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How Safe Is Your Safe Deposit Box?

Wells Fargo has paid nearly $15 billion in penalties since 2000, for abuses ranging from creating fake client accounts, mortgage abuses, false claims, hidden fees, to making investment recommendations to clients that mainly benefited itself.1

Now it turns out that even the lowly safe deposit box in a Wells Fargo branch is not quite as safe as customers thought. A recent New York Times article2 told the story of Philip Poniz, an internationally known expert in the history and restoration of high-end timepieces. He stored his collection of 92 rare watches in his local Highland Park, N.J. Wells Fargo branch, secure in the knowledge that the treasures from his life's work were safe behind a foot-thick steel door, and protected by two keys -- the bank kept one, and he kept the other. He considered it his retirement fund.

Nevertheless, when Mr. Poniz opened the box years later, it was empty. "I thought my heart would fail," he said. After an investigation, he learned that another Wells Fargo customer had not been keeping up with payments, so employees drilled open the box, and seized the contents. However, they opened Mr. Poniz' box by mistake, sending the contents to a storage facility in North Carolina. After Mr. Poniz finally tracked down the items, many had vanished, a combined value of more than $10 million.

New Jersey law requires that when a bank empties a customer's safe deposit box, it must have an independent notary put the contents into a sealed package and sign it. Wells Fargo did not follow that law.

To his horror, Mr. Poniz found that Wells Fargo's safe deposit box contract limits the bank's liability to $500. He also learned that safe deposit boxes are not FDIC-insured. Furthermore, there are no federal regulators for safe deposit boxes under federal banking law. Instead of stepping forward and making Mr. Poniz whole, Wells Fargo has been fighting Mr. Poniz in court for years, prolonging the dispute.

The lesson to the 25 million customers who have safe deposit boxes, whether the bank is Wells Fargo or not, is to become aware of the rules regarding safe deposit boxes, and what you should keep, and not keep, in your safe deposit box3 --

CASH

Cash is not appropriate for a safe deposit box for several reasons:

* If you need the money in an emergency, but the bank is closed, you're out of luck.

* The cash is not earning interest, like it would in a savings account, or CD.

* Cash in a safe deposit box is not protected by FDIC.

* Many banks expressly forbid storing cash in a safe deposit box.

PASSPORT

Even if you travel infrequently, avoid the temptation to keep your passport in a safe deposit box. You may need to leave the country on short notice on an emergency trip (for example to respond to an illness or injury), but if the emergency comes up during non-banking hours, you'll be staying home.

ORIGINAL COPY OF YOUR WILL

It's best to keep copies of your will, trust, and other important documents in your safe deposit box, but not the originals. After your death, the bank will seal the safe deposit box until an executor can prove he or she has access to it. This could hold up the execution of your will, and the distribution of inheritances. Keep original documents with your attorney, or someplace where your executor can have quick and easy access.

DURABLE POWERS OF ATTORNEY

Similarly, if you become incapacitated, a family member or trusted friend may need to handle your legal and financial affairs. However, if the POA is locked away where no one can access it, their hands are tied. Keep the original POA with the originals of your will or trust, and provides copies to those who may need it one day.

UNINSURED JEWELRY AND COLLECTIBLES

Jewelry, coins and similar valuables should only be stored in a safe deposit box if they are properly insured. As Philip Poniz learned too late, Wells Fargo explicitly states that box contents are not insured, and advises box owners to "purchase an appropriate policy from the insurance company of your choice." Be sure to keep original receipts and written appraisals. Take photos too.

ILLEGAL OR DANGEROUS ITEMS

There are some things other than cash that cannot legally be stored in a safe deposit box. These include drugs (both legal and illicit), firearms, and explosives. Although banks make a point of not knowing what their customers have stored in their safe deposit boxes, if law enforcement suspects that you are storing prohibited items, or are hiding the proceeds of a crime, they can obtain a warrant to search your safe deposit box and seize the contents.

 

1 https://violationtracker.goodjobsfirst.org/parent/wells-fargo

2 www.nytimes.com/2019/07/19/business/safe-deposit-box-theft.html

3 www.kiplinger.com/slideshow/saving/T005-S001-things-you-ll-regret-keeping-in-a-safe-deposit-box/index.html

 

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

 

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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. 

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Stress and Anxiety Despite Healthy Economy

If you've noticed while driving that more people are running stop signs, cutting you off, and acting rude and distracted, the recent Gallup poll may provide some insight as to why.

The Gallup poll found that Americans are among the most stressed-out people in the world, experiencing high levels of anger, worry, sadness and physical pain. 55% of respondents reported that they felt a lot of stress, compared to the global average of 35%. American stress was at about the same level as countries embroiled in humanitarian, economic or security-related turmoil, like Albania, Iran and Sri Lanka. Only the Philippines and Tanzania had higher levels of stress.¹

Gallup found that a major factor in American stress is personal financial security. 40% of Americans reported that they are either running into debt or barely making ends meet. Only 25% said that they are saving enough for retirement. 18% admitted they have saved nothing at all. This is corroborated by a 2018 study by Northwestern Mutual, which found that a third have less than $5,000 stashed away for retirement, while 21% have saved nothing.²

In addition, 49% of Gallup's respondents worried about paying their rent or mortgage, or being able to make minimum payments on their credit cards. Another 14% worried about paying for healthcare, or about suffering a major illness or accident.³

Yet, the stock market is breaking records highs, unemployment is at near record lows, and the economy is growing at a nearly 3% annualized pace. Although Trump claims that "Everywhere we look, we are seeing the effects of the American economic miracle,"⁴ it is clearly far from "everywhere." The U.S. economy is booming, but it is only benefiting some people. Last year, the United Nations Human Rights Council reported that the top 1% of the U.S. population owned 38.6% of the total wealth in the country, and that "the U.S. already leads the developed world in income and wealth inequality."⁵ Tellingly, in the Gallup poll, those with immediate cash flow concerns tended to be Democrats, while those with no concerns were mostly Republicans.

Nearly 30% of Gallup's respondents rated their financial situation as "only fair" and 15% said it was "poor." Meanwhile, 25% worried "all" or "most of the time" that their income would not be enough to cover their expenses. A third lacked enough savings to cover an unexpected $400 expense, like a medical emergency, without selling something or borrowing money. Alarmingly, one out of four Americans skipped a medical treatment in the past year because they could not afford it.⁶

Younger Americans (between ages 15 and 49) were the most likely to feel stressed, due to violence, political turmoil, finances and health. This has caused disproportionately high rates of anxiety, loneliness and depression. Of great concern is that chronic stress is connected to a range of serious conditions, including mental health issues, cognitive changes, and chronic disease. ¹

Who benefits from the U.S. economy is likely to become a key topic of contention in the upcoming 2020 elections. There are two fears that are common among both Democrats and Republicans, affecting more than 50% of Americans -- healthcare and long-term financial security. As a result, we can anticipate that Democrats and Republicans will clash on these two pivotal issues in 2020.

¹ Time Magazine 4/25/2019

² Northwestern Mutual 5/18/2018

³ Gallup 7/15/2019

www.whitehouse.gov 2/5/2019

⁵ Los Angeles Times 6/6/2018

⁶ CNBC 5/28/2019

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

 

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Grinning with Fingers Crossed

It's hard to make sense of a market that took us through a painful decline at the end of last  year, followed by an abrupt and unexpected recovery at the beginning of this year. The first quarter of this year gave us the biggest one-quarter gain since 2009. Then, the trend continued through the second quarter with more modest gains. This was despite warnings about an overdue recession, challenges to the economy, and trade wars. Investors are grinning at the strong performance, but behind their backs, they have their fingers crossed.

THE GOOD NEWS

The good news is that just about every investment asset produced gains in 2019’s second quarter.  The Wilshire 5000 Total Market Index—the broadest measure of U.S. stocks—rose 3.99% in the most recent three months, and now stands at an 18.66% gain for the year.¹  The comparable Russell 3000 index is up 18.71% so far this year.²

Looking at large cap stocks, the Wilshire U.S. Large Cap index gained 4.19% in the second quarter, closing out the first half of the year with a gain of 18.74%. The widely quoted S&P 500 index of large company stocks was up 3.79% in the second three months of the year, and is up 17.35% in the first half of 2019.³

As measured by the Wilshire U.S. Small-Cap index, investors in smaller companies gained 2.03% in the second quarter, and are up 17.85% so far this year.  The technology-heavy Nasdaq Composite Index gained 4.40% in the second three months of the year, and is up 20.66% at the year’s half-way point.⁴

International investors are also sitting on gains.  The broad-based EAFE index of companies in developed foreign economies gained 2.50% in the second quarter, and is up 11.77% so far this year. ⁵

Real estate, as measured by the Wilshire U.S. REIT index, posted a 1.63% gain during the year’s second quarter, for a 17.92% gain for the first six months of the year.  The S&P GUCCI index, which measures commodities returns, lost 1.42% in the second quarter, but is still up 13.34% for the year.  Energy prices are up 22.80% in 2019, while precious metals have gained 8.86% so far this year.⁶

THE BAD NEWS 

The bad news is that just about every investment asset produced gains in 2019’s second quarter. Why is that bad? Normally, investors want to buy low and sell high, but when every asset class is doing well, it's hard to decide what to buy and what to sell.

Having a globally diversified portfolio and a financial advisor that does regular, quarterly rebalancing can solve this dilemma. Every 3 months, your advisor will look at the performance of each asset class in your portfolio. When one of your 15 asset classes goes up more than 4% in a quarter, it's an indication to sell a little while it's at a peak, and put the proceeds into another asset class that is a bargain at the time. When you use the discipline of quarterly rebalancing, it takes emotion out of the decision-making.

You might expect that strong performance in the first half of the year would be followed by a correction or decline in the second half. However, that hasn't been the case historically. Over the 120-year history of the Dow Jones Industrial Average, the Dow has risen 66.4% of the time from July through December. If the Dow did well in the first half of the year, the odds of a positive second half were even better, at 72%.⁷

The challenge is unpredictability. Recently, the U.S. and China called a cease-fire in their yearlong trade war, but we know that's not the end of the war. As we approach the November elections, partisan clashes can affect the market. And there's always the fallout from misguided policy decisions, as we saw with the government shutdown last December. Be prepared for surprise.

A balanced, broadly diversified portfolio can help. Not having all your eggs in one basket can capture market returns, while reducing volatility, and providing more downside protection in the event of a market correction.

¹ Wilshire index data: https://www.wilshire.com/indexcalculator/index.html

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

³ S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–

http://www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx

⁵ International indices: https://www.msci.com/end-of-day-data-search

⁶ Commodities index data: http://us.spindices.com/index-family/commodities/sp-gsci

https://www.marketwatch.com/story/chances-are-the-us-stock-market-will-be-higher-by-year-end-but-theres-a-catch-2019-06-25?mod=moremw_bomw

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

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Avoid Multiple Taxation on your Social Security Benefits

Depending on how you look at it, the retirement benefits you receive from Social Security may be taxed two or three times in the course of getting to your pocket or bank account.

As you well know, when you're working, you pay Federal and State taxes. That's the first level of taxation.

The second level of taxation occurs when you contribute to Social Security and Medicare through your FICA contributions. FICA stands for the Federal Insurance Contributions Act and is deducted from each paycheck. 6.2% goes to Social Security tax, and 1.45% goes to Medicare, for a total of 7.65%. FICA payments are made with after-tax income.

By comparison, IRAs, 401(k)s and 403(b)s are not subject to double taxation because when you make contributions, your taxable income is reduced by the amount of the contribution. You only get taxed when you take distributions in retirement.

Unlike your personal retirement accounts, the money you pay to FICA is not held in a personal account for you to use when you receive Social Security benefits. The FICA contributions made by today's workers pay for the benefits paid to current retirees. Some argue that this is like a Ponzi scheme, in which benefits are promised, but there is really no guarantee that those who are paying into FICA today will get their money back in the future.

Trump's 2020 budget proposal makes this even more unlikely. When he campaigned for president in 2015, Trump promised the Daily Signal, a conservative publication affiliated with the Heritage Foundation, that he would leave Medicaid (Medi-Cal in California), Social Security and Medicare untouched. However, over the next 10 years, his budget will cut $25 billion from Social Security and $1.5 trillion from Medicaid.¹ This includes a $10 billion cut to Social Security Disability Insurance (SSDI), a program that assists the disabled.

The trustees of Social Security and Medicare project that Social Security will deplete its $2.9 trillion reserve fund by 2035.² Those who are receiving Social Security benefits today may be secure, but the continuation of Social Security to their children may be in doubt.

After income tax and FICA tax, you could be taxed a third time on the same money when you receive Social Security benefits. Taxation on Social Security income is based on a formula called "combined income." Start with all your income, including tax-exempt interest (such as from municipal bonds), and add in half of your Social Security benefits for the year. If you're single, and your "combined income" is above $25,000 but below $34,000, you will pay federal taxes on 50% of your Social Security income. Above $34,000, 85% of your Social Security benefit will be taxed.

If you file jointly, and your "combined income" is above $32,000 but below $44,000, you'll pay federal taxes on 50% of your Social Security income. Above $44,000, you can expect to pay taxes on 85% on your Social Security benefits.

It's even worse if you live in Minnesota, North Dakota, Vermont, or West Virginia, where the states follow the same rules as the federal government. There, you could pay state taxes as well as federal taxes on as much as 85% of your Social Security benefit.

The first two levels of taxation are unavoidable unless you live completely off the grid. However, there are legal strategies available to duck the third level. One way to keep your taxable income low, and perhaps avoid taxation on Social Security benefits, is to shift more money into tax-free vehicles like the Roth IRA. You must fund a Roth IRA with after-tax money, but then it not only grows tax-free, but the distributions can be tax-free as well.

If you have earned income, you can make annual contributions to a Roth IRA of as much as $6,000 per year ($7,000 per year if you're over 50). However, if you're single and you make more than $122,000 per year, or a married couple earning more than $193,000 per year, your eligibility for making an annual Roth contribution phases out.

Fortunately, there is a work-around. If you have money in a Traditional IRA, you can do conversions to a Roth IRA without income limits. Whatever amount you convert is taxed at ordinary income rates, just like you earned extra income in that year. Therefore, you should work with your CPA, and convert a little each year without pushing yourself into a higher tax bracket.

If you think your taxes are going to be higher in the future, it might be a good approach to do Roth conversions. You will pay a little more tax now, but have more tax-free income down the road. Consult with your CPA or Certified Financial Planner™ to see if it makes sense for you.

¹ Vox.com 3/12/2019

² Barron's 4/22/2019

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

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The 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.

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The Truth About Tariffs

It is ironic that at a time when the US economy is strong, the roller-coaster market volatility is self-inflicted by government policy. We were witness to that in December, when the market lost 9% in one month, sparked by the government shutdown and the trade war between the US and China. Trump initiated trade tensions early in his presidency when he declared, "I am a Tariff Man," and imposed tariffs and import duties on steel and aluminum products from abroad.

Volatility reared its ugly head again last week, when Trump responded to failing talks with China by raising existing tariffs to 25%, and imposing new ones on an additional $325 billion worth of China's imports to the US. China retaliated by placing tariffs on nearly all of America's exports to China, including agricultural products.

Trump declared, "Trade wars are good, and easy to win." The truth is very different. The negative impact, especially for American farmers, has been crushing. The US Farm Belt was already experiencing the deepest downturn since the 1980s. The stalled trade talks have made this even more painful.¹ The Standard and Poors GSCI Agricultural Commodities index, reflecting sales of soybeans, milk, pork and many other products, hit its lowest level this week in more than 10 years. Bankruptcy filings in the Midwest have hit a 10-year peak.

Although the Trump administration is putting together an aid package for farmers, many farmers feel it is insufficient to compensate them for the economic damage. In addition, farmers have pride, and don't want bailouts or government money. They just want markets they can depend on.¹

Besides, the aid package is temporary. Even if the trade war is eventually resolved, farmers worry that the damage to agricultural export markets will be permanent. In an industry that is already subject to the uncertainties of weather, pests and global warming, farmers depend on reliable markets where they can sell their crops abroad. Before the talks collapsed, China was ready to make massive purchases of US commodities, as well as initiating major regulatory changes to open China's market to new US farm exports. This came to an abrupt end, and now Chinese customers have shifted their purchases of American crops to South America, which has long sought a foothold in the world's largest consumer market.

The Treasury is definitely getting fatter as a result of American tariffs on Chinese goods. Trump crowed that the tariffs would bring in "$100 billion." From his point of view, this is a welcome source of revenue. When he lowered the corporate tax rate from 35% to 21%, the Treasury's income fell by 21%, from $75 billion to 60 billion. In effect, the tariffs are helping to pay for the corporate tax cuts.

The tariff hits many consumer products like seafood, luggage, vacuum cleaners and electronics. The cost of an iPhone might go up $160. Consumers may have to pay 24% more for an Apple computer.³ Trump assured the American public that the cost of the tariffs would be "mostly borne by China." In actuality, economists from Columbia University, Princeton University, and the New York Federal Reserve agree that US consumers are paying all of the bill, to the tune of $17 billion a year. The tariffs represent an additional tax directly on the wallets and purses of Americans. Even worse, the cost to US consumers is greater than the revenue brought in from the new tariffs, making America poorer overall.⁴

The end result of all this turmoil is exactly the opposite of Trump's stated goal of reducing the US trade deficit. Instead of going down, the US trade deficit with the world has gone up from $375.5 billion in 2017 to $419.2 billion today, as it continues to import more goods and services than it exports.⁵

¹ Wall Street Journal 5/20/2019

² Brookings Institution 3/15/2019

³ Business Insider 5/14/2019

⁴ New York Times 3/3/2019

⁵ Politico 3/6/2019

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

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Financial Illiteracy Puts Children at Risk

Although we hear a lot in the news about global warming as a risk to future generations, there is also a more immediate hazard to our children and grandchildren -- the lack of financial literacy.

It's not their fault. Financial literacy is rarely part of the curriculum at school. Students' first exposure to consumer credit is often at college orientation, where banks offer free pizza in exchange for signing up for a credit card.

In addition, parents often don't like to talk to their children about family finances. This may be especially true for Japanese American families who were held in concentration camps during WWII. For many, the memory is still fresh how banks froze their accounts when they were down and helpless. Even though they had money in the bank, many families could not pay their mortgages and taxes, and consequently lost their homes, businesses, cars and property. The lingering suspicion and distrust of financial institutions has filtered down, even to generations who weren't personally imprisoned and victimized.

We're now entering a time when financial illiteracy is dangerous, because predatory financial practices are on the rise. When students graduate from college, they are immediately handicapped with an average $37,000 in student loans.¹ Student debt is greater than credit card debt or auto loans, totaling over $1.5 trillion.² Already, 10.7% of the loans are in default. Compare this to France, where the tuition is normally around $200 a year at public universities.³

The parents' generation likely grew up believing in the American Dream -- if you got a good education, worked hard, and managed your money well, the chances were good that you would advance financially, and be a success. Back in 1940, there was a 92% chance that children would earn more than their parents. The economy was growing strongly, and benefited the upper, middle and working classes alike.⁴

Things have changed. By the time we got to 1985, the odds were down to a 50-50 chance that children would earn more than their parents. Today, it's much lower than 50%. Is it because we're poorer as a nation? Not at all -- we actually have much more wealth. Between 1980 and today, the average Gross Domestic Product per capita grew five times as high.⁵ 

The real reason for the growing income gap is that nearly 70% of the income gains from 1980 to now have gone to the top 1% of the wealthy. The inequality in wealth is even sharper. Today, the top 10% of the population owns 77% of all the wealth in the U.S. On the flip side, who owns most of the debt? -- the bottom 40% of Americans.⁶

Magnifying the risk for future generations is the claw-back of the safety nets that have protected the health and retirement incomes of most people. President Trump's latest budget proposes a $550 billion cut to Social Security and Medicare, as well as a $1.5 trillion cut to Medicaid (Medi-Cal in California). Trump plans to eliminate Medicaid by 2021, replacing it with fixed block grants.

How can future generations protect themselves against this onslaught? One way is to overcome complacency, become involved with the community, and work towards positive social change.

The other is to minimize financial mistakes. It's no accident that the top 1% of the wealthy own half of the stocks and bonds, and over half of Americans have zero invested in the market.⁷ The wealthy know that when inflation is averaging 4% per year, putting all your money in the bank guarantees an annual loss of purchasing power. Because younger people have time on their side, they can weather market fluctuations, and can take advantage of the power of compounding that investing offers.

When Trump became president, one of the first things he did was to kill the Fidiciary Rule, which stipulated that any investment advisor helping a client with retirement has to act in the client's best interest. Overturning the Fiduciary rule gave the green light to predatory financial institutions and "advisors," and has cost investors about $17 billion a year in higher fees, commissions and bad advice.⁸ Advise your children to work with a team of fiduciaries -- a CPA, attorney, Certified Financial Planner™, and Registered Investment Advisor. These professionals will help your child create a roadmap for success, provide them with the education they need, and guide them through life's changes.

¹ Bloomberg Data 2018                                                      ⁵ The World Bank

² Forbes 6/13/2018                                                             ⁶ Edward N. Wolff, NYU

³ www.valuecolleges.com                                                   ⁷ Money 12/19/2017

⁴ New York Times 12/8/2016                                            ⁸ Investment News 9/5/2018

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

 

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This Year's Tax Blues

If you're like many Californians, your tax return this year was a big disappointment  -- instead of the higher refund that you expected, you may have had to write a check to the IRS instead, even though nothing in your personal circumstances had changed. In fact, the IRS reports that average refunds were down about 8% compared to last year.¹

This was in stark contrast to President Trump's promise that his tax changes, passed in 2017, would give most Americans a tax cut.

The unwelcome result of the Trump Tax Plan is due in large part to the new limits on the state and local tax (SALT) deduction. Prior to Trump, there were no limits to the SALT deduction. The Trump Tax Plan caps the total you can deduct for state and local taxes to $10,000 per year, no matter whether you are single or married, and no matter how much you actually paid. The Treasury Inspector General reported that about $11 million taxpayers lost out on $321 billion of tax deductions because of this change.²

This new limit didn't cause much grief in states like Florida, Alaska and Texas, where no state income taxes are imposed. The negative impact of the new limits predominantly affected residents of states where real estate values are high, and state income tax rates are also high -- like New York, New Jersey, Minnesota, and California.

For example, if your home is close to the median price in California (about $548,000), your state and local taxes, including property taxes (1.25%), would put you close to the $10,000 SALT cap. However, in metropolitan areas, many homes have a value greater than the median, resulting in a state income tax liability that is greater than the cap.²

Some people argue that this portion of the Trump Tax Plan was designed as retribution against Democratic-leaning states where the cost of living is high, like California, New York and New Jersey. The California Franchise Tax Board reported that in 2015, about 2.6 million taxpayers deducted more than $10,000 in state and local taxes on their federal tax return. In their 2018 filing, that group paid an additional $12 billion in taxes.³

In this uneven tax landscape, what smart money moves can you make to reduce your taxes? One way is to maximize contributions to your retirement accounts, like 401(k), 403(b) or 457 plans. If you are not eligible for an employer-sponsored plan, you can maximize your IRA contributions ($6,000 if you are under age 50; $7,000 if you are age 50 or over). 

Another way is to invest more heavily in municipal bonds. If you live in California, and if the bond qualifies and is issued in California, it may provide income to you that is free of  both state and federal taxes. Munis are an attractive alternative to taxable bonds, and even more attractive in states like California where the SALT limitation is, in effect, an added tax on residents.

The Trump Tax Plan has already boosted sales of some municipal bonds. Mutual funds that invest in California municipal bonds have attracted $1.2 billion in new investments in January and February of this year. New York has generated an additional $382 million in New York municipal bond mutual bonds sales. Minnesota, with the fourth-highest state income tax in the country, saw $90 million in new muni bond mutual fund inflows in the first two months of 2019.⁴

If you feel that you're paying too much in taxes, and have a taxable diversified portfolio (where your investment is spread broadly in U.S. and international large, medium, and small companies, emerging market companies, real estate and bonds), you might consider swapping the bond portion of your portfolio for municipal bonds approved for the state in which you reside. This strategy may help you to reduce your tax burden, especially if you live in a state where real estate values and state taxes are high. Consult with your CPA and Certified Financial Planner™ to design a solution that is customized for your particular circumstances.

¹ National Public Radio 2/14/2019

² Forbes 3/6/2019

³ Sacramento Bee 3/27/2019

www.financial-planning.com/articles/tax-cuts-and-jobs-act-changes-propel-more-investors-into-muni-bonds?

 

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

 

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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.

 
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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/

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Deficit Prompts Attack on Health Programs

Just over a year ago, President Trump gave corporations a "tax holiday", a levy of only 6% on $620 billion of tax-free profits sheltered overseas. Then, he granted corporations a massive, permanent tax cut from 35% down to 21%. It was unprecedented, because this sort of government largesse is only doled out during times of recession, when the economy badly needs a stimulus to recover. This time, it was granted when corporations were already making record profits. It created an unnecessary burden on the federal deficit.

Trump campaigned on the promise to wipe out the government's $19 trillion in total debt. Since the tax cuts, corporate revenue to the government plummeted 21%, from $76 billion to $60 billion. Consequently, this sharply accelerated the federal deficit.

The Congressional Budget Office said that, compared to 2017, the interest expense on U.S. debt increased by nearly 50%, and is scheduled to hit $390 billion next year. Within ten years, the annual interest expense is projected to be $900 billion. This would represent 13% of the federal budget, more than the expenditure on the military, on Medicaid, or on programs for children. 1

The increased expenditure would also draw resources away from infrastructure projects to repair or replace America's aging roads, electrical grid, clean water systems and public buildings. Although Trump vowed to put $1 trillion into improving infrastructure, he couldn't get his own party to agree to it, while the deficit hung over their heads.

Who does Trump blame for this runaway debt?  -- the Federal Reserve Bank. The two basic goals of the Fed are to maximize employment, and to keep inflation at bay. To accomplish that, Fed chair Jerome Powell raised interest rates gradually, a quarter-percent at a time, last year. As of March 2019, inflation hit the lowest rate in nearly 2 ½ years, and unemployment is at a record low. Yet, Trump attacked the Fed, an independent body, leading to rumors that he would fire Powell for the rate increases. Trump demanded that the Fed, instead, use its power to support his trade plans and goals, and ignore its own mandate. ²

Since last year, Trump has waged a tariff war against China, imposing tariffs on over $250 billion worth of Chinese products. It started with a 25% tax on $50 billion of Chinese imports last June. Then in September 2018, there was another 10% tax on an additional $200 billion of Chinese products. China responded by imposing duties on about $110 billion of U.S. exports. This has ended up hurting Trump's own supporters in the farming and manufacturing sectors. Trump said the trade deficit was crushing the U.S. economy. The tariffs, he said, would reduce the U.S. reliance on imported goods and materials.

However, despite the tariffs, the Commerce Department reported this week that the trade deficit with China hit a record $419 billion last year, up from the previous record of $375.5 billion in 2017. The overall trade deficit was $621 billion, the highest since 2008. ³

The other result was that customs duties nearly doubled, from $12.6 billion to $24.5 billion due to the Administration's tariffs. These additional duties were in actuality paid by American consumers at the cash register. The tariffs were really a hidden tax on the economy.

When Marketplace interviewed former Fed Reserve chair, Janet Yellen, last month, they asked, "Do you think the president has a grasp of macroeconomic policy?" "No, I do not," she replied, adding that she doubted if he understood how the Fed worked. ²

Now, Medicare and Medicaid are in the crosshairs as a way to reduce the deficit. During the 2016 presidential campaign, Trump declared he would protect Medicare and Social Security. However, his budget last year proposed a $550 billion cut to the programs. The budget also endorsed the Medicaid block grant idea.

Medicaid is a federal assistance program that began in the 1960s as part of the War on Poverty. It guarantees states a federal share of funding for anyone who is eligible for the program (those who have low income, low assets, or are blind or disabled).

Trump's budget proposal calls for a spending cut of nearly $1.5 trillion to Medicaid over the next 10 years. It also eliminates funding for Medicaid expansion under the Affordable Care Act. 

Under the newly proposed budget, the federal commitment to fund Medicaid would end. Instead, states would receive small fixed grants and would have to bear the healthcare burden themselves by 2021. The growth of the grants would be limited to the Consumer Price Index, even though the actual cost of healthcare inflates at about double that amount, at 5.3% per year. This means that states would be saddled with escalating healthcare costs. ⁴

Charles Kahn, president of the Federation of American Hospitals warned that the budget "imposes arbitrary and blunt Medicare cuts. The impact on seniors and low-income Americans will be devastating." ⁴

1 New York Times, 9/25/2018

² Time, 2/25/2019

³ Politico 3/6/2019

⁴ Washington Post, 3/11/2019

 

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

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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.

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The Turkey in the Oven

We are now in an upward market streak in which the Dow Jones Industrial Average of large, U.S. companies has risen for the most straight weeks since November 2017.

This follows a stomach-churning December, in which the losses for the DJIA and the Standard and Poors 500 Index were the worst December performance for the market since 1931. The government shutdown, reduced growth numbers for Germany and Italy, and the trade war between the U.S. and China made many investors nervous. In that month alone, the Dow lost 9%, and the S&P 500 lost 8.5%.¹

Last year, some investors began to worry that we were heading into a major bear market plunge. This was despite the facts -- the economy was not collapsing, companies were not going out of business, and employment numbers were strong.

This year's rebound came from the Federal Reserve Bank expressing more caution about raising interest rates in 2019. It was helped along by average investors' continued faith in the U.S. economy. When regular investors got back into the market, it triggered computerized trading algorithms to jump back in too. This January was the best month for the DJIA since October 2015, hitting a 2-month high on February 5.² It's a sign of how the market can bounce back even in the face of harsh uncertainties.

So far, the S&P 500 is up 8.7% for the year. Those who reacted emotionally last year to market fear and sold out their investments at the end of the 2018 missed out on this rally.

The moral of the story is that you shouldn't judge success on a monthly or even quarterly basis. From day to day, month to month, and year to year, past returns do not tell us much about what's around the bend in the future. Rather than trying to time the market, broad, global diversification may allow you to capture the upside while providing greater downside protection. Large U.S. companies took the biggest hit last December. However, if you had a globally-diversified portfolio, other asset classes in your portfolio did well during this time -- small U.S. companies, value strategies (where you look for bargains and buy when the market is down), emerging markets like China and India, and short-term bonds.³ Balancing these different asset classes can reduce some of the volatility and help give you the peace of mind to not abandon your investment strategy.

Author Dan Roam, in his upcoming book "27 Principles Every Investor Should Know", explains this principle in a way everyone can understand. He points out that these days, couples who are both age 65 can expect to spend 25 to 30 years in retirement. Investing for this long stretch of time, he explains, is like roasting a 20-pound turkey. You know it's going to take 4 to 5 hours. You can't measure success by opening the oven every couple of minutes to see how it's going.

Your gut and emotions will still be calling out to you, but a diversified investment approach may strengthen your resolve to stick to your plan and accomplish your long-term goals.

 

¹ Fox Business 12/31/2018

² Wall Street Journal 2/11/2019

³ https://us.spindexes.com/indices/equity/sp-500

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

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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

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The Prediction Business

This is the time of year when pundits come out of the woodwork to announce their financial predictions for the year. They claim to know the future accurately, and purport to have a track record to prove it. It's an attractive and easy proposition for many investors to follow this advice, especially when there is confusion and uncertainty in the market. Everyone wants to

protect against unexpected risks, and accomplish their family's most important goals.

The unfortunate truth about the crystal ball is that it doesn't exist. If it did, there would always be some investors who are ahead of the market, buy just ahead of rallies, and sell just before downturns. They would be billionaires, and have great stories to tell at cocktail parties.

 

FACT-CHECKING

The reality is that many of the pundits work at think tanks, or sell their advice by subscription to investors. If their prognostications actually worked, they probably wouldn't have to pull a salary at a think tank, or depend on payments from their subscribers.

As an example, David Stockman is an American politician and former businessman who served as a Republican U.S. Representative from the state of Michigan and as the Director of the Office of Management and Budget under President Ronald Reagan. He is relentlessly bearish.  Following the 2016 tax law, he predicted a downturn as steep as 70%. However, the S&P 500 rallied 13% in that year. He also forecast crashes in 2012, 2013, 2014, 2015, 2017, and 2018. He is predicting another downturn now for 2019.¹

 

GREED AND FEAR

Investors should be cautious because many gurus play on greed or fear. A good example is the frenzy over bitcoin investments last year. Bitcoins are a "cryptocurrency" created by Satoshi Nakamoto back in 2009. It is a digital currency that is completely unregulated and completely decentralized. New units of bitcoins are generated by the computational solution of mathematical problems, and operate independently of a central bank.

In January 2018, each bitcoin was valued at $14,207². Pantera Capital predicted that bitcoin would be selling for $20,000 by the end of the year. Kay Van-Peterson, Global Macro-Strategist at Saxo Bank, projected that bitcoins would be worth $100,000 by the end of 2018.³  Some grandmas were emptying their savings accounts to buy bitcoins. Now the bitcoin is worth $3,500, despite predictions of limitless wealth.

 

THE SHUTDOWN

The current government shutdown is making everyone nervous. Soothsayers are working overtime guessing when and how it will end, and how it will affect the market. The ZeroHedge website reminds us that there have been 20 government shutdowns since October 1, 1976.⁴

The following data show the average impact of a government shutdown on the Standard & Poors 500 index:

* 47% of the time, the market didn't go down at all

* In the 2 weeks during and after the shutdown, on average the market went down 0.13%

* Then, in the month after the shutdown, the average gain in the market was a positive 0.25%

 

CONCLUSION

No one likes increased volatility or a government shutdown, but this is not a time to search for magic solutions or submit to panic. One way to improve your portfolio is not to put all your eggs in one basket, for example relying solely on U.S. large company stocks. A globally-diversified portfolio spreads your investment into asset classes that include U.S. large, medium and small companies, global large, medium and small companies, short-maturity bonds, emerging markets, real estate and gold. It's unlikely that all of these asset classes will go down at the same time, and the diversification will help to reduce volatility during uncertain times.

 

¹ www. cnbc.com

² cointelegraph.com/bitcoin-price-index

³ ritholtz.com/2018/12/fun-with-forecasting-2018-edition/

⁴ www.zerohedge.com/sites/default/files/inline-images/19%20govt%20shutdowns.png?itok=UIGSm3fB

 

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

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2018 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/
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A Wild Ride

Although the market in the last few months has felt like a ride on the Wild Mouse, it is important to remember that the ride comes to an end. You may be safer by ignoring the churning in your stomach and sitting tight, rather than to trying to jump off.

What is the biggest danger to your long-term investment results?  If you answered “market downturns” or “downside volatility,” you are not only missing a bigger danger, you may be missing the way investment markets work.

If we look back at the history of the stock market, there have been many market setbacks since 1896. Yet, the overall trajectory of the market has been a fairly steady rise. As long as you did not panic and sell everything at the bottom of the market, the recovery time from the Great Recession of 2008 and 2009 was just six years.¹

 

Wild ride chart

(View full chart at www.marketwatch.com/story/the-dows-tumultuous-120-year-history-in-one-chart-2017-03-23)

The longest recovery times in modern history—25 years during the Great Depression, and 16 years during the stagflation period of the 1970s—are also the only times when someone with a time horizon of more than 10 years would have seen a loss after hanging in for the full decade.

Fortunately, time is on your side. Even if you are close to retirement, statistics show that the average American is going to spend 25 to 30 years in retirement², plenty of time to recover from the average downturn or recession. Staying out of the market could expose you to a much greater risk -- because of much longer life expectancies than our parents' generation, many people will need the long-term growth of the market in order not to run out of money in retirement.

What is a bigger danger than a downturn or recession? Investment experts talk about a human failing called “policy abandonment.” This is a fancy way of saying that the investor bailed out on the markets, generally at the wrong time. Suffering a significant decline in the Great Recession was temporarily painful, but what about the people who abandoned their portfolio allocations and retreated to cash at or near the bottom, because they just got too nervous about what the market would do the next day or the day after? They locked in those losses, moved to the sidelines and found themselves with permanent—rather than temporary—portfolio losses.

The lesson of the chart, as its author Chris Kacher points out, is that the stock market is long-term driven by the intelligence, creativity, innovation and hard work that people working in various companies put into their jobs every day. The value of companies tends to rise, but fear sometimes makes people sell their stock at lower prices which, up to now, have always recovered to reflect that growing value.

The current market volatility is nothing compared with the Great Recession, the Great Depression—or, probably, the next significant bear market, whenever it comes. That next downturn will present us with the illusion of danger (a temporary market decline). Do not trade the illusion of danger with an embrace of real danger— “policy abandonment” -- that makes temporary losses permanent.

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.

¹ www.marketwatch.com/story/the-dows-tumultuous-120-year-history-in-one-chart-2017-03-23

² www.forbes.com/sites/simonmoore/2018/04/24/how-long-will-your-retirement-last/#6f07e2fd7472

 

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Year-End Planning

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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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

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Politics & Investing

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

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

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

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

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

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

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

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

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

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

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

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

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The Failure of Healthcare for Profit

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

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

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

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

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

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

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

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

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

 

¹ FactCheck.org 10/20/2017

² CNBC 8/5/2017

³ Axios 8/3/2018

⁴ ⁵ The Guardian 3/13/2018

⁶ Business Insider 6/23/2017

⁷ The Atlantic 6/22/2018

⁸ Bloomberg 4/4/2018

⁹ Washington Post 12/1/2017

¹º Los Angeles Times 6/1/2018

 

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

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Stock Market Plunges in Fear

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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Fiduciary Rule Protecting Investors is Dead

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

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

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

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

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

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

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

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

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

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

¹ Forbes 7/20/2018

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

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New Tax Rules Affect Parents

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

 

529 Flexibility

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

 

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

 

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

 

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

 

Student Loan Interest Deduction Saved

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

 

Alimony Taxation Changes

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

 

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

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


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

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

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

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What to do in this record bull market

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

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

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

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

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

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

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

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

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

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

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

¹ Business Insider 8/2018

² Bloomberg.com 8/23/2018

³ Wall Street Journal 8/22/2018

⁴ Chicago Tribune 8/22/2018

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

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Capital Gain Tax Change Looms

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

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

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

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

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

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

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

 


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

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

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

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

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Growth for Whom?

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

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

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

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

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

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

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

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

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

 

¹ Bloomberg 4/3/2018

² New York Times 7/25/2018

³ Los Angeles Times 6/6/2018

⁴ CNN Money, 2/16/2018

⁵ CBS News 7/2/2018

⁶ CNBC 7/3/2018

⁷ New York Times 7/27/2018

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

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U.S. Stock Market Improves in Second Quarter

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

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

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

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

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

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

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

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

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

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

¹ www.wilshire.com/indexes/calculator

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

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

⁴ www.msci.com/end-of-day-data-search

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

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

 

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Strong Dollar and Trade Tariffs Play Chicken

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

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

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

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

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

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

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

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

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

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

 

¹ Wall Street Journal, 7/2/2018

² Reuters 6/29/2018

³ Marketwatch 7/2/2018

⁴ Institute of International Finance 7/2/2018

 

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

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U.N. Study Exposes American Poverty

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

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

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

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

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

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

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

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

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

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

¹ Los Angeles Times 6/6/2018

² The Guardian 6/1/2018

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

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Charitable Gifts and the New Tax Law

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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Graduation Gifts for a Successful Future

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

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

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

Gift Card to Purchase Books

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

A Professional Suit

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

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

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

Introduction to a Financial Planner

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

Roth IRA

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

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

Congratulations to your graduate and best wishes to their future! 



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

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

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

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

 

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Stock Buybacks and the American Dream

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

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

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

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

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

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

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

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

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

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

 

¹ Americans for Tax Fairness, 4/9/2018

² CNN Money, 2/16/2018

³ New York Times, 2/26/2018

⁴ Washington Post, 12/8/2016

⁵ Fortune, 3/8/2017

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

 

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Social Security Options Remain

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

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

 

Expired Benefits

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

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

Limited Benefit Remaining

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

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

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

 

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

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

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

Source/Disclaimer:

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

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

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

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

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

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


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

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The First Quarter & The Market Outlook

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Trade Tariffs and Your Investments

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

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

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

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

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

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

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

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

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

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

¹ Wall Street Journal 3/9/2018

² Marketwatch 3/5/2018

³ New York Times 3/22/2018

⁴ South China Morning Post 11/10/2017

⁵ www.bobveres.com 3/1/2018

 

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

 

 

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Medicare Under Attack

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

 

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

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

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

Medicare Premium Surcharges

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

What does that mean for me?

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

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

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

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



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

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

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

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

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

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

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Don't Forget About Inflation Risk

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

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

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

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

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

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

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

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

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

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

¹ USA Today, 10/5/2016

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

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Happy Birthday Roth IRAs

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

What is a Roth IRA?

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

Who should open a Roth IRA?

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

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

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

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

Additional Roth IRA Benefits[iv]

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

Roth IRA Contributions and Conversions

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

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

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

 

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

* Thirty-year municipal bonds yielded 2.62%.⁷

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

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

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

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

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

¹ www.wilshire.com/Indexes/calculator/

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

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

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

⁵ www.msci.com/end-of-day-data-search

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

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

⁸ Loring Ward, 360 Insights, winter 2018

⁹ Associated Press, March 5, 2013

 

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

 

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Tax Reform Highlights

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

How will tax reform impact individual taxpayers?[i]

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

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

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

3.      Personal exemptions are no longer deductible;

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

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

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

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

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

9.      Moving expenses are no longer deductible;

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

11.  Miscellaneous itemized deductions are no longer allowed;

Did Estate Taxes Go Away?

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

How Does the Tax Reform Affect Small Businesses?

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

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

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

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

How will this affect me?

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

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

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

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

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



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

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

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

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

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Balance

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

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

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

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

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

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

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

 

THREE WAYS TO REBALANCE  

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

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

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

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

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

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

¹ 5/22/2017 Seeking Alpha

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

 

 

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BITCOIN 101

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

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

How Bitcoin works

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

Bitcoin in a nutshell

Bitcoin Advantages:

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

-          No pre-requisites or limits

-          Your account cannot be frozen

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

Bitcoin Disadvantages:

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

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

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

Bitcoin bubble?

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

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

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

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

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

 

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


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

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

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

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Easy Estate Planning Tips

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

Review your living will and trust regularly

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

A revocable trust provides privacy over a will

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

Fund your trust

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

Provide titling consistency

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

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

Utilize the annual gift tax exemption

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

Future tax law changes

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

What’s next?

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

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

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



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

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

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

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Giving Thanks

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

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

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

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

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

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

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

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

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

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

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

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

We hope you have a happy and healthy holiday season!

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

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

 

 

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Behavioral Finance Takes Nobel Prize for Economics

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

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

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

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

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

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

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

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

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

 

Sources:

* Washington Post, 10/9/2017

* The Guardian, 10/11/2017

* New York Times, 10/9/2017

* The Economist, 10/23/2017

 

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

 

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ADJUST YOUR ASSET ALLOCATION FOR CHANGING TIMES

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

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

Analyzing Your Asset Allocation

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

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

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

Understanding Fixed Income

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

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

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

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

Ask for a Second Opinion

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

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

 

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

 


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

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Dissecting Turmp's Tax Reform

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

Highlights of the new tax reform include[i]:

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

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

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

  • A new $500 credit for caring for elderly relatives

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

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

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

  • Elimination of the corporate and individual Alternative Minimum Tax

  • Elimination of estate taxes on large inheritances

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

How will this affect me?

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

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

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

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

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

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

What’s next?

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

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

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

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


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

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

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EDUCATIONAL WORKSHOPS

2019 SCHEDULE 

YOUR 2019 INVESTMENT STRATEGY

Saturday, March 16, 2019

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

South Pasadena Public Library Community Room**

1115 El Centro St.

South Pasadena, CA  91030

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

 

YOUR 2019 INVESTMENT STRATEGY

Saturday, March 23, 2019

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

Ken Nakaoka Center*

1670 W. 162nd St.,

Gardena, CA  90247

*not sponsored by the City of Gardena

 

HELP YOUR CHILDREN WITH FINANCES

Saturday, May 4, 2019

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

Ken Nakaoka Center*

1670 W. 162nd St.,

Gardena, CA  90247

*Not sponsored by the City of Gardena

 

HELP YOUR CHILDREN WITH FINANCES

Saturday, May 11, 2019

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

South Pasadena Public Library Community Room**

1115 El Centro St.,

South Pasadena, CA  91030

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

 

YOUR RETIREMENT CHECKLIST AND LTC/LI HYBRIDS

Saturday, July 13, 2019

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

Kondo Wealth Advisors Pasadena Office (tentative)

300 N. Lake Ave. Suite 920

Pasadena, CA  91101

 

YOUR RETIREMENT CHECKLIST AND LTC/LI HYBRIDS

Saturday, July 20, 2019

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

Ken Nakaoka Center*

1670 W. 162nd St.,

Gardena, CA  90247

*not sponsored by the City of Gardena

 

INVESTING AFTER AGE 70.5 AND RMDs

Saturday, September 7, 2019

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

South Pasadena Public Library Community Room**

1115 El Centro St.

South Pasadena, CA  91030

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

 

INVESTING AFTER AGE 70.5 AND RMDs

Saturday, September 14, 2019

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

Ken Nakaoka Center*

1670 W. 162nd St.,

Gardena, CA  90247

*not sponsored by the City of Gardena

 

 

Contact Us

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

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