•   |  (626) 449-7783

Blog

Articles by Alan & Akemi
Akemi Kondo Dalvi is the owner, Chief Compliance Officer, and an Investment Advisor for Kondo Wealth Advisors, Inc.

Money Lessons from my Father

My father, Alan Kondo, has always been one of those “teach a man to fish and you feed him for a lifetime,” kind of guys.  I hated it growing up!  I just wanted my “fish for the day.”  I realize now that he was investing in my financial knowledge and well-being; teaching me habits that he hoped I’d carry through adulthood.  As a parent, I find myself echoing him, telling my boys, “I’m not giving you a car, you’re going to earn it!” Like my father, I find more excitement on the giving end of these lessons, rather than the receiving end.  Here are some of the best pieces of advice my father gave me over the last 40 years.

Pay Yourself First

Growing up, I always had a “job” of sorts.  When I was 10, I got paid $0.05/envelope for folding, packing and licking shut envelopes for my mom’s mailing – I used it to buy ice cream.  When I was 16, I had a job at a local restaurant to-go counter. To this day, I still can’t stand the smell of BBQ baked beans, but I was able to buy a used Honda with my restaurant earnings.  When I got my first “real job” out of college, I itched to think what I was going to buy next!  My dad sternly told me to Pay Yourself First.  I had no idea what this meant. Paying Yourself First means the first bill paid each month should be to yourself in the form of savings. The remainder of your paycheck can be used to pay groceries, bills and entertainment. 

With my father’s help, I opened my first 401k savings account, and I saw my paycheck shrink by 30%. My father explained that the earlier I saved for my retirement, the sooner retirement would come. That’s because time is on my side, and the retirement savings will have compounded growth as dividends and interest accumulate and the stock market grows. Although a stock market pull back like the Great Recession or Covid-19 can be detrimental to an investment portfolio in a short window of time, over a working career, those dips can be offset by recovery and future market growth. Saving early can keep retirement goals on track for the long-haul.

Paying Yourself First also means having an emergency fund of six months to one-year of living expenses in a cash or CDs.  That way if something unexpected like Covid-19 happens, you have a safety net to hold you over, and you don’t have to lock in losses by selling investments that are temporarily priced low. 

 Only Take Necessary Risks

When it comes to my outlook on risk, I’ve had several life phases. As a child, I was afraid of crossing the street. As a teenager, I thought nothing could hurt me. As an adult, I was wise enough to ask for advice.  When I asked my father how to invest, he quoted the adage of moderation. Risks are sometimes necessary, but don’t take risks for the excitement with money that you need.  In other words, don’t go to Vegas with your rent money.

For a retirement portfolio, diversification is one of the tried and true methods for capturing market gains, reducing downside risk, and weathering market downturns to achieve a positive long-term return. In the history of the stock market, there is no 10-year period where a diversified portfolio would not yield a positive return, even including the Great Depression.  Investing in flashy stocks like Bitcoin can have a big return, or it can flop, so you should only invest in higher risk investments with money you can stand to lose. 

Don’t Live in Fear

Having lived through the magnitude 6.7 Northridge earthquake in 1994, I grew very weary of earthquakes at one point.  I told my father, “Why would anyone buy a house, if an earthquake is going to just crumble it to pieces one day?” My father validated my fears. Emotions are valuable in helping us to survive, thrive and avoid danger. However, strong emotions should be avoided when making important financial decisions. That’s because emotions can drive you to act quickly or irrationally out of fear or greed.  For example, many people cashed out of the stock market this March, when the Dow was down 34%, locking in losses and missing out on the subsequent 31% bounce back in the weeks that followed.

Instead, when making financial decisions, try to focus on research, metrics and analytics.  Numbers don’t have emotions and can help put things in perspective.  Finally, sleep on it.  Sometimes taking a break or stepping back can help you to see the bigger picture.  

We Are Only as Strong as Our Community

My father grew up in Toronto where Japanese were discouraged from congregating post WWII.  When he came to California, he was amazed by Japantown in San Francisco and Little Tokyo in Los Angeles.  He was also inspired by the Japanese Americans’ abilities to band together with all disparaged communities to create positive social change. Since my father did not grow up with these communities, he never took it for granted.

Growing up, I enjoyed our visits to Little Tokyo. I loved spending my weekends eating at the Tofu Festival, climbing the rocks in the JACCC courtyard, getting origami paper in the Village Plaza, and attending obons in the hot July weather. As an adult, I realize these experiences were fostered by a community in constant jeopardy. While I feel young and powerless, it is now my opportunity to support the community that raised me. Perhaps I can teach someone interested “to fish”, or I can stand up for someone who is unheard. In an environment where tax breaks and financial grants seem to go to the wealthy, I can write letters, vote, and donate to help local businesses make ends-meet.  Every bit of effort counts, and our community is counting on us. Sometimes it makes sense to invest in something with intangible returns.

--------------

Thank you and Happy Father’s Day to all the fathers, uncles, grandfathers, and mentors who devote years of thankless lessons on to “deaf ears.”  I was listening Dad – thank you!

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.

Continue reading
6 Hits

Our New Covid-19 World

As we struggle to re-open the country, many are steadfast on getting things “back to the way they were.”  It’s an ideal goal, but in many ways, Covid-19 may have already changed us, forever. 

Some economists say the pandemic accelerated us five years into the future from a technology perspective.  Companies that were once reluctant to adopt technology now find themselves devoting capital into IT with no disparity. In-person meetings with doctors, CPAs and financial advisors are now being done online; sometimes more efficiently, as we eliminate commuting, parking, and other related frustrations.  Corporations are also finding meetings that required flights and hoteling can be hosted online instead, for a fraction of the prior costs.  That can have ripple effects, boosting the future revenues of online meeting platform providers, IT support services and rapidly developing the telemedicine space. It may also mean long-term decreased revenue for airlines, the auto industry, oil and gas, and hotels, as business travel is reduced to an as-needed basis.

Many continue to work through Covid-19, but in new ways. Businesses who were reluctant to change the traditional model of working from an office daily are now finding that employees can be trusted to work from home. I call it the first win-win-win for society in a long time. Employers are able to “reduce their footprint” which is a public relations, green-sounding way of saying, cut their over-head costs.  By having more employees work from home, employers can immediately reduce their office lease expenses, land lines, utilities, and so-on. Employees who need to come into work occasionally can “hotel” or check-in to a day-use desk, allowing companies to rent smaller office space for their rotating work force. The second win is for the employee who gets to work from home occasionally or permanently. In busy metropolitan cities, the avoided commute time can be invaluable, adding tremendously to quality of life. For your wallet, working from home can also equate to reduced auto, insurance, maintenance and gas costs. Given these benefits, a recent study noted currently unemployed people might be willing to reduce their target starting salary for new jobs where they are allowed to work from home; an indirect but definite win for employers. The third win is for our environment. Los Angeles has notoriously polluted air, but a recent study by IQAir, a global air quality company based in Switzerland, reported LA saw some of the cleanest air of any major city in the world during April.[i] 

The loser in this win-win-win scenario is the commercial real-estate industry. It is predicted the landscape for commercial real-estate may be permanently changed. In past market downturns, real-estate was an inversely correlated asset that provided protection when the stock market was down.  However, in our post Covid-19 era, commercial real estate may not prove to be a safe haven. Many corporations plan to “reduce their footprint” by 30% in the coming years, providing instability in the commercial real estate space. We already saw the collapse of the once highly anticipated WeWork shared office space provider. Large retailers in shopping malls and the food service industry may also begin to reduce consumer facing locations as people acclimate to shopping online and prefer to use outdoor space for socialization and networking when social distancing restrictions are lifted. In essence, we as a society are changing, and business is rapidly evolving to survive in the “new world.”

Our education system is rapidly changing also.  Many local schools and universities originally viewed school closures as temporary until the Covid-19 risk had passed. However, institutions realize that Covid-19 may reemerge during the flu-season and so it would be prudent to plan how to educate remotely again in the near future, should the need arise. However, this is also eye-opening to the philosophy of education. Ivy-league university lectures are no longer constrained to the size of the lecture hall.  Rather, these highly regarded professor’s lectures can be recorded and live-streamed around the world for many students to participate in. This could be the beginning of a globalized education platform, and dare I say it, lower future education costs? 

A larger and murkier Covid-19 issue is the increase in government indebtedness related to sustaining the economy. The US government was already running a disturbing National Debt of $23.3 trillion prior to the pandemic. That figure has increased to $25.1 trillion and counting due to back-stops put in place to keep the economy afloat.[i] Prior to Covid-19, it was predicted under the existing planning provisions, social security and Medicare would be unfunded by 2035.[ii]  The path ahead is complicated and political, but it is hard to imagine there will not be some consequences to the US citizens and corporations in the form of higher future taxation to solve this daunting problem. Therefore, many financial planners and estate planners are determining ways to mitigate future taxation or pay taxes at current rates in preparation for the fearful road ahead.

Finally, in our battle to fight Covid-19, many have lost loved ones to this deadly disease. In that loss, we may find a new normal, different strength, and eventually new joys, but we will never go back to the way we were.  In mourning, perhaps we can remember to be grateful for the things we almost took for granted; our health, our loved ones, our amazing medical providers, grocery store workers, package delivery drivers and garbage truck drivers whose daily tasks keep the world going. Instead of focusing on differences of opinion, we may choose to come together in community and support one another through adversity. Covid-19 is not yet behind us, but it is already making a permanent impression on us and our future.

Wishing you all continued health and safety.  


 

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.

 

 

 

 
Continue reading
32 Hits

CARES Act Highlights

 CARES Act Highlights

 These past few weeks have been a whirlwind of activity! It’s hard to keep up on the news, but one of the most significant pieces of legislation in our time may be the CARES Act or Coronavirus Aid, Relief and Economic Security Act. The bill passed on March 27th, allocating $2.2 trillion dollars in aid to address the economic fallout due to the COVID-19 pandemic. This is the largest economic relief bill in US history. Key elements of the CARES Act include:

  • $532 billion for large businesses and local governments
  • $377 billion for small businesses
  • Estimated to total $300 billion in direct payments to families in the form of $1,200 checks ($2,400 for couples) plus $500 per child to individuals earning $75,000 or less ($150,000 for couples)
  • $260 billion in expanded unemployment benefits
  • $150 billion in direct aid for states and municipalities
  • $125 billion for hospitals and other health care providers

 To help sort through the mountain of information on the CARES Act, we highlighted some of the retirement and financial planning components that might be useful to you or your loved ones.

2020 RMDs Waived

Similar to the Great Recession in 2008, retirees are allowed to forgo or waive their Required Minimum Distribution (RMD) for the 2020 year from IRA, 401(k), 403(b), 457(b) and Inherited IRA accounts. The RMD distribution amount is based on the value of the retirement account at December 31st of the previous year. Given investment accounts have declined in 2020, the amount of the RMD as a percentage of the current account balance would now be larger than anticipated. Taking an RMD when the account value is down also forces the investor to “lock in losses” by selling equities when they are valued lower. This new provision to waive RMDs will allow retirees to keep the funds invested and hopefully regain value as the market recovers. 

If you’ve already taken your 2020 RMD, you are allowed to write a check and reverse the distribution within 60 days. If tax withholdings were taken from your RMD, you’ll need to refund your retirement account with the net balance you received, plus the tax withholding that was sent to the IRS to qualify as a full reversal. You’ll be refunded the initial IRS tax withholding when you file your 2020 taxes. If you refund your retirement account with the net of tax balance only, the IRS taxes withheld will be assessed to you as income for the 2020 year. 

Unfortunately, completed 2020 RMDs for Inherited IRAs are not allowed to be reversed, no matter how many days have passed since the distribution. Since this is a unique new rule and there are lots of exceptions and exclusions, you may want the assistance of a financial advisor with this transaction.

Retirement Plan Loans

Under the CARES Act, affected individuals may withdraw money out of their IRA or company retirement plan to offset expenses resulting from the COVID-19 pandemic.  The 10% early withdrawal penalty for those under age 59 ½ is waived. Additionally, the 20% Federal tax withholding from company sponsored retirement plan (i.e.: 401k) distributions is also waived. To fully avoid taxation on the COVID-19 distribution, the recipient can repay the funds into their retirement account over a three year window. If the individual does not plan to repay, taxation on the distributions can be split evenly over 2020, 2021 and 2022 to help ease the tax burden. However, if your income will be significantly lower in 2020, and you prefer to pay the tax on a retirement account distribution all in the current year while your tax bracket is lower, that is also allowed.

SBA Paycheck Protection Programs

In an effort to flatten the curve, many businesses have been forced to close doors and comply with the Safer at Home mandate. As a result, businesses large and small, are struggling to keep employees on payroll and cover unforgiving overhead expenses like rent and utilities. The Paycheck Protection Program (PPP) is a Small Business Association (SBA) loan program designed to help address these needs.

On April 3rd, SBA opened the application process to small business owners and sole proprietors. On April 10th, independent contractors and self-employed individuals were also allowed to apply. Small and medium-sized businesses are defined as companies with 500 or fewer employees, including sole proprietors, self-employed individuals and independent contractors. 501(c)(3) non-profits also qualify.

Approximately 11,000 authorized US lending institutions including banks, credit unions and Fintech lenders are accepting the applications for loans. It is recommended that you reach out to your existing business banking relationship to inquire of a loan for more efficient processing. The application is short, but requires 2019 payroll supporting documentation and 2019 IRS Quarterly Payroll Tax Reports (forms 940, 941 or 944 as applicable). Therefore if you plan to apply for a loan, reach out to your CPA and payroll provider early to gather the necessary information. 

Federal guidance indicated that in eight weeks, if businesses have spent the entire loan amount on qualified business expenses, the loan converts to a grant.

A great resource for organizing your financial data in preparation of the loan process is the AICPA PPP payroll calculator, available for free online.

https://www.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/qualityservicesdelivery/ussba/downloadabledocuments/ppp-loan-calculator-non-seasonal-operational-in-2019.xlsx

These are difficult times, but I believe challenge allows us to demonstrate grace and humanity in a way we worried was lost. I am reminded daily how much I have to be grateful for. We will make it through this together; better, stronger and more united than we began. I want to give back the kindness and support bestowed upon me. If we can help be a conduit of information or a financial sounding board in a volatile stock market, please let us know. We want to help.

 Sources:

-       Buckingham Strategic Partners CARES for Retirement Accounts FAQs

-       AICPA SBA Paycheck Protection Program resources for CPAs

https://www.aicpa.org/interestareas/privatecompaniespracticesection/qualityservicesdelivery/sba-paycheck-protection-program-resources-for-cpas.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Apr2020

 

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.

 

 

 

 

 

 

 

Continue reading
31 Hits

Setting Stock Market Records

In the last two weeks, we’ve made new records in the stock market: Biggest one-week drop, Biggest one-day gain, and Biggest one-day loss in the history of the stock market, in chronological order. Those records tell us that consumers, and even the know-it-all day traders, don’t know where the bottom of the market is. What started as fear of the coronavirus has turned into fear of global economic slowing and longer-term anxiety of a US recession. 

Uncharted Territory - Stock Market Records Set in March 2020:

-       First time the Dow dropped 2000+ points

-       First time Circuit Breaker rules used since 2013 (when the stock market trading is temporarily halted due to a dramatic decline in value)

-       30-year US treasury yield dipped below 1%

These days, it doesn’t take much to trigger panic in a market already on edge. On Monday, the US stock market trading was halted shortly after opening due to the market reaching a benchmark drop of 7%. The manic Monday drop in the stock market was due to failed negotiation talks between Saudi Arabia and Russia regarding oil production that triggered an all-out price war. This caused a plunge in oil prices of 30% that rippled across the remainder of the stock market quickly. The decrease in oil prices from roughly $63/barrel in April 2019 to below $30/barrel during Monday trading created increased pressure on the credit market. Energy companies, such as oil producers, are the largest issuers of junk bonds. With their future revenues in limbo, the value and credit quality of their bonds became even more unstable. As evidence, investors flooded into the security of government-backed debt and the 30-year US Treasury yield traded at 0.99% for the first time in the history of the stock market. 

The White House followed up with market stimulus measures. On Tuesday, President Trump announced payroll tax breaks for corporations and employees through the rest of the year. Trump also continued to put pressure on the Fed for further interest rate cuts. This comes on top of the $8.3 billion spending package President Trump signed in early March to combat coronavirus through vaccine research and medical support to states currently dealing with COVID-19 patients.

Ironically, this week marks the 11th anniversary of the bull market which began on March 9, 2009. From the last market high on February 19, 2020, the Standard & Poor’s 500 (S&P 500) is down approximately 12%. If the index drops 20%, the “correction” will officially be labeled a “bear market” and we’ll have ended our bull market streak in February.

Taking a step back to reflect, since the start of our bull market in March 2009, we’ve had seven corrections of 10%+ decline in the stock market. Those corrections averaged to a decline of 15% and lasted 78 days. Examining further back to 1990, the average correction increases slightly to 18.8% over a span of 83 days. 

No one truly knows if we are near the bottom of the stock market decline or if there are additional record setting days to come (good or bad). As companies get ready to post Q1 results, I would not be surprised to see declining earnings across the board due to shifts in consumer behavior related to COVID-19. However, those lower financial results are likely already priced into the stock value via the negative trading days recently witnessed. Often, because the stock market is so forward looking, the equity markets begins to turn around before we’ve seen the worst of the health epidemic at hand. That’s because when we’re in the midst of gloom, the market is fixated ahead and already sees the light at the end of the tunnel. 

Fundamentally, the US economy is strong. We’re simply at the end of the market cycle and many have forgotten that we need some down market years to ensure stock prices don’t stray too far from the true valuations of the companies they represent. Our advice remains consistent. These volatile trading days highlight the resiliency of diversified portfolios and the need for a measured amount of fixed income to offset equity volatility. Furthermore, systematic rebalancing in up and down markets ensures your investment portfolio adheres to the original target customized to your risk tolerance. As Schwab’s Chief Investment Strategist, Liz Ann Sonders stated this week, “Those tried-and-true disciplines are the closest thing an investor can get to a ‘free lunch’ in this crazy business.”

Age-old investment advice:

-       Neither “get in” nor “get out” are investment strategies...they represent gambling on moments in time, when investing should ALWAYS be a process over time.

-       Panic is not an investment strategy.

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.

Continue reading
69 Hits

CORONAVIRUS: THE OTHER SHOE HAS DROPPED

The novel coronavirus, now named COVID-19, has been causing fear and panic around the world, not to mention wreaking havoc on the stock market. Given the virus is no longer contained within Asia and is poised to be a global pandemic, the ramifications on the stock market (which is always forward looking) have been extremely negative.  As of Friday, 2/28, the Standard & Poor’s 500 (S&P 500) dropped approximately 300 points or 9% year-to-date. From the peak of the stock market in mid-February, the S&P 500 is down over 430 points or nearly 13%, officially putting us in “correction” territory.[i]

Looking back to the 2000s, we had three health epidemics that also came out of China; SARS, avian flu, and the swine flu. The average S&P 500 stock market drop due to these diseases was 15%. However, a year later, the S&P 500 was up an average of 25%. Similarly, with the Ebola virus and Zika virus, the S&P 500 dropped a lesser 10% and rebounded 14% thereafter. This could hint we have more downside to come.

The decline in the stock market over the last week has proven to be the fastest drop in history, according to Deutsche Bank Securities. There have been 27 market corrections since World War II, but the average decline of 14% was spread out over a window of four months.[ii] Some feel the rapid decline was due to the fact that stock valuations have been at their highest since 2002, making the market ultra-sensitive to a geo-political element like COVID-19.

We have been at the end of the longest Bull Run in the history of the stock market for years. In fact, economists predicted the end of the growth market cycle in 2018. However the Tax Cuts & Jobs Act became effective in 2018, giving corporations a 14% tax cut, or a synthetic boost to their bottom line that kept the stock prices buoyant. In 2019, Fed Chairman, Jerome Powell, initiated three interest rate cuts which eased monetary supply and boosted the stock market further. For two years, the market stayed artificially high, even though it was apparent the economy was slowing. As a result, stock traders have been skittish, constantly waiting for the other shoe to drop. This relentless unsettled feeling has coined our last market surge as the Most Hated Bull Run in the history of the stock market.

COVID-19 may be the catalyst to initiate the overdue market contraction the government has been trying to delay. We've never seen the market decline so rapidly due to a medical epidemic alone. To substantiate that, the declines we’re seeing in the stock market are not limited to companies who depend upon imports from China or the tourism industry. In this market decline, we’ve seen businesses lose value across the board. Companies like NBC Universal and Uber (who no longer operates in China) were also down, indicating the larger market may have been overpriced and in need of correction.  

Should Retirees Cash Out?

Some have said, “I’m too old to go through another 2009,” and their anxiety is understandable. However, retirement is not the end-all for an investment portfolio. In fact, many can spend 25-30 years in retirement, which means your investment portfolio needs to be invested for that time frame also. Whether the market is down for a short-period due to the coronavirus, or a long time due to a market cycle, investors should not cash out their portfolios for an event that will likely be ineffectual to a long-term investment strategy. Likely, the market will recover before the end of the epidemic, causing those who cashed out to buy back at a price higher than they sold for.

Take another long-term asset like your house for example.  Did you sell your house when the housing market was crashing in 2009 in hopes of staving off paper losses?  Did you plan to buy your house back just as the market began to recover to make a bigger profit on your investment? No! You plan to live in your house the rest of your retirement, so whether the house is valued lower in 2009 is irrelevant if it provides you shelter the rest of your retirement years. The same can be said of a well invested portfolio. It may be down some years, but it will recover and be on the plus side as long as you don’t make knee-jerk reactions.   

On the contrary, you should consider a distribution when you have a set expense approaching in the next one to two year window. For example, if you are looking to buy a house, start that overdue bathroom remodel, or put a child in college this Fall, take the funds allocated for that expense out of the market so that you aren’t forced to pay a bill right when the market is down, locking in losses.

How do I prepare for the market ahead? 

Market timers tout that they can sell now, before the bottom hits and get back in, just as the market starts to turn around. In theory, that sounds like a great strategy, but is rarely instituted effectively in practice. To time the market, you have to be right two times: You have to know when to get out of the market and when to get back in. Statistics have shown market timing produces lower average annual returns than a diversified portfolio.

Diversification is one of the most effective strategies for dealing with volatility. Inversely correlated asset classes are paired together so that if one sector of the market is down, another sector of the portfolio is up, offsetting losses. It is one of the most effective ways to reduce losses during a market downturn so you can recover quicker when the market improves. 

Rationally speaking, you have two choices: 

1.)  Ride out the market downturn (short or long) and experience the next rise. You will be relieved that the markets were not down permanently for the first time in the history of the stock market!

2.)  If the market volatility gives you angst and you cannot sleep at night, meet with your Certified Financial Planner™ to determine if you need a permanent reduction in your portfolios risk exposure. Making a prudent change could save you from making a panicked decision with long-term financial damage.

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.

 

Continue reading
116 Hits

Coronavirus & the Market

CORONAVIRUS & THE MARKET

 The novel coronavirus has been causing fear and panic around the world over this last month. According to the World Health Organization (WHO), the coronavirus is a family of viruses found in humans and animals that causes respiratory illness, which in severe cases can lead to pneumonia and breathing difficulties.  Other well-known strains of the coronavirus include the Severe Acute Respiratory Syndrome (SARS) which was transmitted from cats to humans in China in 2002 and the Middle East Respiratory Syndrome (MERS) transmitted from camels to humans in Saudi Arabia in 2012. The most recent novel coronavirus was first reported in Wuhan, China in December of 2019 and the source is still being investigated.[i]  While China continues to be the epicenter of the epidemic (28,000+ cases), the virus has been reported in 25 countries including Singapore (30 cases), Japan (25 cases), Thailand (25 cases), Korea (23 cases), Australia (15 cases), and the United States (12 cases), just to name a few.[ii]

Due to the fast spreading nature of the coronavirus, the devastating impact and the lack of current medical remedy/vaccine, the stock market has been very reactive to the coronavirus. The Shanghai Stock Exchange was closed for the celebration of the Lunar New Year from 1/24/20-1/30/20 this year.[iii]  This was during the peak of the coronavirus news breaking.  As a result, when the market re-opened, the market reaction that would have normally been spread out over a week was consolidated into a single day of trading, exponentially increasing volatility. The Shanghai Composite Index fell nearly 8%, its biggest daily drop in four years.[iv]  The Dow Jones Industrial Average also dropped 603 points or 2.1%, wiping out its 2020 gains year-to-date. 

Many feel the reaction to the coronavirus is irrational and unnecessary. As of this week, approximately 565 people worldwide have passed from the coronavirus.[v]  To keep things in perspective, the flu took over 34,000 lives in the U.S. alone in 2019 and is projected to have a similar impact in 2020.[vi] Yet, the flu had no impact on the stock market last year, nor will it likely affect the market in 2020. Further, the last three major health epidemics, Ebola, SARS, and MERS were contained before having a significant impact on the global world market, and many market leaders expect the same with the coronavirus.

You may have heard that China has locked down citizens of Wuhan and nearby cities within the Hubei province where the coronavirus began.  However, the locked down population is estimated to be only 60 million in China’s booming population of 1.4 billion people and their major cities continue to run efficiently.

The stock market is reactive because investors are worried the coronavirus could cause a world economic slowdown.  There is an unknown variable regarding the severity and future impact of the disease, and the stock market hates uncertainty.  This is particularly true in our current U.S. stock market.  We are teetering at all-time market highs and investors are wondering which event will trigger the overdue market pull-back that ends our 11-year bull market run.  In other words, the U.S. market is especially sensitive to “bad news” at present. 

Examining the immediate impacts of the coronavirus, healthcare and healthcare product companies have gone up as much as 10% in value.  Conversely, manufacturing, real estate, and the construction market sectors have lost value with worries that imports/exports would be adversely affected.  There is also a decrease in consumer spending in China and nearby countries as citizens temporarily avoid public venues. 

However, analysts at Oxford Economics guessed that, similar to the stock market during the 2003 SARS epidemic, the market reaction to the coronavirus will be sharp but short-lived.[vii] In other words, long term investors should not make investment portfolio changes for an event that will pass quickly and likely be ineffectual to the 2020 world economy.  

Volatility is likely to remain high until a medical breakthrough related to the coronavirus is found.  Reports indicate a remedy could be around the corner as medications used to fight the flu and MERS have shown to work effectively on some coronavirus patients.  However, looking ahead to the year in full, many economists already predicted 2020 would be a volatile year for the U.S. market as we face a presidential election, new phases of the U.S.-China trade agreement and general late-stage market slowing.

Therefore, a prudent approach to dealing with the coronavirus would be to review your portfolio with your Certified Financial Planner™.  If your portfolio is riskier than you’re comfortable with, make adjustments to ensure your portfolio is positioned to be resilient in the market volatility to come in 2020.  If you’re well diversified, no singular company makes up a majority of your overall investment portfolio and the asset classes are balanced in a way to offset volatility due to short-term blips in the market like we are experiencing this month.  Finally, remember to focus on the end-goal in your investment strategy.  Panicked decisions made in a silo rarely compliment long-term objectives.

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.

 

 

 

Continue reading
117 Hits

SECURE Act

SECURE ACT

In the last weeks of December, the Senate voted 71 to 23 to pass the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The Act was originally passed by the House of Representatives in July, and was subsequently passed by the Senate in December and signed into law by President Trump on December 20, effective January 1, 2020.    

Some of the highlights of the Act include the following:[i]

  • Repeals the maximum age for making traditional IRA contributions (previously 70½)
  • Increases the age at which Required Minimum Distributions (RMDs) must start from 70½ to 72
  • Limits the life of an Inherited IRA for non-spousal beneficiaries
  • Allows a $5,000 penalty-free withdrawal from a retirement account related to the birth or adoption of a child
  • Expands the types of qualified education costs allowed by 529 College Savings Plans

 No Age Restriction on IRA Contributions

Prior to the SECURE Act, working individuals could not make contributions to a Traditional IRA after age 70½. Now, individuals can make IRA contributions so long as they have earned income, with no age restrictions. The new law allows workers to save more for retirement and increase tax-advantaged savings.

Prior to the SECURE Act, a working individual could make Roth IRA contributions past age 70½ and that is unchanged under the new law. 

RMD age limit increased from 70 ½ to age 72

Prior to the SECURE Act, individuals had to take a Required Minimum Distribution upon reaching age 70 ½.  For those who were already age 70 ½ before 12/31/2019, the old rules still apply.  However, individuals who turn age 70 ½ in 2020 and thereafter are not required to take their initial RMD until age 72.  In line with the prior tax code, if a person is working past the RMD age (now age 72) and that employee is not a 5%+ owner of the company they work for, they can defer taking an RMD from their employer sponsored retirement plan until the year in which they retire.

Also unchanged, the individual’s first RMD can be taken as late as April 1st of the year following the required beginning date.  For example, if a person turns age 72 in 2021, they must take their first RMD by April 1, 2022.  Every year thereafter, the annual RMD must be taken by 12/31.

Death of the Stretch IRA

One coveted estate planning tool was the Inherited IRA, also known as the Stretch IRA.  For example, under the old rules, when mom passed away, her daughter could receive her mom’s IRA as an Inherited IRA.  The daughter would be subject to taking annual RMDs on the Inherited IRA over her lifetime, but the daughter could continue to benefit from the tax-deferral treatment her mom had, stretching the life and tax-deferral benefit over two+ generations.  The Stretch IRA was a powerful tax management strategy.  Using the same example as above, under the SECURE Act, mom could still pass her IRA to her daughter upon her passing. However, under the new tax rules, her daughter would have to withdraw the Inherited IRA balance, in full, by the 10th anniversary of mom’s passing, eliminating the use of Stretch IRAs over multiple generations and accelerating the taxation of the IRA funds, to the benefit of the IRS.  According to the Congressional Research Service, the new tax-deferral limit on the Stretch IRA strategy has the potential to generate about $15.7 billion in tax revenue over the next decade.[ii] 

As a result of the new Inherited IRA rules, careful income tax planning will be more essential than ever.  Short-sided IRA distributions could have long-lasting ramifications to the recipient such as being pushed into a higher income tax bracket, subject to higher Medicare premiums, and potentially assessed a higher taxation rate of SSI benefits and so forth.

Additionally, anyone who has listed a Trust as the beneficiary of their IRA should meet with an advisor right away to ensure that decision is still appropriate.  Listing a Trust as an IRA beneficiary could restrict access to the beneficiaries of the Trust over the 10-year distribution window.  This could cause the beneficiaries to receive the entire IRA balance in full at the 10th year and inadvertently subject them to massive taxes.

The new 10-year IRA withdrawal rule does not apply to spouses and other eligible designated beneficiaries who can continue to inherit the deceased owners IRA into their own name (versus an Inherited IRA titling) and are not held to a 10-year withdrawal timeline. 

Birth or Adoption of a Child

Under the SECURE Act, a retirement account holder under the age of 59 ½ can now make a penalty-free withdrawal of up to $5,000 from their retirement account, including a 401(K) or IRA, for expenses relating to the birth or adoption of a child after the child has joined the family. A couple can potentially withdraw a total of $10,000 penalty-free, if they each had separate retirement accounts. This flexibility allows young individuals to save more, with the peace of mind they have a back-up to pay for bills associated with a new child during a busy time.

Expanded Definition of 529 Qualified Education Expenses

As of 2019, student debt in the U.S. totaled more than $1.5 trillion.[iii]  A benefit of the SECURE Act is you can now use up to $10,000 from a 529 College Savings Plans over your lifetime to directly pay-off outstanding student debt.  This is a lifetime, and not an annual limit. 

The SECURE Act will dramatically change the financial planning and estate planning strategies utilized going forward.  Be sure to meet with your Certified Financial Planner™, CPA or attorney early to develop strategies to take advantage of the benefits available and circumvent pitfalls.  Incorporating the new tax law into your Comprehensive Financial Plan can ensure your long-term goals are still on track. 

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.

Continue reading
94 Hits

Revisiting Investment Philosophy

The Great Recession in 2009 was the largest market downturn the stock market experienced since the Great Depression in 1929.  Since then, we’ve had 10 relatively consistent years of strong market performance to make up for the losses incurred in 2009 and take us to new market highs. On Thanksgiving week, the Dow Jones Industrial Average, one of the most commonly quoted US stock market indexes, reached an all-time market high of 28,164.[i] However, unlike prior stock market highs, this new record seemed to be shrouded in fear that the market was teetering at the top of a mountain with an ominous downward sloping path ahead. Whether the predicted future stock market downturn is true or just good attention-grabbing headlines is yet to be seen. 

However, the discussion gives way to an opportunity to revisit your current investment philosophy.  Admittedly, many investors don’t have a sophisticated strategy other than to get the best return with the lowest amount of risk.  In a good stock market, a loose investment strategy can seem sufficient.  However, in the market to come where volatility is the new norm and no rules are the new rules, a sounder investment philosophy would be prudent.  

Foundations of a sound investment philosophy include factors of returns that are persistent, pervasive, robust, implementable and intuitive.[ii] For example, style factors such as asset class investing might group Large Cap stocks into a group of securities with capitalization attributes ($10 billion+) that are associated with specific expected returns.  Another factor or investment grouping is Small Cap stocks, which have different attributes of capitalization ($300 million to $2 billion) and different typical responses to macroeconomic factors.  By grouping various factors together, academic and industry research leads to an expected return that can then be analyzed to meet the outlined philosophy goals mentioned above.

For example, research has indicated that Small Cap stocks tend to outperform Large Cap stocks in a long-term (10 years+) investment window.[iii]  In analyzing whether Small Cap stock would be a sound investment philosophy, the returns of Small Cap stock should be persistent, in that the asset class continues to outperform its larger counter-parts in spite of obstacles and opposition, and throughout various historical market cycles. Following the sound investment strategy philosophy, the factor should also be pervasive, such that the rule of outperformance applies to the asset class throughout many world markets and is not singular to the US stock market.  The factor should also be robust, meaning the adherence to the rule of outperforming should be measurable and meaningful. To have a valuable investment philosophy, the strategy must also be implementable in the real-world stock market.  There must be a clear way to measure capitalization, sort companies by size and easily invest in small companies. Finally, investment in the factor, such as Small Cap stocks, must intuitively make sense.  Small Cap stocks are subject to more volatility and more risk.  Therefore, the investor must be adequately rewarded for the additional risk undertaken. 

It would be easy to say that Small Cap stocks in the U.S. have consistently underdelivered in the last market cycle and dismiss the investment holding.  However, a prudent investment strategy would be to analyze the philosophy, determine logically that an investment in Small Cap stocks makes sense and overcome the emotion as a disciplined investor.  In fact, economists in the market anticipate that Small Cap has a good probability of taking the lead in investment returns in the next 12 months.[iv]

While we used an investment in Small Cap stocks as the factor in this example, the same philosophical examination of each portfolio holding can be done systematically to ensure each piece of your investment portfolio makes sense for you individually.  Large Value and Emerging Markets are additional asset classes that have not fared well in the recent history, yet academically prove to be valuable pieces to a sound long-term investment strategy and a diversified portfolio. 

On the flip side, consider an investment factor that doesn’t intuitively make sense.  For example, what if the factor of grouping investments chosen was simply a letter of the alphabet, such as the letter “A”.  Under such parameters, you might invest in Apple, Amazon, and Alphabet (Google), and the portfolio likely would have done well over the last 10-years!  However, the letter A as an investment philosophy doesn’t hold up to the sound investment philosophy rules of persistence or intuition.  In the long term, this tech-heavy portfolio would be subject to a great deal or risk and volatility for a retiree hoping to protect their life savings. 

In summary, the investment philosophy you implement should make sense for your specific investment risk tolerance and long-term goals.  A good investment strategy should have a foundation of historical evidence or academic support that can take emotion out of difficult decisions.  When dealing with your life savings we want to be prudent rather than chasing a trend or leaving an investment up to chance.  If you have questions about your current investment strategy, seek the opinion of a Certified Financial Planner™ to help you reach your financial life 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.

Continue reading
130 Hits

LOOKING TOWARD 2020

Those who are mad at Costco for bringing out the Christmas decorations before Thanksgiving are really going to be infuriated with me now.  Yes, the U.S. Internal Revenue Service (IRS) has come out with the annual inflation adjustments for the year 2020. As Financial Planners, we’re already looking ahead and, you guessed it, we’ve started planning. Most of the news is good. Included in the new 2020 rules are adjustments to tax rates and contribution limits, including higher estate tax and gift-tax exclusion limits.

TAX BRACKETS & STANDARD DEDUCTION

Staring January 1, 2020, the IRS increased the amount that can be earned in the current seven-tiered tax table for inflation.  The lowest tax rate remains at 10% and the highest at 37% with varying income limits by filing status. 

The standard deduction amount for single filers increased in 2020 to $12,400 from $12,200 in 2019.  The deduction for married filing jointly couples also increased in 2020 to $24,800 from $24,400 in 2019. [i]

GIFTING

Starting in the year 2020, individuals will now be able to gift a total of $11.58 million during their lifetime, free from federal estate or gift taxes.  For a couple, that means they could potentially shelter an estate worth $23.16 million from federal taxes when they pass away – wow!  The 2019 lifetime gift-tax exclusion was $11.4 million per person. In 2009, the estate tax exclusion limit was $3.5 million.  With the 2020 Presidential Election on the horizon, many are wondering if the estate tax exclusion’s dramatic increase under President Trump will be ratcheted down to prior levels in an effort to equalize wealth and help underfunded government programs such as Medicare and Social Security. 

In addition to the lifetime gift limit, individuals can also make annual gifts, free of taxation and excluded from the accumulative lifetime gift-tax exclusion. In 2020, the annual gift-tax exclusion is $15,000 per person or $30,000 per year for a married couple filing jointly.  In other words, if Bachan and Jichan wanted to give money to their two grandchildren during their lifetime, they could each give $15,000 to each grandchild, for a total annual tax-free gift of $60,000.  The annual gift-tax exclusion is a powerful gifting tool that is often overlooked.  The annual gift limit for 2020 was unchanged from prior year.

MAXIMUM RETIREMENT CONTRIBUTIONS

The IRS also increased the limit that individuals can contribute towards a Defined Contribution plan such as a 401(k) or 403(b) for the year 2020 to $19,500.  The limit was $19,000 in 2019.  To take advantage of this increased contribution limit, employees should tell their employer sponsored plan representatives to increase their paycheck contribution amount to meet the higher maximum in the beginning of 2020.

Workers age 50 and above are also eligible to make a catch-up contribution on top of the $19,500 limit, increasing the amount of income they can shelter from income taxation annually.  The new 2020 catch-up contribution is now $6,500, up from $6,000 in 2019. 

The amount individuals can contribute to an Individual Retirement Account (IRA) is unchanged for the year 2020 and remains at $6,000.  IRAs are also eligible for a catch-up contribution for savers age 50 and older.  However, that too remains unchanged in 2020 at $1,000 per year.The savings limit for self-employed persons utilizing a SEP-IRA will also increase in the year 2020 to $57,000 from the prior $56,000 limit.

The savings limits seem high and perhaps unattainable at first.  A Vanguard study in 2018 noted that only 13% of employees with a work sponsored plan saved the maximum limit allowed.[ii]  However those who save, and particularly those who save early on in their careers, have the smoothest retirement cash-flow metrics and are often able to retire earlier in life with greater peace of mind.  If you feel that your retirement savings plan could use review or an adjustment, reach out to a Certified Financial Planner™ for a second opinion.  It’s never too late to start planning.

 

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.

Continue reading
128 Hits

Negative Interest Rates?

A year ago, market analysts predicted that bond yields had nowhere to go but up. Lo and behold, the yield on the 10-year Treasury note is hovering around 1.7%; it was more than 3% at this time last year.[i] 

In the United States, the Federal Reserve is in charge of setting monetary policy, or the management of interest rates and total supply of money in circulation.  Fiscal policy, on the other hand, involves the taxing and spending actions by the government and is set by the national government.  While each are separate independent bodies, monetary and fiscal policy share the common goal to promote economic growth and curb inflation.[ii]  These days, fiscal policy is also putting pressure on monetary policy in ways inconceivable before. In a recent tweet, President Trump called on the Fed to cut interest rates to “ZERO, or less.” [iii]

In August of this year, the Federal Reserve, led by Fed Chair Jerome “Jay” Powell, cut interest rates 0.25%.  This shocked the country given the Fed had done just the opposite and raised interest rates nine times between 2015 and 2018 in an effort to curb future inflation. Then last week, the Fed cut interest rates by another 0.25%.[iv] The interest rate cut worries many investors because it reminds them of the last time the Federal Reserve cut interest rates in 2008. 

The Federal Open Market Committee (FOMC), the monetary policy-making division of the Federal Reserve, meets eight times a year to set the Fed Funds Rate. The Fed Funds Rate is the interest rate at which banks will loan money to each other overnight to meet their legal reserve (cash on hand) requirements.  When the Fed increases the Fed Funds Rate, the cost for borrowing capital increases for banks.  Therefore, banks charge more to corporations and individual consumers to borrow money – tightening monetary supply.  On the other hand, when the Fed Funds Rate is lowered, banks can borrow money at a lower cost and therefore lend to consumers at a lower cost – easing monetary supply. Lowering interest rates has a ripple effect on the economy and generally speaking, the stock market does well when interest rates are cut.

During the Great Recession of 2009, the Fed cut interest rates in an effort to stimulate economic growth and consumer borrowing/spending.  This kept financial markets afloat and gave middle class America access to much needed cash.  Now, the Fed is cutting interest rates despite steady growth, leading many to wonder why.  

President Donald Trump recently advocated that negative interest rates would further boost the economy. In this odd circumstance, consumers would actually be penalized for keeping money in the bank.  For example, rather than earning 1% for keeping your money in a 1-year CD, in a negative interest rate environment, you would pay the bank 1% as a service fee for the safe-keeping of your money during the year.  In such a scenario, big banks and corporations might be encouraged to spend or invest money rather than leaving it on the sidelines in caution.

The European Central Bank (ECB) has had negative interest rates for five years due to a struggling economy. Shortly after the ECB, the Bank of Japan adopted negative interest rates in early 2016.  The state banks of Sweden, Switzerland and Denmark also adopted negative interest rates.[v]  You might think, “No one would be absurd enough to pay a bank to hold their money!” but at the peak, approximately $12.2 trillion was held at negative interest rates.

Historically, negative interest rates have only been implemented on large corporations to punish them for parking money in cash and encourage spending or lending of money that could stimulate the economy. Traditional bank depositors were not subject to the same negative-interest fee on daily checking accounts, otherwise they might resort to keeping cash under their mattress to generate a higher 0% investment return on their money!

No one expects interest rates to go negative soon, but the door to such ideas has been opened.  The Federal Open Market Committee meets again at the end of October and we’ll see what lies ahead.

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.

Continue reading
137 Hits

Politics & Your Portfolio

These days, the stock market can swing from positive to negative territory, sometimes moving 800 points, in just a few hours.  Due to the daily volatility, future market predictions run the spectrum from cautions of a looming recession to claims that we are witnessing the strongest market in history. It’s hard for anyone to make sense of the noise and separate fact from fiction.

The truth is that the Dow Jones Industrial, the most widely referenced measurement of the stock market, is up approximately 2,700 points or 12% year-to-date 2019.  While the Dow is down approximately 5% since the market high in July of this year, the stock market is still positive year-to-date, and still near all-time market highs. Much of this has to do with the fact that the economy is strong, despite the political uncertainty. In fact, second quarter earnings in 2019 on the Standard & Poor’s 500 Index stood at $42.13, even higher than the originally forecasted $40.70 for the quarter.[i]

However, the Trump Administration’s escalating trade war with China is continuing to throw the market for a curve ball. In early August, the President announced a new round of tariffs on China which sent the market into a tailspin. On Friday of last week, President Trump demanded U.S. corporations leave China and publicly called the Federal Reserve Chairman, Jerome Powell, an “enemy” for not lowering interest rates.  Both actions negatively affected the market.

It is common knowledge that the President considers the stock market his measure of success and is therefore upset when the market is down. So, after the market sell-off last week, the President claimed to have received “two very good calls” from China indicating a resolution from China could be on the horizon and his hardline tactics were yielding positive results.[ii]  However, less than 24 hours later, Chinese delegates publicly announced that no such calls had been made and “China didn’t change its position.” [iii]  It’s no wonder stocks, and investment portfolios, are getting whipsawed in the market.

Besides financial news that directly affect the market, reports of President Trump advocating for Russia at the G7 Summit and his tweets bashing Puerto Rico as they prepare for Hurricane Dorian make any possible logical conclusions about our political predicament impossible. Those with sound mind are trying to make sense of a very volatile and confusing landscape, but it’s getting harder each day.

It is quite possible that the U.S.-China Trade War will push the longest running bull market into an overdue correction.  If that’s the case, economists predict that a down market could stretch from a couple of quarters to a year or two. However, history has shown that a market exodus can present an opportune time to buy when stocks are on sale. Giving into emotions and locking in losses during a market downturn only hurts long-term investment performance. A better solution is weather out the storm or, if necessary, make a portfolio adjustment that will allow you to stay invested for the long haul and capture market recovery. Whatever direction the market takes in the weeks and months to come, we will certainly be entertained.   

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.

Continue reading
145 Hits

Turning Point in the Market?

In August, the US officially marked the longest economic expansion in the nation’s history. Gross Domestic Product or GDP, has grown consistently over the past 121 months, breaking the last record which lasted from March 1991 to March 2001. [i] While the stock market experienced a great deal of volatility, the market got a boost in 2018 thanks to the corporate tax reductions from the Tax Cuts and Jobs Act of 2017. In 2019, the year-over-year corporate gains decreased, having already integrated the lower corporate tax rates, however the stock market marched on to new highs.

While the Fed consistently raised interest rates from 2015-2018, this week, the Fed cut interest rates by 0.25%, referring to the reduction as a ‘mid-cycle adjustment’ rather than a turning point in the market. Nevertheless, some tied the interest rate cut to the overhanging trade dispute between the US and China, which has negatively impacted the global market outlook. The White House announced plans to talk with Chinese officials in Washington in early September, giving the market a temporary reprieve.

Pundits point out that the US stock market’s current Price/Earnings valuation ratio (P/E) is higher than global markets.  Further, current P/E ratios are also notably near historical averages seen right before the Great Depression of 1929, causing some to fear trouble ahead.  However, history has shown that P/E ratios have been in these same relative measures several times historically (i.e. most of the 1990s) and there was no recession.[ii] While it is easy to make predictions, it is much harder to make accurate ones.

Very few forecast a large market downturn like what we saw in 2009, but most analysts admit the market is likely to slow or decline before another great expansionary period.  While some see these financial indicators as signs to get out of the market, prudent investors anticipate ups and downs in the market and set an investment plan to weather volatility. There are still market factors that point to future growth potential.  For one, the economy is strong, despite political uncertainty.  Economists predict GDP will increase another 1.8% in 2019 and the unemployment rate will remain unchanged at 3.6%.[iii] Some worried investors cashed out in early 2019, only to miss out on the Dow Jones Industrial Average reaching an all-time high of 6,882 in July 2019. [iv]

Rather than cashing out your investment portfolio in fear, a sounder plan of action would be to make adjustments to overly aggressive portfolios and balance equities with a measured amount of intermediate term, high-qualify fixed income. For those nearing retirement, it may also make sense to reduce equity exposure, given your window for portfolio recover is shorter. For those with longer investment timelines, often, the safest strategy is to keep a long-term perspective, ensure your investment portfolio matches your risk tolerance and reduce unnecessary risk.  If you are unsure about your current investment portfolio strategy, seek a second opinion from a trusted advisor.  Keep in mind that some of the best times to get in the market is when everyone else is cashing out, and some of the most dangerous times to jump into the market is when everyone says the market is hot.

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. 

Continue reading
176 Hits

The SECURE Retirement Ahead

Although it hardly made headlines, the U.S. House of Representatives almost unanimously passed a new set of retirement laws just before the Memorial Day weekend.  The new act is called the Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act.  The bill will now move to the Senate where a committee will release and vote on their version of the retirement act before reconciliation and final approval by the President. Differences between the House and Senate versions of the bill will still need to be resolved.  However, here are some highlights, as the bill stands currently.

Raising the RMD Age

Under the SECURE Act, the RMD age would move from age 70 ½ to age 72.  This means retirees would not be forced to starting taking mandatory withdrawals until later in their retirement, possibly allowing more time for their retirement savings to grow, tax-deferred.  It is believed the Senate version of the bill would push the RMD out even further, to age 75 by 2030. It’s estimated that the delay in withdrawals could cost the Treasury $8.9 billion over a 10-year budget window.[i]

Another, unforeseen byproduct is the delayed RMD may reduce charitable gifting to non-profit organizations. Due to the Tax Cuts and Jobs Act, the standard deduction has increased and many itemized deductions have been eliminated, making Qualified Charitable Distributions (QCDs), or direct gifts from an IRA to a non-profit, tax-free, one of the few remaining ways to get a tax-break. If the RMD age is pushed back, QCDs may also be delayed.

IRA Contributions past age 70 ½

The SECURE Act also allows older workers to continue making IRA contributions past the current cut-off age of 70 ½. These days, many people are working longer or starting passion projects in retirement. The new tax rules will allow this group of working Americans to continue saving while staying active.

Small Business Incentives

The SECURE Act would make it easier for small businesses to consolidate resources and offer multi-employer 401k plans to employees. By allowing employers to share costs associated with administering benefit programs, more small business employers are likely to offer retirement benefits to their employees. The act also requires businesses to let long-term, part-time workers become eligible for retirement benefits so they too, may save for retirement. Additionally, there is a proposed $5,500 tax credit to small business employers who automatically enroll their employees in retirement savings plans (versus allowing employees to opt-in to savings plans). By eliminating the hurdle of enrollment, the propensity to save will increase.

Retirement Education

The bill encourages retirement planning to be integrated into the traditional savings process by asking retirement plan sponsors to estimate how much income a retiree’s current savings might generate in future retirement income. There are no plans on how to provide such support currently, as it would require the integration of delicate cash flow projections based on social security benefit assumptions, inflation estimates, investment return projections, etc., but the value of earlier financial planning is noted as crucial for a successful retirement.

Penalty-Free IRA Withdrawals for New Parents

New parents will be allowed to take a $5,000 withdraw from a qualified retirement account within a year after the birth or adoption of a child, penalty-free. The provision would allow parents to recontribute the $5,000 back into the plan in the future.

Depleted Inherited IRA

Most of the proposed provisions are great for the American public, but also hurt the wallet of the Federal government. It is believed that the proposed Inherited IRA changes will make up for much of the lost funding. Currently, if a parent passes away, their unused IRA could go to their child (or any non-spouse beneficiary) in the form of an Inherited IRA. Through the Inherited IRA, the child would continue to benefit from tax-deferred growth, and would only be subject to small annual distribution requirements. This has been a powerful estate planning tool, especially when the tax-benefit is stretched over two or more generations. Under the SECURE Act, Inherited IRAs will no longer have the benefit of indefinite life. Instead, Inherited IRAs will be required to be depleted within 10 years of the date of gift. This increases the tax-collection profits of the IRS, as IRA withdrawals are taxed as ordinary income (State and Federal) to the recipient in the year of distribution. The Senate Bill is proposing a five-year payout timeline for IRAs above $400,000[ii].

These days, bipartisan agreement on anything from immigration reform to releasing the unredacted Mueller Report is inconceivable, at best. For this reason, the most refreshing part of the retirement act is the bipartisan support (passed by a 417-3 vote) to improve the way Americans prepare for a financially secure retirement. Hopefully, in a time of division, small steps of unity will remind us to work together for the common good of all. Remember to reach out to your financial planner to ensure you’re integrating opportunities to strengthen your retirement plan once the final bill is approved.

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.

Continue reading
241 Hits

First-Quarter Market Review

It’s hard to believe that a quarter of the year is already over!  The market has consistently been inconsistent, zig-zagging up and down on economic news and predictions.  In December, we experienced the worse market decline since the Great Depression.  The S&P 500, an index of the 500 largest U.S. publicly traded companies, declined 9.2%[i].  Immediately following that grinchy Christmas, in the first quarter of 2019, the S&P 500 posted the best quarterly gain since 2009, up approximately 13%[ii].  Better yet, some analysts are predicting another surge to come. 

Diving a little deeper, the Russell 2000 Small-Cap Index gained 15%[iii] during the first quarter and the tech-heavy Nasdaq that was the first to tumble in mid/late 2018 also recovered, gaining 16%[iv] during the same period. International markets experienced decent gains, too.  European stocks were up 9% in the first quarter and Emerging Market stocks of less developed countries were up approximately 10%[v].

In the bond market, the yield curve inversion that spooked the market in early 2019 has flattened, as of late, with the 10-year Treasury bond yielding 2.51% and the 3 month bond yielding 2.42%[vi]. This could indicate that the fear of a future recession has subsided, or it could mean nothing at all and a recession is still looming; only time will tell.

Our stock market reiterates the sentiment that one week in the market hardly predicts where the market will go next.  Further, the equity market is proving once again that

volatility is the “new norm” thanks to the integration of computerized trading in the stock market.  Everywhere you go, jobs that were once done by people are now done by machines, i.e.: paying for parking with one of those machines that are impossible to reach from the driver’s car seat. Well the same goes for the investment industry.  Starting around the 2000’s engineers started tracking the criteria and decision making considerations that caused stock traders to buy and sell.  They quantified this data into programs that imitated the trading  behavior of a person.  Now, computerized trading is integrated into nearly 55% of the daily trading in the stock market and up to 90% of trading on volatile days[vii].  Due to computerized trading, the swings in the market, up and down, are larger than they used to be.  For this reason, many predict we’ll go through quoting the “largest gain” or “largest loss since…” for a couple of years until all the new records have been set.

Even with this understanding, volatility can frazzle nerves; especially for retired investors who can’t stand to lose their life savings. Those who stayed the course and did not lock in losses by selling equities in December are likely pleased with their discipline and subsequent portfolio recovery.  Even happier might be the contrarian investors who bought equities when stocks were “on sale” in December.  

If you believe in the power of capital markets, the best course of action is to try to react rationally when the market is acting wildly – easier said than done. Although it may temporarily feel better to get out of the market when the headlines are predicting doom or buy stocks when the market is hot and seems to have no cap on growth, these steps cause investors to lock in losses when the market is down and buy back into the market at a higher price after stocks have already peaked. 

Buying high and selling low is detrimental to the long-term returns on portfolios and is one of the main pitfalls to a market timing investment strategy.   

A more prudent investment strategy is to set your investment portfolio to match your risk tolerance.  In other words create a range of how much you hope to gain, paired with how much you can withstand to lose during any given investment period. Allow your portfolio to sway within this investment range knowing that the long-term average returns of this portfolio will help you achieve your end growth goals.  Whenever your portfolio is within the preset parameters, try to stay the course. 

If you find your portfolio is more volatile than you expected, examine if an extraordinary market condition has occurred or if your portfolio does not match your true risk tolerance.  If you need a second opinion on your  investment portfolio, reach out to a financial advisor for a second opinion. 

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.

 
Continue reading
258 Hits

Inverted Yield Curve

By now, many have heard about the inverted yield curve and the impending disaster predicted to follow within the next 12 months. This broad window of looming disaster is the perfect  headline to keep viewers glued to TVs and give pundits the ratings boost they need. 

Yet, with all the news coverage, many are still asking, “What is an inverted yield curve and why does it matter?”  The yield curve is a line made of plotted data points, in this case the interest rate of various maturing bonds.  Commonly tracked yield curves are the three-month, two-year, 10-year, and 30-year US Treasury notes.  These yields are the basis of setting other benchmarks such as mortagage lending rates and bank loan rates.  The shape and movement of the yield curve is also tracked as a tool for predicting the future of the market.

In a normal (positive) yield curve, the interest rate offered on short-term bonds is lower than the rate offered on long-term bonds.  Theoretically, it makes sense to get paid more for longer-term bonds because you’re taking more risk by locking your money up for a longer period of time.  For example, you could lock in a current market return of 2% for 10-years and the going market rate could rise to 5% in the middle of your 10-year investment window creating opportunity loss. A normal yield curve is most commonly associated with positive economic growth. 

An inverted or negative yield curve occurs when the interest rates offered on short-term bonds are greater than the rates offered on long-term bonds. Often, this happens because investors are wary of  the future market and migrate out of stocks and into bonds.  This drives the return on long-term bonds down as investors are willing to take a lower return to avoid downside risk in equities.  An inverted yield curve has historically been seen (but not always) before a recession.  Therefore an inverted yield curve has negative sentiment and is feared by market watchers. 

Historically, an inverted yield curve has preceded the last seven recessions dating back to the 1960’s.  Most recently, the U.S. Treasury yield curve inverted in 2006 prior to the Great Recession in 2008.[i]  However, there have been two false indications of a recession also – an inverted yield curve in 1966 that was followed by economic growth and 1998[ii], a flat yield curve, similar to the one we are currently experiencing.

The question on everyone’s mind is, “Are we going into another recession?”  The most common indicators of a recession haven’t occurred – A high GDP growth rate hasn’t happened in our long slow recovery from the Great Recession, we do not have rising unemployment, nor spiking interest rates.  Additionally, some market analysts state that the interest rates on long-term bonds is no longer indicative of market demand due to large, steady foreign investments in U.S. Treasuries.  These sustained purchases create a simple supply and demand condition that drives down long-term U.S. debt, regardless of the current or future market environment[iii]

Keep in mind that the yield inversion that occurred on Friday, March 22nd was a mere 0.035% crossing of the 3-month and 10-year Treasury bonds[iv].  A recession could hit later this year, or in the next few years to come.  Some investors are considering whether now is the right time to cash out and wait on the sidelines; ready to jump back in right as the economy shifts upwards again.  The concept sounds great, in theory, but few if any have become overnight millionaires executing this strategy perfectly. 

A sounder and more logical approach to market downturns is to limit your risk exposure by balancing asset classes.  Rather than having all your eggs in one basket, implement an investment allocation that balances your exposure in large and small US companies, large and small international companies and balances your equity exposure with high-quality fixed income to shield you on the downside when equities lose value.  This dependable approach to investing not only reduces your portfolio volatility, but allows you to stay invested during difficult periods in the market so you can capture gains when the market recovers. 

At the end of 2018, people were already throwing around the term “tech-wreck” and cashing out their portfolios, referencing the Dot-com crash of 2000.  Just two months later, the S&P 500 booked the best January dating back to 1987[v].  It goes to show, market downturns and recoveries can happen very quickly.  Chasing the market can be an emotional rollercoaster that hurts your heart and your wallet in the end.  If you need a second opinion on your current investment portfolio, reach out to a financial advisor who is a Fiduciary and will put your best interest first. 

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.investopedia.com/news/inverted-yield-curve-guide-recession/

[ii] https://www.marketwatch.com/story/the-yield-curve-inverted-here-are-5-things-investors-need-to-know-2019-03-22

[iii] https://www.marketwatch.com/story/the-yield-curve-inverted-here-are-5-things-investors-need-to-know-2019-03-22

[iv] https://www.marketwatch.com/story/the-yield-curve-inverted-here-are-5-things-investors-need-to-know-2019-03-22

[v] https://www.cbsnews.com/news/stocks-today-sp-500-posts-best-january-since-1987/

Continue reading
207 Hits

Rainy Day Funds

Globally, many view America at the peak of prosperity with limitless upward potential.  This January marked the best January returns for the history of the stock market since 1987. February was equally lovely with investors hoping the US and China would reconcile and soon come to a trade agreement.  Technology stocks rebounded well from their 2018 lows and the Federal Reserve committed to raising interest rates at a slower pace in 2019 than they did in prior year. 

Many might assume that with all the good news, Americans are more prosperous than ever, but a recent study revealed that average American families are not nearly as financially secure as first thought. When examining American household spending, savings and debt ratios, the Center for Financial Services Innovation found that only 28% of Americans could be considered “financially healthy.” Such statistics are disturbing because financial health can impact family stability and upward mobility for generations to come.

The same study revealed that approximately 44% of people said their expenses exceeded their income in the past year and they were reliant on short-term debt vehicles like credit cards, to close the gap.  Additionally, 42% of those polled said they had no retirement savings at all.  Although the future is always uncertain, we are at a clear crossroads where the government is not in a position to fund public benefit programs like Medicare and Social Security for the long haul unless drastic changes to our government budget are achieved.  Therefore, it would be naïve to count on government programs to provide substantial retirement benefits for Millenials and generations to follow. 

For these reasons, it is sound and prudent for every household to have a rainy day fund or savings reserved for the unexpected – a change in employment, an unexpected home or auto repair, a sudden drop in the stock market, etc.  For single-income households, it is advised to keep six months’ to one year’s worth of living expenses in a highly liquid savings vehicle.  For dual-income households, six months’ worth of savings may suffice under the logic that if one source of income is disturbed, the second income may carry the family over until normal finances resume. 

Rainy Day Funds should be held in a liquid investment that you can access with ease in the case of an emergency.  These days you can get a decent return on short-term CDs at your local or online bank.  It may make sense to ladder the maturity of your CDs so that some matured funds are on the horizon regularly.

While 2019 appears to demonstrate strong economic growth potential, there is no guarantee that the market decline at the end of 2018 was the end of a down market cycle.

With savings in excess of your emergency fund, consider employing a diversified investment strategy that is built to withstand normal market cycles.  A properly constructed diversified portfolio should aim to provide you with steady market returns over a long-term investment window by adding to your bottom line when the market is doing well and protecting you on the down-side if the market is contracting. 

Reach out to your Certified Financial Planner ™ or CPA if you need a second opinion on your investing and saving strategy.  Your financial professionals are built to serve as a financial sounding board and keep you on track during the good and not-so-good times.

 

¹ https://www.marketwatch.com/story/only-3-in-10-americans-are-considered-financially-healthy-2018-11-01

² https://www.nerdwallet.com/blog/banking/why-you-should-save-a-rainy-day-fund-and-an-emergency-fund/

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.

Continue reading
222 Hits

Opening Weekend for Taxes

Monday was the official opening of the tax filing season.  The next few weeks may seem like the normal hustle and bustle of gathering documents for your CPA. However, the tax-filing process is actually very different this year.  Effective in 2018, the Tax Cuts and Jobs Act (TCJA) doubled the standard deduction, eliminated the personal exemption, and wiped out several popular deductions that millions of taxpayers utilized previously. Here are a few key changes to keep in mind.

Standard Deduction & Personal Exemptions

Annually, taxpayers decide whether they will take the standard deduction on their tax return, or if they have enough itemized deductions to claim a greater offset against taxable income. In an effort to create a “simpler” tax return, the TCJA doubled the standard deduction from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for married couples[i]

At the same time, in the spirit of “simplicity” the TCJA eliminated the personal exemptions and dependent exemptions of $4,050 per person. Prior to 2018, taxpayers could claim a personal exemption for themselves and a dependent exemption for each eligible dependent.

Here is a very basic example[ii].  Say you’re a married couple with two dependent children.  Prior to the new tax law, you have itemized expenses totaling $15,000.  Your itemized deductions are higher than the $12,700 standard deduction, so you opt to itemize.  You are also eligible for 4 exemptions of $4,050 for you, your spouse, and your two dependent children. Therefore, you have a total benefit of approximately $31,200.  However, with the new TCJA, this same couple would be urged to take the standard deduction of $24,000 in lieu of the $15,000 of itemized expenses they incurred during the year.  Given personal deductions are no longer allowed, their total tax deduction is $24,000, which compared to the old rules would result in a loss of $7,200 in benefits.

Other Eliminated Deductions and Changes

One of the notable changes in the Tax Cuts and Jobs Act (TCJA) was the reduction of the corporate tax rate from 35% down to 20%.  During the first three quarters of 2018, large US companies earned profits of about 25% over the prior year due greatly to the tax benefit[iii]. However, to make up for the big corporate tax breaks, many of the personal deductions by individual taxpayers were eliminated. Some of the eliminated deductions include the following[iv][v]:

  • Home Mortgage Interest - You can no longer deduct the interest paid on debt over $750,000 to acquire a home. With the median home price in Los Angeles County near $1 million[vi], this rule will likely affect many living in metropolitan areas of the country.
  • Home Equity Loan Interest – Interest on home equity loans or HELOCs are no longer deductible if the proceeds are utilized for something other than home improvements (I.e.: if you used the HELOC to pay off credit card debt or pay for your child’s college tuition). If the loan proceeds are used for home improvements, the interest would be deductible only if the combined debt of the primary home loan and the HELOC are below the $750,000 cap under the new tax law. Homeowners with existing mortgages and home equity lines will be grandfathered in and therefore unaffected by the new law.
  • Job Expenses – Many hard-working employees, such as teachers, pay for a great deal of job-related expenses out of pocket (i.e.: supplies, union dues, work-related education, home-office expenses, tools, work clothes, etc.).  Prior to the TCJA, these used to be deductible on your tax return if the total of your miscellaneous expense exceeded 2% of your AGI.  
  • Tax Preparation Fees – This item was also a tax deduction if in combination with other miscellaneous expenses, exceeded 2% of your AGI.
  • Miscellaneous Deductions – Items in this category included investment advisory and management fees, fees for legal and tax advice related to investments, trustee fees, etc. These were also subject to the 2% of AGI rule.

 

Charitable Gifting Solutions

It is estimated that due to the higher standard deduction in the Tax Cuts and Jobs Act, the number of people who make tax deductible charitable gifts will drop by 50%[vii].  That’s because with the standard deduction doubling, few will have the means to gift in excess of the $12,000 and $24,000 limits for single or joint filers, respectively. As a result, Qualified Charitable Distributions (QCDs) have elevated in popularity and a new strategy called bunching has emerged.

Qualified Charitable Distributions (QCDs) allow a retiree age 70.5 or older to donate their Required Minimum Distribution (RMD) directly to a qualified charitable organization. The QCD avoids the pitfalls of the new higher standard deduction because the QCD is a direct reduction of taxable income rather than a tax-deductible item that needs to exceed your standard deduction threshold. 

Bunching is the strategy of combining several years of gifts into one larger gift in a single year that will qualify for a tax deduction.  Some employ this strategy utilizing a Donor Advised Fund (DAF); a charitable gifting vehicle which makes gifts on behalf of an organization or family. Your financial planner can help you determine if these strategies make sense for you and aid you in completing the transaction if so.

------

Hopefully the new tax laws will work in your favor. Tax efficient strategies of investing, saving and gifting often come about when your professionals work together collaboratively.  Be sure that your investment advisor and CPA are communicating throughout the year to create a customized plan that helps you achieve your goals and manage your tax liability.   

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/publications/p501

[ii] There are many variables that could affect the outcome of this example and all individual estimates of tax should be prepared by a qualified tax professional.

[iii] https://www.wsj.com/articles/behind-the-market-swoon-the-herdlike-behavior-of-computerized-trading-11545785641

[iv] https://www.cbsnews.com/news/9-tax-deductions-individuals-can-no-longer-claim-for-their-2018-taxes/

[v] https://www.nolo.com/legal-encyclopedia/miscellaneous-itemized-deductions-often-overlooked-valuable.html

[vi] https://www.forbes.com/sites/ellenparis/2018/05/28/los-angeles-median-home-price-nears-1-million-as-fierce-bidding-wars-continue/#6cec0e681e85

[vii] WSJ: Charitable Contributions by Laura Saunders 2/14/18

Continue reading
314 Hits

2018 Investment Market Recap

In 2018, the nearly 10-year bull market finally came to an end. For the first time since 2008, we experienced a bear market, or a 20% decline off the S&P 500’s all-time market high on September 20, 2018.

 

It was a strange investment year. This is the first time since 1948 that the S&P 500 index rose in the first three quarters and then finished the year in the red. During the first three quarters of 2018, large US companies earned profits of about 25% over the prior year, due mostly to President Trump’s corporate income tax cut (from 35% to 21%). However, the year ended poorly across the board. Christmas Eve marked the worst decline in the history of the Dow Jones Industrial Average. The S&P 500 index registered the worst December performance since 1931. In very narrow investment pools, the declines were even steeper. Cryptocurrency Bitcoins, which are an entirely-made-up currency, and not backed by any government or pool of assets, dropped in value from a high of $20,000 per "coin" down to $3,800.

 

Many have commented that last year was extremely volatile. The stock market swung from positive to negative territory by hundreds of points in a matter of hours. Much of the recent volatility is due to automated trading which is triggered by algorithms, or preset parameters, which dictate when a computer is to buy or sell equity positions. One automated trade can cause a sector of the market to cross a threshold, which prompts another automated trade that can set off a domino effect. The speed and magnitude of the machine-driven trading is often amplified, as much of the algorithmic trading is programmed to sell more as prices drop. According to JP Morgan Chase, 85% of today’s trading volume is driven by computers or auto-trading. In other words, volatility is here to stay. Automated trading became commonplace in the market around 2013. 2018’s bear market was the first time the algorithms were tested in a declining market. 

 

A further breakdown of the investment market shows that just about every asset sector dropped in 2018. The S&P 500 index of large company stocks lost 13.97% during the year’s fourth quarter and finished down 6.24% in 2018. The Russell Midcap index finished the 2018 calendar year down 9.06%, and the Wilshire U.S. Small-Cap index was hit hardest, losing 19.67% in the fourth quarter, ending the year with a negative 10.84% return. The darlings of the US market, tech stocks, had a hard year, especially FAANG stocks: Facebook, Apple, Amazon, Netflix and Alphabet's Google. The technology-heavy Nasdaq Composite Index dropped 17.54% in the final three months of the year, to finish down 3.88% for the year.

 

The international investment scene was even poorer. The broad-based EAFE index (Europe, Australasia and Far East) of companies in developed foreign economies lost 12.86% in the fourth quarter, and ended the year down 16.14% in US dollars.  EAFE EM or Emerging Market stocks of less developed countries, lost 7.85% in US dollars in the fourth quarter, and lost 16.64% for the year.

 

Real estate equities were down also. The Wilshire US REIT index posted a 6.93% loss during the fourth quarter, finishing the year down 4.84%. 

 

In 2018, interest rates rose 0.25% every quarter, bringing the 10-year Treasury bonds returns to 2.68%. In a rising interest rate environment, bonds tend to lose value, and they did so last year. Many prudent investors integrate a portion of both bonds and stocks inside their investment portfolio as bonds and stocks tend to perform conversely, giving you downside protection. However, 2018 created the unusual situation of concurrent losses in bond and stock investments in the same year. 

 

In summary, all 15 investment asset classes, except for cash, posted losses for the 2018 year. Circumstantially, the current 20% market declines pales in comparison with the 86% drop in the 1930s, or the 57% drop from 2007 to early 2009. However, it is still never pleasant to see your net worth shrink over a year.

 

Many investment professionals had been expecting a bear market much sooner than this. On average, the market cycles every 3.5 years, meaning the market reaches a peak, contracts down to a trough, and then expands upward to a new market peak every 3 to 4 years. Due to the Great Recession in 2008, it took 4 years for the market to make up losses. From 2012 through 2017, the US economy had an expanded growth period, which often follows a large market decline like the Great Recession. Thus, 2018 was perhaps, the beginning of a “normal” market cycle.

 

The good news is the stock market loves predictability and “normal”.  There have been 32 normal market cycles since 1900. The bad news is there is no indication that we are at the end of the current down cycle. With the government shutdown, numerous trade wars, a quickly growing federal budget deficit, political uncertainty and headlines of historical market declines, investors are understandably nervous about the near-term future. Longer-term, a recession may be the biggest concern. Most economists are reluctant to predict an economic downturn when corporate profits and economic figures have been so strong. Yet, there have been indications of softening and overall negative consumer sentiment in the market.

 

No one can predict whether the markets will recover in 2019 or experience a steeper decline. What we do know is that all bear markets in history have been temporary. Investors who rebalance their portfolios on a regular basis--that is, realigning the weightings inside your portfolio to a preset target to provide long-term portfolio stability--tend to do better than investors who don't rebalance, and especially better than the investors who lose their nerve and sell in a panic during the downturn.

By all measures, the U.S. economy is still strong, albeit slowing. Therefore, cashing out

while the market is down due to a normal market cycle is not a sound long-term investment strategy. Most stock market gains and losses are concentrated into just a few trading days. Statistics show that a market-timer sitting in cash, waiting for the “right time” to buy back into the market will have a 45% lower return if they miss just the best 5 trading days during a 20-year investment window, compared to an investor who adheres to a disciplined investment approach. In other words, a sounder and safer investment strategy would be to hang on tight when the roller coaster reaches a peak and takes us down a steep slope for a bit. If you feel your portfolio needs review, reach out to your financial advisor for a second opinion. A sound financial plan and a long-term view of goals and objectives can be the best offset for short-term market turbulence. 

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.

 

Sources:

  • http://www.wilshire.com/Indexes/calculator/
  • http://www.ftse.com/products/indices/russell-us 
  • http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--
  • http://quotes.morningstar.com/indexquote/quote.html?t=COMP
  • http://www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx
  • https://www.msci.com/end-of-day-data-search
  • http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
  • http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/
  • https://www.wsj.com/articles/behind-the-market-swoon-the-herdlike-behavior-of-computerized-trading-11545785641
  • https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/
Continue reading
346 Hits

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. 

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.

 

Continue reading
262 Hits

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. 

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/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

Continue reading
329 Hits

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]

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.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

Continue reading
280 Hits

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/

Continue reading
290 Hits

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

Continue reading
321 Hits

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

Continue reading
367 Hits

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. 

-----------------

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.

 

Continue reading
360 Hits

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. 
-----------------

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

Continue reading
382 Hits

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

Continue reading
440 Hits

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?

Continue reading
446 Hits

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

Continue reading
402 Hits

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

Continue reading
456 Hits

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

Continue reading
490 Hits

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

Continue reading
531 Hits

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

Continue reading
433 Hits

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

Continue reading
477 Hits

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

Continue reading
454 Hits

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

 

Continue reading
485 Hits

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.

Continue reading
423 Hits

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.

 

Continue reading
455 Hits

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.

Continue reading
538 Hits

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.

 

Continue reading
493 Hits

2016 in Reflect: The Disciplined Investor Won

Calling 2016 an eventful year in the stock market feels like a bit of an understatement.  We started the year with negative sentiments stirring fear in many.  After the first full week of 2016, USA Today headlined an article noting, “Stocks close out week with worst start to year EVER.[i]  It was nerve rattling, to say the least.  The end of January was no better with the market diving as much as 500 points in one trading day, only to close at a loss of 250 points. 

The market dropped quickly in reaction to slowed growth in China as it shifted its economy from one fueled by trading with other countries, to one that is driven more by internal consumer spending, similar to the U.S.  To further fears, oil was selling at $28[ii] a barrel in early 2016, sending many corporations tied to the oil and gas industry into a downward spiral.  While crude oil prices have recovered greatly, unrest in the Middle East, has kept oil prices lower than the commonly seen $100 a barrel price from the 2011-2014 period. 

Then in late June, the world was surprised by the British Exit coined “Brexit” vote to leave the European Union.  The decision had immediate ripple effects around the world, causing stock markets to plummet and the British pound to fall to its lowest levels in decades. 

Shortly thereafter, the US election surprised the world again with presidential candidate Donald Trump making an unforeseen surge to surpass Hillary Clinton and become the 45th President of the United States.  As the US election announcements were declared, overseas markets sharply declined.  However, by morning, the market had reversed course to start what has been coined as the “Trump Rally” through year-end. 

Just over a week away from the 2016 year-end, the S&P 500 is closing in on a 10% gain for the year and the Dow, a gain of approximately 16%.[iii]  Hardly anyone remembers that just 11 months ago, the market was down about 9% and people were questioning whether the US was heading into a bear market. 

Everything in hindsight is 20/20.  However, what 2016 emphasizes again is that the disciplined investor who stays the course, or in this case, stays invested in the market, wins!  As the saying goes, it is an investors’ time in the market, and not market timing that yields returns. 

Many investors are stirred by unpleasant financial headlines, political shifts or negative market sentiments that are backed by very convincing data.  However, reacting on emotion can have a detrimental effect on an investment portfolio.  The important thing that a long-term investor needs to know is that after each market decline, the market pushes on to new record highs.  This is why those who sell at the bottom of the downturn, locking in losses, are often regretful later on.  Although it is sometimes difficult, those who are patient and do not panic are rewarded. 

Case in point, a person invested solely and unwavering in the S&P500 during the 2010’s would yield a whopping return of 95% on their investment.  However, if that same investor were to have timed the market and missed just the top 10 performing days in the market, their return would drop to 34% during the same window.[iv]

History has shown that the best-performing asset class doesn't hold the position very long, and changes quickly.  U.S. large company investments, like the Standard and Poors 500 index, had a good run since the bottom of the recession in March 2009.  In 2016, the U.S. small companies, emerging markets and U.S. value asset classes took the lead, proving that a diversified strategy is often the most prudent way to invest.   

Sir John Templeton, one of the founders of the Franklin Templeton mutual funds, famously said, "The only investors who shouldn't diversify are those who are right 100% of the time." One of the more reliable strategies in a volatile market is to build a portfolio that is just the opposite of "putting all your eggs in one basket." It's difficult to guess the best-performing asset class for the year, even for research firms that study investments 24/7 with analysts stationed around the world.  When you have a globally diversified portfolio that balances all of the available asset classes, no matter which asset class is performing well, you will benefit from its good performance.

Taking advantage of the market's long-term potential is one of the better ways to beat inflation and accomplish your family's most important goals.  Don’t forget, time is on your side!

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.


Continue reading
599 Hits

Lower Your Tax Bill with Year-end Planning

As the end of the year draws near, the last thing anyone wants to think about is taxes. But if you are looking for ways to minimize your tax bill, there's no better time for tax planning than before year-end. That's because there are a number of tax-smart strategies you can implement now that will reduce your tax bill come April 15.

As the year begins to draw to a close, consider how the following strategies might help to lower your taxes.

Maximize Contributions to Tax-Advantaged Accounts

Contributing to your employer sponsored retirement plan such as 401(k)s and 403(b)s is one of the smartest tax moves you can make. For 2016 you can defer as much as $18,000 of pre-tax income towards your retirement, essentially, reducing your taxable income for the year.  If you are age 50 or older, you can shelter an additional $6,000 for a total income reduction of $24,000.  Additionally, the money in the account is allowed to grow tax deferred until you begin taking withdrawals, usually in retirement.1

If you are interested in supplementing your contributions to your employer's plan, consider funding a traditional IRA. You can contribute up to $5,500 in 2016, and an additional $1,000 catch-up contribution if you are 50 or older. Like 401(k)s, IRAs offer a "one-two punch" in tax savings: tax deferral on your investment until you start withdrawing money, along with a potential tax deduction on all or part of your annual contribution if you meet the IRS's eligibility rules.  However, keep in mind that IRA contribution deductions (tax benefits) are phased out above certain income levels, depending upon your filing status and if you or your spouse are covered by an employer-sponsored retirement plan. 

If you’re subject to a phase-out of tax deductions, consider directing your savings to a Roth IRA or a Roth 401(k), if offered by your employer. Although contributions to Roth retirement vehicles are made with after-tax dollars, the future withdrawals (including investment gains) are tax free, provided certain conditions are met. Keep in mind that those with higher annual household incomes may be unable to make a Roth IRA contribution, so check with your CPA.

Put Losses to Work

If you expect to realize either short- or long-term capital gains, the IRS allows you to offset these gains with capital losses.  This strategy of minimizing your exposure to capital gains tax is often referred to as tax-loss harvesting.  Short-term gains (gains on assets held less than a year) are taxed at ordinary rates, which range from 10% to 39.6%, and can be offset with short-term losses.  Long-term gains (gains on assets held longer than a year) are taxed at a top rate of 20% and can be reduced by long-term capital losses.2  To the extent that losses exceed gains, you can deduct up to $3,000 in capital losses against ordinary income on that year's tax return and carry forward any unused losses for future years.

Given these rules, there are several actions you should consider:

  • Avoid short-term capital gains when possible, as these are taxed at higher ordinary rates. Unless you have short-term capital losses to offset them, try holding the assets for at least one year.

  • Take a good look at your portfolio before year-end and estimate your gains and losses to date. Strategize with your financial advisor how you can offset gains and losses to minimize your capital gains tax.

  • Consider taking capital losses before capital gains, since unused losses may be carried forward for use in future years, while gains must be taken in the year they are realized.

When evaluating whether or not to sell a given investment, keep in mind that a few down periods don't mean you should sell simply to realize a loss.  Stocks in particular are long-term investments subject to ups and downs.  Moreover, taxes should only be one consideration in any decision to sell or hold an investment.  If you are considering employing this strategy, evaluate carefully the investments you may select for sale, then discuss your plan with a trusted financial advisor.

Consider a Qualified Charitable Distribution (QCD)

An important year-end consideration for older IRA holders is whether or not they have taken required minimum distributions (RMDs). The IRS requires account holders aged 70½ or older to withdraw specified amounts from their traditional IRA each year. These amounts vary depending on your age, increasing as you grow older.

Some retirees have a steady income stream from Social Security or a pension plan and don’t actually spend their RMDs to cover daily living expenses.  However, meeting the IRS requirement of taking an annual IRA distribution can increase your adjusted gross income (AGI).  This can increase your taxable income, push you into a higher income tax bracket, increase your Medical premium rates (based on annual income), etc. 

For those with high income sensitivity, a strategy of direct gifting your RMD to a non-profit organization might be the key.  A Qualified Charitable Distribution (QCD) is a nontaxable distribution made directly from your IRA to an organization eligible to receive tax-deductible contributions.  You must be at least age 70 ½ when the distribution is made. The QCDs count towards your IRA required minimum distribution.

A QCD is generally nontaxable to you, the donor, up to a maximum annual exclusion limit.  This allows you to stretch your dollars because you can gift pre-tax money directly to a charity that is eligible to receive the gift without paying taxes on the funds.  In other words, your AGI can be unaffected and your Required Minimum Distribution has been met, a win-win.

Regardless of what Congress does in the future, there are many steps you can take today to help lighten your tax burden. Work with a Certified Financial Planner and CPA to see what you can do now to reduce your tax bill in April. 

Source/Disclaimer:

1Withdrawals from traditional IRAs are taxed at then-current income tax rates. Withdrawals prior to age 59½ may be subject to an additional federal tax.

2Under certain circumstances, the IRS permits you to offset long-term gains with net short-term capital losses. See IRS Publication 550, Investment Income and Expenses.

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.

Continue reading
582 Hits

When Planning, Focus More on Goals, Less on Numbers

Reaching a place of financial well-being often requires a different way of thinking about investments.  Financial planning is a complex, lifelong process that people tend to approach with a numbers orientation.  What rate of return do I need to reach my goal?  How much insurance do I need?  Can I afford a bigger house?  How much money do I need to save for retirement? 

To support their pursuit of the "right numbers," people often use separate advisors -- for instance, a banker, a financial planner, an insurance agent, a tax professional, and an estate planning attorney -- to oversee the various components of their household wealth.  

However, this "siloed" approach to financial planning can easily lead to exclusionary investment strategies that make sense in one aspect of your life, say your investment growth goals for example, but neglects to consider another equally important facet, say your taxes.  Narrow investment strategies could create exposure to unnecessary levels of risk.  It may also result in multiple, random investment accounts in need of consolidation.  Furthermore, such an approach may inadvertently overlook crucial tools, leaving entire planning areas to chance.

Unlocking Financial Synergies

When viewing their financial goals -- such as buying a home, paying for a child's education, or saving for retirement -- individuals typically think in terms of what those goals cost rather than how achieving them might affect their lives.  If, however, they were to reengineer the planning process and assess their current life issues and future aspirations prior to selecting investments and asset allocation strategies, they may be in a better position to achieve satisfactory outcomes.  Perhaps equally important, by putting life circumstances at the center of financial decision-making, individuals may find more meaning in their actions with regard to money.

Indeed, values have a significant role to play in determining how individuals manage their assets. This is one way in which a holistic approach to "financial life planning" enables individuals to better assess their wants and needs, establish meaningful priorities, and avoid misguided investments.  As life circumstances and priorities change -- and they inevitably will -- so too, do financial goals.  In this way, individuals employing a holistic approach to planning can easily identify and address those areas of their financial lives that are still working well and those that may be hindering their financial well-being.

Crafting a Plan

Crafting a plan that reflects your unique situation and that ties your life aspirations to your financial goals is part art, part science.  To achieve this level of planning you need to rely on the guidance of a collaborative minded advisor -- someone who will take the time to get to know you and your circumstances, will put together an appropriate combination of vehicles or strategies and will work in conjunction with additional financial professionals to help achieve your goals -- whatever they may be. 

Certified Financial Planners and CPAs are licensed professionals who take a fiduciary oath – pledging to put your best interests before their own.  Seek professionals who have a trusted track record and can help you create a tailored plan for your specific needs.  The more your professionals work together, the better your plan will make sense from every angle.  When you have a plan of action that your financial planner, accountant and attorney have all blessed, you’ll likely have peace of mind that will help you to act decisively and achieve your goals that much sooner. 

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.

Continue reading
468 Hits

Impact of Income Inequality on Women's Retirement

Women earn less than men, live longer than men, and often take time out of the workforce to have children and/or to care for an aging parent or sick loved one. The potential consequence of these realities? While most U.S. workers are facing a retirement savings deficit, for women, the effect is compounded: Lower pay translates into reduced Social Security benefits, smaller pensions, and less retirement savings. This makes smart financial management especially important for women.

Consider the Facts

Many women will need to make their retirement nest eggs last longer than men's. According to the latest data from the Society of Actuaries, among females age 65, overall longevity has risen 2.4 years from 86.4 in 2000 to 88.8 in 2014. Similarly, among 65-year-old men, longevity has risen two years during the same timeframe, from 84.6 to 86.6 in 2014.¹

The gender wage gap has a ripple effect over a woman's entire career. The National Women's Law Center has found that a woman starting her career now will lose more than $430,480 over a 40-year career; for Latinas, this wage gap could total $1,007,080 over a career, and for an African American woman, the total wage deficit could reach $877,480. ² Put another way, a woman would have to work 51 years to earn what a man earns in 40 years.²

Family caregiving causes career interruptions that can have significant monetary consequences over time. Research conducted by the AARP revealed that family caregivers who are at least 50 years old and leave the workforce to care for a parent forgo, on average, $304,000 in salary and benefits over their lifetime. These estimates range from $283,716 for men to $324,044 for women.³

The retirement income gap is very real. The average Social Security benefit for women older than 65 was $14,234 annually in 2014, compared with $18,113 for men, according to Social Security Administration data.⁴ Research shows that women also receive about a third less income in retirement from defined benefit pension plans and have accumulated about a third fewer assets in defined contribution retirement accounts than their male counterparts.⁵

Beating the Odds

Despite these challenges, many women retire with enough money to relax and enjoy their later years. Here's how they do it:

  • Saving as much as they can: This year you can save up to $18,000 in an employer-sponsored retirement plan, plus an additional $6,000 "catch-up" contribution if you are age 50 or older. Your contributions are made on pretax income, which means you're paying taxes on a lower amount.⁶
  • Chances are your employer-sponsored plan won't provide all of the money you'll need once you retire. Educate yourself about other sources of retirement income, and strategies for optimizing your benefits -- as well as IRAs and other investments that can help fill in the gaps.⁷ Your Certified Financial Planner™ or Investment Advisor Representative can help.

  • Make the connection between life expectancy and income needs. Even if you already have a healthy nest egg, it's important to continue saving and investing. You could end up spending 20 or 30 years in retirement, which means your money will have to continue growing to keep pace with inflation, and to avoid running out in retirement.

Regardless of your personal challenges, you can take charge of your financial future -- starting today.

¹ Society of Actuaries, Society of Actuaries Releases New Mortality Tables and an Updated Mortality Improvement Scale to Improve Accuracy of Private Pension Plan Estimates," October 27, 2014.

² The National Women's Law Center, "Wage Gap Cost

s Women More Than $430,000 Over a Career, NWLC Analysis Shows," April 4, 2016.           

³ AARP: Understanding the Impact of Family Caregiving on Work, Fact Sheet 271, October 2012 and MetLife Mature Market Institute, "The MetLife Study of Caregiving: Costs to Work Caregivers: Double Jeopardy for Baby Boomers Care For Their Parents," 2011.

⁴ Morningstar, "Retirement: The Other Economic Gender Gap," June 7, 2016.

⁵ National Institute on Retirement Security, "Shortchanged in Retirement: Continuing Challenges to Women's Financial Future," March 2016.

⁶ To make the catch-up contribution, you are first required to save the annual maximum of $18,000.

⁷ Distributions from a traditional IRA will be subject to taxation upon withdrawal at then-current rates. Distributions taken prior to age 59½ may be subject to an additional 10% federal tax.

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.

Continue reading
537 Hits

The Fallout from Brexit

"Brexit," or Britain's referendum on whether to exit from the European Union, took an unexpected turn yesterday when British citizens, in a narrow vote, decided to leave. Although Britain will remain in the European Union for at least another two years, the uncertainty over the impact of the change has roiled global markets. British Prime Minister David Cameron has stepped down. The British Pound dropped 9% in value, and global markets fell 3 to 9% as analysts assessed the consequences.

Analysts generally agree that the economy of the United Kingdom will not collapse, and neither will the Euro.  Nevertheless, the ripple effect of Brexit will be lengthy and broad.  Some have compared this to a divorce settlement between Britain and the EU that will take two years to finalize. The immediate financial reaction was a flight to safety in U.S. Treasury bonds, British and German bonds, and gold. Oil fell by 5%, and British bank stocks were down 12 to 14%.

Because the U.S. dollar is suddenly stronger against other global currencies, it could slow the demand for U.S. exports, since they will become more expensive overseas. Morgan Stanley analysts estimate this may reduce U.S. growth by 0.6% over the next two years.¹

A positive outcome of the uncertainty in Europe is that increased interest rates in the U.S. are unlikely. There is even speculation that the Federal Reserve Bank may reduce interest rates. Low interest rates are a stimulus for the stock market and may help to offset the downturn from Brexit. Lower interest rates are also a stimulus for large purchases like homes and cars where an attractive financing rate is a consideration.

The U.S. economy remains fundamentally strong. Existing home prices have hit a 9-year high², and retail sales have had their biggest increases in a year as Americans stepped up purchases of cars and a range of other goods.³

What remains largely unaddressed by the media is the underlying cause of Brexit -- unequal economic income and wealth. The economic recovery from the Great Recession in 2008 and 2009 has mostly benefitted only the top 1 to 2% of the global population. The ultra-wealthy have done well, thanks to generous tax breaks, government bailouts and financial manipulation. By comparison, the general population is still struggling, mired in low income, low employment, loss of benefits, high taxes, and stagnant prospects. When the vast majority of the population is forced to fight over crumbs, there can be a growing tendency towards insularity, self-defense, and blaming immigrants who are "different."  What Brexit really reflects is growing resentment against being cut out of economic prosperity and decision-making.

Ironically, the financial markets, although volatile, may be one of the few ways that the middle class can protect itself from economic shocks and inflation, and participate in global economic growth. Since the bottom of the Great Recession in 2009, the Standard and Poors 500 has grown from 735 to 2,107 points, a gain of 187%.  

Although today’s one-day drop in the market is shocking at onset, if we take a step back, the market rescinded yesterday’s market boost of 225 points (built up when the market anticipated Brexit defeat) and took us back to our financial position a month ago in May.  The Dow is still 1,700 points higher than it stood in February of this year, and 10,000 points higher than it stood at the bottom of the Great Recession.  No one likes to take a step back, but occasionally you have to take one step back in order to take two steps forward. 

Likely the market will continue to be volatile until the November Presidential elections.  As we have seen with past crises, like the tech bubble, the housing crisis and the Great Recession, this is not the time for knee-jerk reactions and panic selling. In the short-term, markets tend to be volatile, but in the longer-term, they are quite resilient and provide reliable growth. The fallout from Brexit is likely to extend for several years, but those who stick to their long-term plans are likely to be rewarded for their patience, and gain from unexpected opportunities.

¹ Washington Post 6/24/2016

² Fox Business News 6/22/2016

³ Reuters 5/13/2016

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.

 

Continue reading
604 Hits

The Lowdown on Robo-Advisors

Robo-advisors or robo-advising has been a buzz word lately but both its meaning and future have been unclear to many.  Robo-advising is the practice of providing investment management services, typically online only.  The service is provided through programs and algorithms, and therefore excludes the use of human financial planners, face-to-face meetings, or a consistent point-of-contact for service and follow-up.  Robo-advisors have access to the same software and information as traditional financial planners, but tend to focus on investment management services only.  Therefore, robo-advisors do not offer comprehensive wealth management services such as retirement planning, estate planning and tax management.  Because robo-advising utilizes computer programs for servicing, they can cut a great deal of overhead costs associated with employing humans or having a brick and mortar office for you to meet in.  As a result, the cost to the end user is lower. 

The trend toward robo-investing and robo-advice is gaining momentum, but industry participants are struggling to get a handle on how retail investors view and/or use robo-services to conduct their financial affairs.

Recent research conducted by major asset management firms has gleaned insight, yet often their findings turn up contradictory information. For instance, one study conducted by State Street Center for Applied Research found that 65% of retail investors believe that technology will do a better job at meeting their needs than human advisors.[i] Other research conducted by Allianz Life®, which focused on generational approaches to investing and managing finances, revealed more complex attitudes.

Case in point: When baby boomers and Generation Xers were asked about using robo-advisors, a significant majority (69%) from both demographic groups said they "don't really trust online advice." Further, 76% opined that "there is so much selling online that it's hard to trust the financial advice."[ii]

The same study revealed that while more than a third of respondents expressed some interest in working with a robo-advisor, just one in 10 would be comfortable having a relationship with an advisor that existed solely online. [iii]

Indeed, study after study on the emerging impact of digital advice is finding widespread ambivalence on the part of investors.  On one hand, they are increasingly comfortable with getting their financial information and conducting more business through digital channels, while on the other, they still gravitate toward human relationships when dealing with complex "big picture" planning issues such as meeting their income needs in retirement and setting and managing other long-term financial goals.

Robo-advising has been popular with young consumers who are comfortable conducting financial business online.  Because robo-advisors have less overhead expenses, they also tend to have lower account minimum requirements.  This has been great for new investors who may want to open an account with $5,000 that would have otherwise been turned away due to the small investment size.  However, beware --some robo-advisor platforms that are tied to big financial institutions advertise “no advisor fees” but make up the “lost income” by investing clients’ money in their own proprietary mutual funds, allowing them to collect an internal expense charge.

Robo-advising is ideal for consumers who don’t mind being hands-on, are comfortable conducting business online, and are financially experienced such that they understand the volatility of the market and can keep a long-term investment perspective.  There are a great number of robo-advisors available currently, so I would steer those interested towards a company that aligns with their investment philosophy.

Still in its infancy, the world of web-based financial services will no doubt evolve and present exciting new developments in the future.

Source/Disclaimer:


[i]financial-planning.com, "Can Advisors Rebuff Challenge of Automated Investing?" February 25, 2016.

[ii]Allianz Life®, ' "Robo" Financial Advising on the Rise, But Gen Xers and Boomers Still Prefer the Human Touch,' February 16, 2016.

[ii]Allianz Life®, ' "Robo" Financial Advising on the Rise, But Gen Xers and Boomers Still Prefer the Human Touch,' February 16, 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.

 

Continue reading
725 Hits

Five Things Baby Boomers Need To Know About RMD's

The first of the baby boom generation will be required to start taking RMDs from their retirement accounts this year.  The generation that lived through and influenced the revolution in the retirement industry is now poised to begin withdrawing money from their retirement-saving vehicles -- namely IRAs and/or employer-sponsored retirement plans such as 401(k)s.

If you were born in the first half of 1946 -- you are among the first baby boomers who will turn 70½ this year. That's the magic age at which the Internal Revenue Service requires individuals to begin tapping their qualified retirement savings accounts.  While first-timers officially have until April 1 of the following year to take their first annual required minimum distribution (RMD), doing so means you'll have to take two distributions in 2017.  Taking two RMDs in one year could potentially push you into a higher tax bracket.

This is just one of the tricky details you'll have to navigate as you enter the "distribution" phase of your investing life.  Here are five more RMD considerations that you may want to discuss with your CPA or Certified Financial Planner™.

  1. RMD rules differ depending on the type of account 
    For all non-Roth IRAs, including traditional IRAs, SEP IRAs, and SIMPLE IRAs, RMDs must be taken by December 31 each year whether you have retired or not. (The exception is the first year, described above).  For defined contribution plans, including 401(k)s and 403(b)s, you can defer taking RMDs if you are still working when you reach age 70½, provided your employer's plan allows you to do so AND you do not own more than 5% of the company that sponsors the plan.
  2. You can craft your own withdrawal strategy
    If you have more than one of the same type of retirement account -- such as multiple traditional IRAs -- you can either take individual RMDs from each account or aggregate your total account values and withdraw the total annual RMD amount required from a singular account.  As long as your total RMD value is withdrawn, you will have satisfied the IRS requirement.  Note that the same rule does not apply to defined contribution plans.  If you have more than one 401(k), for example, you must calculate separate RMDs for each account, then withdraw the appropriate amount from each.
  3. Taxes are still due upon withdrawal
    You will probably face a full or partial tax bite for your IRA distributions, depending on whether your IRA was funded with nondeductible contributions. Note that it is up to you -- not the IRS or the IRA custodian -- to keep a record of which contributions may have been nondeductible.  For defined contribution plans, which are generally funded with pretax money, you'll likely be taxed on the entire distribution at your income tax rate since this is money that has never been taxed before.  Keep in mind that the amount you are required to withdraw could possibly bump you up into a higher tax bracket.
  4. Penalties for noncompliance can be severe
    If you fail to take your full RMD by the December 31 deadline on a given year or if you miscalculate the amount of the RMD and withdraw too little, the IRS may assess an excise tax of up to 50% on the amount you should have withdrawn -- and you'll still have to take the distribution.  Note that there are certain situations in which the IRS may waive this penalty.  For instance, if you were involved in a natural disaster or became seriously ill at the time the RMD was due, the IRS might be willing to cut you a break.  To request the excise tax waiver, you’ll need to file IRS Form 5329 with your annual tax filing – and a brief but specific letter of explanation might help.  If the IRS does not honor your waiver request, you will be notified. 
  5. Roth accounts are exempt
    If you own a Roth IRA, you don't need to take an RMD. If, however, you own a Roth 401(k) the same RMD rules apply as for non-Roth 401(k)s, the difference being that distributions from the Roth account will be tax free.  One way to avoid having to take RMDs from a Roth 401(k) is to roll the balance over into a Roth IRA.

For More Information

Additional information about retirement account RMDs can be found in IRS Publication 590-B, including the life expectancy tables you'll need to figure out your RMD amount.  

Navigating your Required Minimum Distribution for the first time can be tricky, so get in touch with your Certified Financial Planner™ or CPA well before year-end and create a plan that works for your individual circumstances.  Your financial and tax professionals can help you determine your RMD amount and advise you what to do with the proceeds.  You may choose a simple transfer of funds from a pre-tax account to an after-tax account for continued growth of investment portfolio.  However, perhaps those proceeds could help to fund an overdue vacation.  Paying taxes on RMDs is no fun, but when life gives you lemons…. 

The information in this communication is not intended to be tax advice. Each individual's tax situation is different. You should consult with your tax professional to discuss your personal situation.

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.

 

 

Continue reading
826 Hits

Focus on the Forest, not the Trees, of Investing

FOCUS ON THE FOREST, NOT THE TREES, OF INVESTING

 For long-term investors, keeping a focus on big-picture goals, such as retirement, and not being distracted by day-to-day market moves is key to success.  You probably already know this, but it's a message worth repeating.  Investing is a matter of focus.  Despite recent disappointments in stock market performance, investors who keep their sights set on long-term investment goals may find that a "forest, not trees" approach to investing offers the greatest potential for success.

Focus is especially important for retirement savers -- those who are still in the accumulation stage -- as well as for retirees who need to keep the potential for growth alive in their portfolios.

Are You a Micromanager?

As a retirement saver, your employer-sponsored retirement plan gives you the freedom to make your own investment decisions.  Because you can easily change the investment holdings inside your plan, you may find yourself becoming a micromanager.  That's an investor who changes investments frequently because of daily market movements instead of focusing on the big picture: a long-term investment strategy.  However, "chasing returns" by moving your money into whatever investment type or stock market sector happens to be doing well at the time rarely pays off in the long run.  Typically by the time market-moving news hits mainstream media, stocks have already adjusted in price.  People who follow trends tend to inadvertently buy-high and sell-low, hurting the long-term performance of their investment. 

The Unknowable Future

The problem with chasing returns is that it's virtually impossible to predict how long a particular investment or market sector will continue to be a top performer.  History has shown that it is not unusual for an asset class to go from being the top performer in investment returns one year to the lowest performer the very next year. That can present a problem if you build your investment portfolio based strictly on recent performance. 

The Solution: Keep a Long-term Perspective

You may be much better off by the time you retire if you use a "forest, not trees" perspective when you invest.  Concentrate on your goal, and choose an investment mix with the potential to help you reach that goal over time.

Your retirement plan offers several investment options, allowing you to choose a well-diversified investment mix for your account.  The idea behind long-term investing is to choose a mix that offers you a realistic opportunity to achieve gains while reducing the overall risk to a level you are comfortable with.  A Financial Planner can help you to find this balance and design a custom portfolio that matches your risk tolerance level.

After you've chosen your investments, you shouldn't ignore market and economic developments.  However, you'll generally want to stick to your plan unless you decide that a change in your personal situation makes an adjustment necessary, or you discover that your risk tolerance needs revision. Investors who adhere to an investment policy that relies on a well-diversified mix of investments, who are patient with the market's changing moods, and who have the discipline to set goals and review them on a regular basis may be in the best position to achieve the results they are looking for -- despite the market's short-term gyrations.

If you're a "forest, not trees" investor, you can be much less concerned with what the markets do on a day-to-day basis.  You'll be free to switch your investments, but you won't feel compelled to make a move every time the markets zig or zag, and hopefully you’ll sleep better at night too.  Consult with your CPA or Certified Financial Planner to make sure that your investment strategy makes sense for you and your on the right tract to a successful retirement.

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.

 

Continue reading
748 Hits

Life Stages and Financial Planning

Financial resolutions are only as good as your follow-through. Here are some planning considerations for the three key stages of your financial life -- accumulation, preservation, and transfer.

As you progress through the major stages of your life, it's normal for your goals to change too. In addition, current volatility in the financial markets along with other unsettling factors such as the impending presidential election and widespread geopolitical unrest may cause you to pause, rethink your financial situation, and set new expectations for the future.

Resolutions typically fall into one of three financial "life stages" -- accumulation, preservation, or transfer of wealth. In order to establish action plans for these phases, you need to examine opportunities, identify challenges, and add a dose of reality to your planning efforts.

Accumulating Assets

The key to pursuing longer-term financial goals, such as retirement and education funding, is to have a well-thought-out plan that assigns actual dollar amounts to each goal -- and a timetable for getting there. On this score, many investors are falling well short of the mark.

For instance, research compiled by the Employee Benefit Research Institute (EBRI) indicates that a sizeable percentage of workers say they have virtually no money in savings and investments.¹ Specifically, among workers who provided this type of information, 57% reported that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. This includes 28% who say they have less than $1,000 in savings. ¹

If you find yourself behind in your accumulation efforts for major life expenses, such as retirement, don't despair. There are many opportunities to jump-start your savings campaign.

  • Make the most of employer-sponsored plans. For participants in 401(k)s, 403(b)s, and 457 plans, the contribution limit stands at $18,000 for 2016 with an additional $6,000 in catch-up contributions allowed for those who are 50 or older.

  • Maximize IRA contributions. In 2016, you can contribute up to $5,500 to a traditional or Roth IRA (or split that amount between the two types of accounts). Add another $1,000 to that total if you are making catch-up contributions.

Don't let procrastination get the better of your best-laid plans. Make 2016 the year you get serious about saving.

Preserving Assets

Holding on to your assets requires a disciplined, long-term view. Most people plan for a retirement to span 25-plus years. However, when we encounter volatile market conditions, investors tend to move in and out of positions too quickly, potentially causing them to sell low, buy high, and abandon asset allocation fundamentals.² Short-term declines are normal and inevitable, but can tempt the most grounded investor to make impulsive investment choices. Consulting with your Certified Financial Planner™ during market downturns can help you better understand the market environment and allay your fears.

Many investors tend to hold on to a stock too long because they want to avoid paying capital gains taxes. Sometimes, making decisions based on tax consequences alone can be like the tail wagging the dog. It could cause you to miss opportunities. Speak to your CFP™ or CPA now about your 2016 strategy, particularly if you plan to rebalance your portfolio.

Transferring Assets

To leave a financial legacy requires significant advance planning. Questions regarding how much you want to leave to loved ones, how long your bequest will last, and how much will be eroded by taxes are difficult to assess on your own. Planning converts uncertainty into real strategies to make a difference.

When crafting your estate plan, be sure that documents are written to be flexible and easily adapted to changing circumstances. If balances on investment accounts decline, you may need to rethink -- and restate -- your intentions, perhaps even change beneficiary designations to reflect changing market dynamics.

When faced with these and other important financial planning considerations, a trusted advisor can be an invaluable resource. Working together, you can address new realities by setting practical expectations and crafting a plan for success in 2016.

¹ Employee Benefit Research Institute, 2015 Retirement Confidence Survey, April 2015.

² Asset allocation does not assure a profit or protect against a loss.

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.

Continue reading
767 Hits

Budget Deal Curbs Social Security Claiming Options

BUDGET DEAL CURBS SOCIAL SECURITY CLAIMING OPTIONS

In November 2015, President Obama signed into law H.R. 1314, more commonly referred to as 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.  As with most things related to federal programs, there's a great deal of complexity in the details.


What's at Stake?

File and SuspendThis is when an individual, who is at least at Full Retirement Age (age 66 for most claimants), files for his or her own retirement benefit and then immediately suspends receipt of those benefits with the social security office.  This sets a Filing Date under the individual’s record, which allows a spouse or dependent to then initiate benefit payments to be paid out to them based upon the filing individual’s record.  These auxiliary payments do not negatively affect the benefits to be received by the original filing individual.  In fact, since the individual suspended his or her own social security benefits, their future benefit is allowed to grow.  Between age 62 and 70, each year social security collection is delayed, benefit payments will increase by 6-8%.  This could potentially provide thousands of dollars in additional income to couples over their lifetimes.

Keep in mind that the original person must file first to enable the second person to file for spousal or dependent benefits.  After the initial filing, the original filer can continue to receive benefits or elect to suspend.  The suspension part is not necessary to enable the auxiliary benefits.  Suspending simply allows the original filers’ benefits to grow for a later payout date. 

Anytime between Full Retirement Age (FRA) and age 70, the individual could change their mind and “unsuspend” their benefits.  The Social Security office would retroactively pay out some or all of the suspended benefits in a lump sum. 

Under the Bipartisan Budget Act, starting May 1, 2016, your spouse and children will no longer be able to receive social security income on your suspended record and you will no longer be able to retroactively collect all past social security income if you elect to unsuspend.  If your payments are currently suspended, or if you request suspension before the upcoming May 2016 deadline, you will be grandfathered under the old rules.

Restricted Application – When an individual is at least FRA, has not filed for any previous benefits and has a spouse who has established a Filing Date (suspension does not matter), 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.  Therefore, this strategy allows one to collect spousal benefits and concurrently delay their own future retirement benefit so it may grow by the same 6-8% per year as mentioned above.  Upon reaching age 70, the individual would switch from the spousal benefit income to their own social security benefit, which in theory should be larger. 

Under the Bipartisan Budget Act, the Restricted Application filing is no longer available to anyone born Jan. 2, 1954, or later. It continues to be available for anyone born Jan. 1, 1954, or earlier.


Recap

-- For anyone younger than age 66 by May 1, 2016 (born after May 1, 1950), the File and Suspend method will no longer be available.

-- For anyone younger than age 62 by January 1, 2016 (born after January 1, 1954), Restricted Application is no longer available.


Window of Opportunity

For anyone younger than age 66 by May 1, 2016 (born after May 1, 1950), the File and Suspend method will be available up until May 1, 2016.  After such date, the filing method will be removed as an available option. 

Are you thoroughly confused?  Determining when and how to claim social security benefits has always been a challenging task, but these new rules create even more complexity for those nearing retirement.  If you are age 66 now, or will turn 66 within the next three months, definitely 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.

Continue reading
754 Hits

EDUCATIONAL WORKSHOPS

2020 SCHEDULE 

 

Investing: What to expect in 2020

Saturday, January 25, 2020

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

 

INVESTING DURING THE NEW NORMAL

Saturday, June 13, 2020

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

Zoom Webinar

(Zoom link to be sent via email upon RSVP to info@kondowealthadvisors.com) 

 

 

 

Contact Us

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

Newsletter Sign Up