Widening Wealth and Income Gap

Posted on June 13, 2021 by admin

The worst health crisis and economic downturn in decades widens the wealth and income inequality gap in America

Federal Reserve Chairman Jerome Powell noted that the COVID-19 economic downturn did not fall “equally on all Americans,” and he warned that if the job losses and economic fallout were not contained and reversed, “the downturn could further widen gaps in economic well-being.”

When a large group of the population, such as the working class, is in economic distress, their spending is limited. And in a consumer-driven economy, spending is what drives the economy, corporate earnings, and, ultimately, the stock market.

Bloomberg on #wealth #inequality:
"The world’s wealthiest 500 individuals are now worth $8.4 trillion, up more than 40% in the year and a half since the global pandemic began its devastation."
Also important to keep front and center the worsening in the inequality of #opportunity

— Mohamed A. El-Erian (@elerianm) June 10, 2021

Wealth inequality is wide and widening

“Income and wealth inequality is soaring, wages for workers have been stagnant for almost 50 years and some billionaires pay nothing in federal income taxes.” Bernie Sanders

The share of wealth in the economy is increasingly owned by families in the top of the income distribution, according to The Brookings Institution. The top 20 percent held 77 percent of total household wealth in 2016, more than triple what the middle class held, defined as the middle 60 percent of the usual income distribution.

Consequently, lower-income households are a critical source of growth because they are more likely to spend any additional money they get. According to a working paper by the Chicago Fed in May, those who lived paycheck-to-paycheck spent more than two-thirds of the recent $1,200 relief checks within two weeks, while those who save much more of their monthly pay spent less than a quarter.

Economic, wealth and income disparity creates deep divides, which increase political risk for investors and opens the door to potential tax and regulatory changes that can weigh on corporate earnings and job creation.

Economic inequality is nothing new, and the human costs through generations aren’t easily quantifiable. But there is a growing consensus that rising income inequality and the wealth gap will play a crucial role in the strength of the economic recovery and future economic growth.

In the U.S., the top one percent holds more wealth than the middle class, according to data from the Federal Reserve. They owned 29 percent—or over $25 trillion—of household wealth in 2016, while the middle class owned just $18 trillion.[iii]

This has not always been the case. Before 2010, the middle class owned more wealth than the top one percent. Since 1995, the share of wealth held by the middle class has steadily declined, while the top one percent’s share has steadily increased.

Yet, a little more than half of U.S. households own some stock, usually through 401(k) plans, just 10% of households own 84% of the stock market, which means a swath of Americans didn’t reap the benefits of the last bull market and the recent stock market rebound.

The U.S. is a wealthy country, but it is becoming one in which a very small number of its citizens own a vast majority of the wealth, and from which both younger Americans and the broad middle class are failing to benefit. The widening wealth inequality explodes “…the myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most,” ProPublica reporters, Jesse Eisinger, Jeff Ernsthausen and Paul Kiel report. “The IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.”

References:

Inflationary Pressures are a Real and Present Concern

Posted on June 12, 2021 by admin

“Inflation jumped 5 percent in the past year, the fastest pace in 13 years.”

Inflation in the US has jumped to the highest rate since 2008. For the past decade, inflation has averaged under 2 percent a year. But suddenly, inflation is rising much faster than anticipated and planned by the Federal Reserve. For instance, inflation rose 5 percent between May 2020 and May 2021, the Labor Department reported.

Inflation results when demand exceeds supply in an economy. When the economy grows faster than its ability to provide goods and services demanded by consumers, prices rise. When the economy grows more slowly than its potential growth rate, prices tend to fall. Factors that affect an economy’s growth rate include the supply of labor and the productivity of those workers.

Inflation is imply defined as the price of a good or service increasing over time. Conversely, you can also define inflation by looking at the value of the dollars purchasing those goods and services. Said another way, while you might agreed that the price of good and services have increased, you can also state the dollars you spend now purchase less quantity of goods and services … and by extension, the dollars themselves are clearly worth less.

Money supply and budget deficits

We’ve learned that inflation is, “always and everywhere a monetary phenomenon,” according to economist Milton Friedman. Money supply growth is a requirement, but in and of itself, it’s not enough to cause inflation. The money needs to find its way into the economy and turnover rapidly to generate inflation. (This is referred to as the velocity of money or ratio of M2 money supply to gross domestic product, or GDP.) In recent years, the velocity of money has fallen sharply.

Rising budget deficits are not necessarily linked to inflation, either, but can contribute to an overheating economy. It all depends on whether it stimulates demand to exceed supply. From a long-term perspective, there has been little correlation in recent years between the level of debt in the economy and inflation.

The causes of present inflation and the primary explanations are:

Pent-up demand following the COVID-19 shutdown.
Base effects (essentially older low values rolling off).
A massive increase in the supply of dollars.

Rising Prices

“Inflation is taxation without legislation.” – Milton Friedman.

With commodity prices soaring, money supply growth exploding, and government spending surging, there is a palpable fear of a return to 1970s-style inflation. I get it. I remember those times.

Core inflation, which strips out volatile items such as food and energy, leaped to the highest level since 1992. It rose 3.8% year-on-year, up from 3% in April.
Other official data showed that the number of initial claims for jobless benefits fell to its lowest since mid-March 2020, when the first wave of Covid-19 hit.

The cost of used cars and trucks climbed 7.3% in May from April, accounting for a third of the increase in inflation. Prices were 29.7% higher than a year earlier. They have risen in recent months because of a global semiconductor shortage that has held back car production, pushing people to enter the market for second-hand vehicles instead.

Energy prices rose, by 28.5% year-on-year, including a 56% jump in gasoline prices compared with May 2020, when demand slumped due to the pandemic. And, gasoline prices are destined to go higher with the cancelation of the cross-border permit for the Keystone XL pipeline and suspension of the program for oil and gas leasing on federal lands and waters.

The cost of flights, household furnishings, new cars, rental cars and clothing rose during May.

Inflation jumped 5 percent in the past year, the fastest pace in 13 years. Few are panicking yet, but there’s a big debate about how long prices will stay high. https://t.co/yefQt0zQWH

— The Washington Post (@washingtonpost) June 10, 2021

What should investors do?

In response to inflation, investors should:

Must become awareness of inflation. Inflation is likely to increase throughout the year (and perhaps further), and bonds are likely to at least be less of a stalwart than they have over the past 40 years. It is important to realize that is possible and you should all be prepared for lower near-term performance in fixed income markets.
Diversification is key. Equities, for example, have historically been a reasonable asset during certain inflationary periods as companies can often pass through increased costs.
Explore other forms of inflation protection, as well as a broader diversification of fixed income instruments.

Inflation is clearly present for U.S. consumers in the grocery stores, at gas stations and in vehicle sales. Fears over rising prices has investors fearing that pent-up demand and supply chain bottlenecks would create inflationary pressures, and force the Federal Reserve to “tamper” their monetary stimulus program and dampen demand by increasing interest rates.

References:

Investing Goals

Posted on June 11, 2021 by admin

“The goal of investing is to maximize your returns and to put your money to work for you.”

Retirement and emergency fund should always be the first two investing goals on your list. But once you’ve got that covered, you probably have a bunch of other goals you want to reach.

Emergency funds

Being prepared for life’s surprises can take a burden off your mind—and someday, your wallet. An emergency fund is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly.

Here are some of the top emergencies people face:

Job loss.
Medical or dental emergency.
Unexpected home repairs.
Car troubles.
Unplanned travel expenses.

3 benefits of having emergency money

Aside from financial stability, there are pros to having an emergency reserve of cash.

— It helps keep your stress level down.

It’s no surprise that when life presents an emergency, it threatens your financial well-being and causes stress. If you’re living without a safety net, you’re living on the “financial” edge—hoping to get by without running into a crisis.

Being prepared with an emergency fund gives you confidence that you can tackle any of life’s unexpected events without adding money worries to your list.

— It keeps you from spending on a whim.

You’ve heard the saying “out of sight, out of mind.” That’s the best way to store your emergency money. If the cash is only as far away as your closest debit card, you may be tempted to use it for something frivolous like a designer cocktail dress or big-screen TV—not exactly an emergency.

Keeping the money out of your immediate reach means you can’t spend it on a whim, no matter how much you’d like to.

And by putting it in a separate account, you’ll know exactly how much you have—and how much you may still need to save.

— It keeps you from making bad financial decisions.

There may be other ways you can quickly access cash, like borrowing, but at what cost? Interest, fees, and penalties are just some of the drawbacks

Retirement

Saving for retirement might be the most important thing you ever do with your money. And the earlier you begin, the less money it will take.

When it comes to preparing for retirement, there are a lot of things you can’t control—the future of Social Security, tax rates, and inflation, for example. But one big thing that you can control is the amount you save.

Social Security shouldn’t be your only retirement plan since Social Security was never meant to be anyone’s sole source of retirement income.

In fact, a 30-year-old making $50,000 per year today—and who might realistically expect to make substantially more by the time he or she retires—can expect less than $22,000 per year from Social Security at age 67 (in today’s dollars).

In the past, pensions often offered an additional source of income for retirees. But pension plans are becoming rare in today’s world, and it’s more important than ever to take advantage of the opportunity to save for your future.

Keep in mind that on average, Social Security payments make up only about 33% of Americans’ retirement income, according to Social Security Administration.

Spending now could mean you’ll pay for it later

Perhaps you’d rather spend your money on other things that are more fun than saving for retirement.

But because compounding can enhance the value of your savings, the “pain” of each dollar you save now can be greatly outweighed by the flexibility you gain later.

Of course, we’re not suggesting you’d be better off squeezing the last drop of enjoyment from your life.

But we think that knowing you’ll be all set to meet your basic needs later—with enough left over to let you comfortably do the things you look forward to in retirement—is worth going without a few treats now and then.

Choosing to spend less on certain expenses now could make a huge impact in the long run! For example, you could spend $3,600 a year on payments for a new car during the next 5 years … or you could watch that money grow to $80,000 over the next 40 years!*

Control what you can

In the end, the future of Social Security isn’t the only thing that’s out of your hands. Tax rates will almost certainly change between now and your retirement date, and inflation will continue to increase prices over time. Other government programs, like Medicare, might also change.

But there’s one thing that only you can completely control: how much you save. Start now and you might be surprised at how little you notice the sacrifice.

Taxes Strategies in Retirement

Posted on June 10, 2021 by admin

“Taxes in retirement will likely be lower than you expect and not all your retirement income is taxable.”

Managing taxes in retirement can be complex. Yet, thoughtful planning may help reduce the tax burden for you and your heirs. By formulating a tax-efficient investment and distribution strategy, retirees may keep more of their hard-earned assets for themselves and their heirs.

The inconvenient truth is that you’ll continue to pay taxes in retirement, which in most cases will be typically at a lower effective tax rate. And, there are a variety of reasons why your tax rate in retirement will be lower.

When you’re working, the bulk of your income is earned from your job and is fully taxable (after deductions and exemptions) at ordinary income tax rates.

When you’re retired, different tax rules can apply to each type of income you receive. You should know how each income source shows up on your tax return in order to estimate and minimize your taxes in retirement.

In retirement, only pension income, withdrawals from taxable retirement accounts such as 401(k), and any rental, business, and wage income you have is taxable at ordinary income tax rates.

Withdrawals from tax-deferred retirement accounts are taxed at ordinary income rates. These are long-term assets, but withdrawals aren’t taxed at long-term capital gains rates. IRA withdrawals, as well as withdrawals from 401(k) plans, 403(b) plans, and 457 plans, are reported on your tax return as taxable income.

Social Security is taxed at ordinary income rates, but only part of it is taxable.

You probably won’t pay any taxes in retirement if Social Security benefits are your only source of income, but a portion of your benefits will likely be taxed if you have other sources of income. The taxable amount—anywhere from zero to 85%—depends on how much other income you have in addition to Social Security.

Withdrawals from Roth accounts are tax-free if you’ve had the account for at least 5 years and are over age 59 1/2.

Accessing the principal from savings and investments is tax-free and long-term capital gains are taxed at lower rates or can even reduce other taxes if you’re selling at a loss.

You’ll pay taxes on dividends, interest income, or capital gains from investments. These types of investment income are reported on a 1099 tax form each year. Each sale of an asset will generate a long- or short-term capital gain or loss, and is reported on your tax return. Short term capital gains are taxed as ordinary income and long term gains are taxed at lower capital gains tax rate.

Tax rate: Marginal vs. Effective

Marginal tax rate is the tax rate you pay on an additional dollar of income. The reason is because the next dollar that you contribute to your retirement account would normally be taxed at the marginal tax rate.

For example, a single person with a taxable income of $50k would have a 22% marginal tax bracket for 2021. But according calculations, the effective tax rate would be 13.5% of taxable income since only taxable income over $40,525, or $9,475, would be taxed at that 22%.

When you take funds out of your 401(k) in retirement, some of your income won’t be taxed at all because of deductions and exemptions. In fact, your standard deduction would be $1,700 higher if you were age 65 or older this year.

The first $9,950 of taxable income would only be taxed at 10%. Then the next bucket of income up to $40,525 would be taxed at 12%. Only the income over $40,525 would be taxed at the 22% rate.

Ideally, you want to use the lower effective tax rate when you’re estimating how much of your retirement income will go to pay taxes.

Tax strategies

Less taxing investments

Municipal bonds, or “munis,” have long been appreciated by retirees seeking a haven from taxes and stock market volatility. In general, the interest paid on municipal bonds is exempt from federal income tax and sometimes state and local taxes as well. The higher your tax bracket, the more you may benefit from investing in munis.

Also, tax-managed mutual funds may be a consideration. Managers of these funds pursue tax efficiency by employing a number of strategies. For instance, they might limit the number of times they trade investments within a fund or sell securities at a loss to offset portfolio gains. Equity index funds may also be more tax efficient than actively managed stock funds due to a potentially lower investment turnover rate.

It’s also important to review which types of securities are held in taxable versus tax-deferred accounts. Because the maximum federal tax rate on some dividend-producing investments and long-term capital gains is 20%.

Securities to tap first

Another major decision facing retirees is when to liquidate various types of assets. The advantage of holding on to tax-deferred investments is that they compound on a before-tax basis and therefore have greater earning potential than their taxable counterparts.

On the other hand, you’ll need to consider that qualified withdrawals from tax-deferred investments are taxed at ordinary federal income tax rates of up to 37%, while distributions — in the form of capital gains or dividends — from investments in taxable accounts are taxed at a maximum 20%. Capital gains on investments held for one year or less are taxed at regular income tax rates.)

For this reason, it potentially could be beneficial to hold securities in taxable accounts long enough to qualify for the favorable long-term rate. And, when choosing between tapping capital gains versus dividends, long-term capital gains may be a consideration from an estate planning perspective because you could get a step-up in basis on appreciated assets at death.

It may also make sense to consider taking a long term view with regard to tapping tax-deferred accounts. Keep in mind, however, the deadline for taking annual required minimum distributions (RMDs).

The ins and outs of RMDs

Generally, the IRS mandates that you begin taking an annual RMD from traditional individual retirement accounts (IRAs) and employer-sponsored retirement plans after you reach age 72.

The premise behind the RMD rule is simple — the longer you are expected to live, the less the IRS requires you to withdraw (and pay taxes on) each year.

In most cases, RMDs are based on a uniform table based on the participant’s age. Failure to take the RMD can result in an additional tax equal to 50% of the difference between the required minimum distribution and the actual amount distributed during the calendar year. Tip: If you’ll be pushed into a higher tax bracket at age 72.

Estate planning and gifting

There are various ways to reduce the burden of taxes on your beneficiaries. Careful selection of beneficiaries of your retirement accounts is one example. If you do not name a beneficiary of your retirement account, the assets in the account could become distributable to your estate. Your estate or its beneficiaries may be required to take RMDs on a faster schedule (such as over five years) than what would otherwise have been required (such as ten years or over the remaining lifetime of an individual beneficiary). In most cases, naming a spouse as a beneficiary is ideal because a surviving spouse has several options that aren’t available to other beneficiaries, such as rolling over your retirement account into the spouse’s own account and taking RMDs based on the surviving spouse’s own age

Key takeaways

“Nothing in life is certain except death and taxes.” Benjamin Franklin

When it comes to investing, nothing is certain but taxes.

Taxation and rates varies depending on the type of retirement income you receive.
You may pay taxes on Social Security benefits if you have other sources of income.
Income from pensions, traditional IRAs, 401(k)s, and similar plans are taxed as ordinary income.
You’ll pay taxes on investment income, including capital gains taxes if applicable.
Know and calculate your effective tax rate, which in most cases, will be lower than your marginal tax rate.

https://twitter.com/kiplinger/status/1401655591320313868

Strategies for making the most of your money and reducing taxes in retirement are complex. Plan ahead and consider meeting with a competent tax advisor, an estate attorney, and a financial professional to help you sort through your options.

References:

Apple’s Stock Price Underperforms Market 2021 YTD

Posted on June 9, 2021 by admin

“‘Most important, have the courage to follow your heart and intuition.’ Remembering Steve and the many ways he changed our world.” Tim Cook

On June 8, 2021, Apple Inc. (ticker: AAPL) closed $18.35 below its 52-week high ($145.09), which the company achieved on January 25th, and the stock is down slightly more than 4% year-to-date (YTD).

No photo description available.

Despite the recent stock price underperformance, Apple remains the most valued U.S.-traded company, at $2.1 trillion market capitalization. On April 28, 2021, Apple announced financial results for its fiscal 2021 second quarter ended March 27, 2021. The Company posted a second quarter record revenue of $89.6 billion, up 54 percent year over year, and quarterly earnings per diluted share of $1.40. International sales accounted for 67 percent of the quarter’s revenue. While hardware like the iPhone and iPad will continue being a significant part of Apple’s revenue, look for services to play an increasingly important role over the next decade in the company’s growth and success.

Yet, investors remain concerned regarding the big questions facing Apple and its ecosystem, according to an article reported in the Wall Street Journal. The company has been sued for alleged anticompetitive behavior by “Fortnite” maker Epic Games over the rules and fees for its App Store. A bench trial on the matter wrapped up last week.

That trial ended with Apple Chief Executive Tim Cook facing sharp questions from U.S. District Judge Yvonne Gonzalez Rogers, who seemed skeptical about some of the company’s explanations for its business practices on the App Store. A ruling in the case is not expected for months.

Apple’s share price has fallen 3% since the start of the trial and is now off nearly 7% for the year—the worst performance among its mega-cap tech peers. Part of that can be chalked up to worries about a peak iPhone cycle following the strong sales performance of last year’s models.

From a capital allocation perspective, Apple’s board hiked its dividend by 7% and announced a new $90B share repurchase program. Despite well-known industry chip supply constraints, Apple appears to be executing extremely well and is seeing robust demand across all business line.

References:

Investment Risks and Taxes

Posted on June 8, 2021 by admin

No investment is completely free of risk.

When it comes to investing, it’s critical to understand that no investment is 100% safe and all investments come with risk. Unlike when you store your money in a savings account, investing has no guarantees that you’ll earn a return. When you invest, experiencing a financial loss is a possibility.

Investing means that you’re putting your money to work into a financial asset in the expectation of getting a positive return. Yet, where there’s the chance of financial gain, there’s always going to be the chance of a financial loss. Investment risk and investment reward are two sides of the same investing coin.

On the other hand, saving — which is basically parking your money in an account so it’ll keep its value.

Some investments are considered safer than others, but no investment is completely free of risk, because there’s more than one kind of risk, according to SoFi.

Different Types of Risk

Investors who choose products and strategies to avoid market volatility may be leaving themselves open to other risks, including:

Inflation risk – An asset could become less valuable as inflation erodes its purchasing power. If an investment is earning little or nothing (a certificate of deposit or savings account, for example), it won’t buy as much in the future as prices on various goods and services go up.
Interest rate risk – A change in interest rates could reduce the value of certain investments. These can include bonds and other fixed-rate, “safe” investment vehicles.
Liquidity risk – Could an asset be sold or converted if the investor needs cash? Collections, jewelry, a home, or a car could take a while to market—and if the owner is forced to sell quickly, the price received could be lower than the asset is worth. Certain investments (certificates of deposit, some annuities) also may have some liquidity risk because they may offer a higher return in exchange for a longer term, and there may be a penalty if the investor cashes out early.
Tax risk – An investment could lose its value because of the way it’s taxed. For example, different types of bonds may be taxed in different ways.
Legislative risk- A change in law could lower the value of an investment. For example, if the government imposes new regulations on a business, it could result in higher costs (and lower profits) for the company or affect how it can serve its customers. Or, if taxes go up in the future, savers who put all or most of their money into tax-deferred accounts [IRAs, 401(k)s, etc.] could end up with a hefty tax bill when they retire.
Global risk – An investment in a foreign stock could lose value because of currency problems, political turmoil, and other factors.
Reinvestment risk – When an investment matures (think CDs and bonds), the investor might not be able to replace it with a similar vehicle that has the same or a higher rate of return.

Taxes

“Worried about an IRS audit? Avoid what’s called a red flag. That’s something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That’s a red flag.” Jay Leno

Taxes are a key consideration for investors – and not one that investors might think about when logging into their brokerage account. Yes, $0 trades are exciting, but don’t forget about taxes — which are an investors “biggest expense” or every traders “silent partner”.

The key to taxes is to not just think about taxes in tax season, because there’s not that much you can do besides contribute to an IRA.

When it comes to tax planning, most of it has to be done before the year is over. One strategy that’s very useful is tax-loss harvesting. Essentially, it allows investors with any sort of investment losses to use that to offset any gains, reducing the amount of taxes owed.

Investors can use the tax-loss harvesting proceeds to buy something else, and it can even be very similar. Or they can use the money to rebalance. “Don’t hesitate to take losses and use them to your advantage,” said Hayden Adams, director of tax and financial planning at Charles Schwab. “You’re likely to have losses and tax-loss harvesting is a great way to rebalance to get back to proper risk tolerance.”

The key for investors is to know the rules and work within them.

References:

Letter from a Dead Husband|

Posted on June 7, 2021 by admin

If something tragic were to happen to you, would your surviving family members be able to manage the family finances without you? Motley Fool

Devoted husband Bob Hassmiller asked himself this same question because he was concerned that his spouse wouldn’t be able to take care of the household finances if he passed away, according to an article posted by Motley Fool.

So he wrote his spouse a letter, called “A Letter From Your Dead Husband,” that he updated every year. This letter was a document that contains information and instructions to help your loved ones make sense of their financial life after you die. If something happened to him, his wife would have the letter providing detailed instructions about where to find everything she needed.

In Hassmiller’s “Letter From Your Dead Husband”, he included things that were important to him. Additionally, in the letter, he described why this is important and meaningful, both for him and his spouse.

But, before you begin, spend some time thinking about how you’d like to structure your letter. Do you want to create a giant table or spreadsheet in a program like Excel? Or do you prefer typing out instructions in a word processor? Maybe you want to use a hybrid of both approaches.

Before discussing the topics to include in your letter, keep in mind that federal and state laws often differ depending on where you’re located. Please use this as a basic guide — but financial and estate experts recommend you do your own research.

Have an introduction

Although it may seem self-explanatory, your letter should describe why this is important and meaningful, both for you and whomever you leave behind.

This is a good place to list the contact info for those who are part of your “financial team” (attorney, financial planner, executor, etc.).

You should also include the locations of your personal documents (Quicken files, utility bills, tax returns, etc.), as well as the locations of any legal documents and the names of anyone else who has copies. Don’t forget to include access instructions for safes, alarms, and websites.

Break down your accounts

List all the accounts that hold your money, including the account numbers. Leave no account unidentified! Be sure to note what is and isn’t automatically paid. You can also include a section for recurring and automatic payment accounts that your spouse may wish to stop — things such as Netflix, Amazon Prime, home loans, insurance, and others. Some types of accounts to consider include savings, checking, money market, CDs, brokerage accounts, retirement accounts (401(k), IRA, Roth IRA), and FSAs (health and dependent care).

List out your assets

Provide the physical locations of your non-monetary items that have value. Include identifying information such as license plates, VINs, insurance appraisals, etc.. Some assets to consider are real estate, personal property (autos, motorcycles, jewelry, artwork, etc.), stock or bond certificates held outside brokerage accounts, what’s owed you (money, goods, or services), business interests, Social Security income, and pension income.

Explain your liabilities

List all the debt or other liabilities in this section. List everything you owe, with account numbers and information about automatic payments, if applicable. Be sure to identify debts held in your name alone separately from what is held jointly by you and another person (spouse, business partner, etc.).

Liabilities to consider are credit card accounts, home equity loans or lines of credit, student loans, personal loans, mortgages, auto loans, business loans, and money, goods, or services you owe someone.

Run through your insurance

People sometimes forget how many different types of insurance they have. If you have minor children, it is wise to review your insurance needs about every three years. And be sure to list the term/renewal date of any insurance.

Some insurances to consider are life, health, disability, vehicle, home or renters, and property (you know, for Aunt Gertrude’s rubies that nobody wants to wear).

Collect your legal documents

Provide the locations of all your legal or other important documents, as well as who has hard copies. Legal documents should include a will, a living will, instructions for final arrangements, trusts or a living trust, power of attorney, medical power of attorney or an advance directive, financial power of attorney, and account names and locations of any passwords.

You can also use this section to address the general disposition of your assets when you die.

Share your financial roadmap
Use this section to provide a summary of your existing finances. You want to give your spouse a general overview of how your finances are set up, what your short- and long-term goals are, and how those may change once you’re gone. Along with a net-worth summary and a list of all our investments.

List trusted financial advisor and their telephone number, especially if you have allowed your investments to become complicated.

Plan for your spouse’s future, and end with love
Your can dictate the disbursement items or money that you feel strongly about. But many people choose to leave everything in bulk to a spouse, giving them the flexibility to spend as they see fit. So make your general wishes known, and include any special instructions.

End your letters with a statement of love. Your completing this letter speaks of all the wonderful times you’ve planned for your future. The document should require only minimal “tweaking” in the future, though it should be a yearly reminder to you and your spouse that financial planning, too, is a sign of your love.

There’s no “right” way to write your letter, so do what makes sense for your family. Remember, this document is for them — make sure they’re comfortable using it!

References:

Meme Stock Risks

Posted on June 6, 2021 by admin

“There’s a problem with the memes (a stock that has gone viral online, drawing the attention of retail investors) because the people who are investing will lose a very substantial amount of money.” Thomas Peterffy

Definition: A meme stock is a stock that has seen an increase in volume not because of the company’s performance, but rather because of hype on social media and online forums like Reddit. For this reason, these stocks often become overvalued, seeing drastic price increases in just a short amount of time.

The big problem with the so-called “meme”stock, which are assets powered higher on social-media sentiment and not on fundamentals, is that inexperienced investors will be saddled with real losses when stocks like AMC Entertainment Holdings (AMC), and GameStop Corp. (GME), eventually come back down to Earth.

The escalation in the values of these companies, like AMC and GameStop, don’t align with their prospects for earnings or revenue in the near or midterm.“There’s a problem with the “memes” because the people who are investing will lose a very substantial amount of money,” Thomas Peterffy, founder and chairman of Interactive Brokers Group Inc., said.

Peterffy said that the good thing about the surge in memes is that it will likely bring more young investor into the fold, but they will likely learn a hard lesson in the process.

Selling Short and short squeeze

Selling short means investors are betting that the asset will fall in value. The investments in AMC and GameStop originally started out as organized short-squeezes by a cadre of individual investors who had identified that a number of companies were heavily shorted by hedge funds, according to MarketWatch. These individual investors surmised, correctly, that those stocks could be pressured higher if enough buyers collectively swooped in.

A short squeeze is when many investors looking to cover short positions start buying at the same time. The buying pushes the share price higher, making short investors accelerate their attempts to cover, which sends the shares spiraling higher in a frenzy.

Short sellers, who bet a stock will fall, provide potential fuel for stock rallies when they’re wrong. If the stock jumps, instead of falling, the short sellers are forced to buy the stock to stop their losses from growing.

Lesson learned

Trying to identify a fundamental narrative that can justify meme stocks’ price and market cap are admittedly difficult. Still, it is an exercise that might provide some insights for meme stock investors. Essentially, when the music stops for the meme stocks like AMC and GameStop, investors could be looking at big capital losses.

References:

Financial Literacy – 7 Principles of Money Management

Posted on June 5, 2021 by admin

“If you don’t know where you are going, any road will get you there.” Lewis Carroll

Mastering personal finance requires more than a strategy of hope and ‘wishing for the best’—you have to look at your current financial situation holistically and come up with a financial plan for how to manage your money and how to achieve your goals. There are seven personal finance principles that are important for achieving financial success: mindset, budgeting, saving, debt, taxes, insurance, and investing for retirement.

1. Mindset – According to Stanford psychologist Carol Dweck, your mindset plays a pivotal role in what you want and whether you achieve it. Your mindset is a set of beliefs that shape how you make sense of the world and yourself; and, people are capable of changing their mindsets. Mindset influences how you think, feel, and behave in any given situation. And, the first step on the path to financial success is believing you can change your financial circumstances, being accountable, and accepting responsibility for your current reality and financial future. You must embrace that you are in control of your financial future, and every choice you make and action you take can have an impact.

2. Budgeting, Financial Planning and Goal Setting – Budgeting helps you better understand how you spend your money and shows you ways to manage your money, pay off debts and save for future financial goals. Budgeting helps you better understand how you spend your money and shows you ways to manage your money, pay off debts and save for future financial goals. Whether you’re new to budgeting or you’ve tried it before and failed, understanding which steps to follow makes budgeting for beginners simpler.

Begin planning your monthly budget by figuring out how much you have coming in versus how much is going out every month. Ultimately, you want to end up with a blueprint that specifically breaks down your income and expenses, so you know how much you can spend and how much you can save each month.

Figuring out how to budget can be challenging. Avoiding these three common budgeting pitfalls:

Getting overwhelmed,
Having unrealistic expectations, and
Being too strict

Financial planning involves implementing strategies that help you reach your financial goals, be they short-term or long-term. The path to financial success involves planning. It is impossible to effectively manage your finances if you don’t know how much money you have available to spend or have a plan on how you want to spend, invest, and save. You need to create a road map by defining your financial goals.

“The great majority of people are “wandering generalities” rather than “meaningful specifics”. The fact is that you can’t hit a target that you can’t see. If you don’t know where you are going, you will probably end up somewhere else. You have to have goals.” Zig Ziglar

Three essential keys to setting financial goals:

Be specific – define what you want to achieve and when. Goals can be short term (a few days, months, or a year) and long term (five, 10, or 15 years).
Be realistic – make certain your goals are attainable. Setting unattainable goals will only lead to disappointment when they are not achieved.
Write them down – keep records of your goals and mark off key milestones as you achieve them. Refer to this information from time to time. Writing down goals, reviewing them, and recording your progress can motivate you.

3. Credit and Debt – Understanding the way compound interest works is key to building wealth or avoiding crushing debt. Compound interest can work to your advantage as your investments grow over time, but against you if you’re paying off debt, like credit cards. Thus, make that compound interest work for you instead of against you.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Albert Einstein

Compounding interest can be a powerful tool to have in your financial arsenal. It can be very beneficial in building wealth and in creating large sums of money over time if invested correctly. But unfortunately, there is a darker side to compounding interest – compounding debt.

Debt is rampant across the United States. According to the New York Federal Reserve, consumer debt was approaching $14-trillion in the third quarter of 2018. This includes mortgages ($9.14-trillion), auto loans ($1.65-trillion), student loans ($1.44-trillion), and credit card loans ($829-billion). The thing about debt is that it eventually has to be paid. There is no such thing, economists like us tend to remind too often, as a free lunch.

Compound interest means reinvesting earned interest back into the principal of an investment Although investment returns aren’t guaranteed, compound interest can potentially help your investments grow exponentially over time.

If you don’t have credit already, start building it now! Many lenders consider not having credit just as bad as having bad credit. Many people in their 30s who have no credit think they have perfect credit because they’ve never had delinquent payments. They can’t have great credit, since they have no credit at all. Many people who are afraid of credit don’t actually understand credit. They may have a credit card, but never use it. Because they never use it, there is no history to report to the credit bureaus. In this case, they might as well not have the card at all, since creditors have no way of determining their credit trustworthiness.

4. Taxes – Being tax efficient with investments allows more money to be reinvested into a portfolio to grow over time. There are ways investments can be taxed and strategies for potentially minimizing tax burdens. Tax planning and financial planning are closely linked, because taxes are such a large expense item as you go through life. If you become financially successful, taxes will become your single biggest expense over the long haul. So planning to reduce taxes is a critically important piece of the overall financial planning process.

5. Saving and Emergency Funds – An emergency fund is 3-6 months of expenses set aside in the event of a job loss, car problems, a medical emergency, or other unexpected financial situations. An emergency fund should be kept in a liquid bank account like a savings account that is easy to access in the event of a financial emergency. An emergency fund is just one type of savings account that is “earmarked” or reserved for financial emergencies. Ensure your emergency fund is only used during financial emergencies so it can help you survive if you lose you source of income or your paycheck stops coming in.

6. Insurance and Risk Management – No one really wants to think about life insurance. But if someone depends on you financially, it’s a topic you can’t avoid. Getting life insurance doesn’t have to be hard (or boring). We have some answers to common questions about life insurance so that you can make informed decisions about protecting your loved ones financially. Have you ever wondered on your family would manage if something happens to you? Life insurance is important for protecting your loved ones if something happens to you.

7. Investing for Retirement – It should not be intimidating to start investing. There are five simple rules for building a long-term portfolio:

Contribute early and often
Minimize fees and taxes
Diversify your portfolio
Consider how much time you have
Focus on long-term goals

Financial Independence, Retire Early (F.I.R.E.) —is a growing movement of people who want to break free from relying on a job for income. Research has found several money management habits of financially independent people that can help you make the most of your money regardless of your financial goals.

References:

U.S. COVID-19 cases hit lowest point

Posted on June 4, 2021 by admin

New COVID-19 infections are down in the U.S. to the lowest level since March 2020.

For the past 56 weeks, COVID-19 infections have been tracked nationwide. Currently, the case counts are low and the virus infection rate has been effectively contained.

By the numbers: The U.S. averaged roughly 16,500 new cases per day over the past week, a 30% improvement over the week before. according to the CDC. New cases declined in 43 states and held steady in the other seven.

The official case counts haven’t been this low since Americans went into lockdown in March last year. Overall, roughly 33 million Americans — about 10% of the population — have tested positive for COVID-19 and about 595,000 people have died from the virus in the U.S. since March 2020.

The virus is under control, nationwide and in every state, thanks almost entirely to the vaccines. Just over half of American adults are now fully vaccinated, according to the CDC.

As of May 27, 2021, nearly 133 million people in the U.S. are fully vaccinated, and the national percentage of COVID-19 tests that came back positive over the last 7 days was less than 3%. This is one of the lowest rates the United States has seen since widespread testing began.

Effectively, the U.S. was never able to control the virus without vaccines. The risk is still high for unvaccinated people, as reported by the Washington Post. An average of about 500 Americans per day are still dying from COVID-19, almost all of them unvaccinated.

The U.S. has finally gotten the virus down to a level that just about every public health expert agrees is safe. Fewer than 20,000 cases per day, spread across the U.S. population of 331.5 million people, is a relatively low number of cases, and that number continues to improve every week.

Florida

Florida has more total cases per day — about 1,800, on average — than any other state. But again, that’s spread over a state with over 20 million people, and its numbers are improving just like the rest of the country’s. Florida’s daily case counts fell by 25% just this week.

The bottom line: Cases in the U.S. are low, and they’re likely to stay low. The FDA approved for emergency use vaccines work. They’ve brought COVID-19 infection cases to their lowest levels, and because that improvement is the result of vaccines, there’s no reason to believe the virus will start gaining significant ground again any time soon.

References:

Brownlee Global: Gratitude to Greatness

Gratitude is a Powerful Tool That Can Help People Live the Lives They Want

Author Archives: admin

Widening Wealth and Income Gap

Like this:

Inflationary Pressures are a Real and Present Concern

Like this:

Taxes Strategies in Retirement

Like this:

Apple’s Stock Price Underperforms Market 2021 YTD

Like this:

Investment Risks and Taxes

Like this:

Letter from a Dead Husband|

Like this:

Meme Stock Risks

Like this:

Financial Literacy – 7 Principles of Money Management

Like this:

U.S. COVID-19 cases hit lowest point

Like this: