stall its implementation. In the meantime, investors must do their own due diligence and check whether their advisor is a fiduciary.

Many people are not aware that there are proven strategies available to reduce the volatility of the market and increase downside safety when they invest. These more conservative strategies, based on balancing asset classes and broad, global diversification, have helped families weather the ups and downs of the market, maintain their purchasing power in the face of inflation, and achieve their hopes and dreams.

If you have investments, congratulations! Work with your advisor to make your money work for you and capture some of the wealth of the nation for your family. If you are not investing, consider meeting with a fiduciary advisor to learn more about the benefits of planning and diversification. At the same time, keep in mind that many Americans are not as blessed as you, and support efforts to protect healthcare, civil rights and education for all people.

¹ Washington Post, 12/8/2016

² New York Times 12/8/2016

³ Organization for Economic Cooperation & Development, 5/2015

⁴ Household Wealth Trends in the U.S., Edward Wolff 12/2014

⁵ BankRate Money Pulse 4/2015

⁶ CNN Money 4/2015

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Retirement Tax Breaks You Don't Want to Miss

Some federal tax laws adjust to offer varying benefits or tax breaks at different age brackets.  This can present opportunities to save or alternatively, create costly pitfalls to avoid.  Being alert to the rolling changes that come at various life stages is the key to holding down your tax bill to the legal minimum.  Below are a few ideas that the 65 and older might want to consider.

1.  Bigger Standard Deduction

When you turn 65, the IRS offers a gift in the form of a bigger standard deduction. For 2016 returns, for example, a single 64-year-old gets a standard deduction of $6,300 (it will be $6,350 for 2017). A 65-year-old gets $7,850 in 2016 (and $7,900 in 2017).

The extra $1,550 will make it more likely you’ll take the standard deduction rather than itemizing and, if you do, the additional amount will save you almost $400 if you’re in the 25% bracket. Couples in which one or both spouses are age 65 or older also get bigger standard deductions than younger taxpayers. When both husband and wife are 65 or order, for example, the standard deduction on 2016 joint returns is $15,100 (and $100 more for 2017). Be sure to take advantage of your age.

2.  Easier Medical Deductions

Until 2017, taxpayers age 65 and older get a break when it comes to deducting medical expenses. Those who itemize on 2016 returns get a money-saving deduction to the extent their medical bills exceed 7.5% of adjusted gross income. For younger taxpayers, the AGI threshold is 10%. If you’re married, only one spouse needs to be 65 to use the 7.5% threshold. For 2017 returns, the 10% threshold will apply to all taxpayers.

3.  Deduct Medicare Premiums

If you become self-employed—say, as a consultant—after you leave your job, you can deduct the premiums you pay for Medicare Part B and Part D, plus the cost of supplemental Medicare (medigap) policies or the cost of a Medicare Advantage plan.

This deduction is available whether or not you itemize and is not subject to the 7.5%-of-AGI test that applies to itemized medical expenses for those age 65 and older in 2016. One caveat: You can't claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by either your employer (if you have retiree medical coverage, for example) or your spouse's employer (if he or she has a job that offers family medical coverage).

4.  Spousal IRA Contribution 

Retiring doesn’t necessarily mean an end to the chance to shovel money into an IRA.  If you’re married and your spouse is still working, he or she can contribute up to $6,500 a year to an IRA that you own.  If you use a traditional IRA, spousal contributions are allowed up to the year you reach age 70 ½. If you use a Roth IRA, there is no age limit. As long as your spouse has enough earned income to fund the contribution to your account (and any deposits to his or her own), this tax shelter’s doors remain open to you. The $6,500 cap applies in both 2016 and 2017.

5.  Avoid the Pension Payout Trap

Upon retirement, many retirees are offered the opportunity to take a lump-sum payment from their company plan, such as pensions, annuities, IRAs and other retirement plans.  However, if you take a lump-sum payment from a company plan, you could fall into a pension-payout trap where the IRS mandates you withhold a flat 20% for income taxes… even if you simply plan to move the money to an IRA via a tax-free rollover.  The IRS will hold on to the 20% until you file a tax return for the year and demand a refund. 

Fortunately, there’s an easy way around that miserable outcome when initiating a rollover from your employer sponsored plan to an IRA.  Simply ask your employer or Certified Financial Planner to send the money directly to a rollover IRA.  As long as the check is made out to your IRA and not to you personally, there’s no tax withholding.

Even if you intend to spend some of the money right away, your best bet is still to ask your employer to make the direct IRA transfer.  Then, when you withdraw funds from the IRA, it’s up to you whether there will be withholding.

To find out which of the above strategies is appropriate for you, consult your Certified Financial Planner or CPA.  Some can be utilized in combination, but others should be selected in lieu of one another, so find out which will provide you with the greatest benefits overall. 

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

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EDUCATIONAL WORKSHOPS

2019 TENTATIVE SCHEDULE 

YOUR 2019 INVESTMENT STRATEGY

Saturday, March 16, 2019

10:00 a.m. - 12:00 p.m.

South Pasadena Public Library Community Room**

1115 El Centro St.

South Pasadena, CA  91030

**This activity is not sponsored by the City of South Pasadena or the South Pasadena Public Library

 

 

YOUR 2019 INVESTMENT STRATEGY

Saturday, March 23, 2019

9:00 a.m. - 11:00 a.m.

Ken Nakaoka Center*

1670 W. 162nd St.,

Gardena, CA  90247

*not sponsored by the City of Gardena

 

 

Contact Us

300 North Lake Avenue, Suite 920
Pasadena, California 91101
Phone: (626) 449-7783
Fax: (626) 449-7785
Email: info@kondowealthadvisors.com

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