Robo Financial Advisor

Robo-Advisors vs. Human Advisors

If an investor chooses a non-human financial advisor, what price could they end up paying?

Investors have a choice today that they did not have a decade ago. They can seek investing and retirement planning guidance from a human financial advisor or put their invested assets in the hands of a robo-advisor – a software program that maintains their portfolio.

Why would an investor want to leave all that decision making up to a computer? In this era of cybercrime and “flash crashes” on Wall Street, doesn’t that seem a little chancy?

No, not to the financial firms touting robo-advisors. They are wooing millennials, in particular. Some robo-advisor accounts offer very low minimums and fees, and younger investors who want to “set it and forget it” or have their asset allocations gradually adjusted with time represent the prime market. In the 12 months between July 2014 and July 2015 alone, invested assets under management by robo-advisors more than doubled.1

Even so, only 5% of investors responding to a recent Wells Fargo/Gallup survey said they had used a robo-advisor, and fewer than half those polled even knew what a robo-advisor was.2

A cost-conscious investor may ask, “What’s so bad about using a robo-advisor?” After all, taxpayers and tax preparers use tax prep software to fill out 1040 forms each year, and that seems to work well. Why shouldn’t investors rely on investment software?

The problem is the lack of a human element. Investors at all stages of life appreciate when a financial professional takes time to understand them, to know their goals and their story. A software program cannot gain that understanding, even with input from a questionnaire.

The closer you get to retirement age, the less appealing a robo-advisor becomes. The software they use can’t yet perform retirement planning – and after 50, people have financial concerns far beyond investment yields. Investment management does not equal retirement planning, estate planning, or risk management.2

Additionally, robo-advisors have never faced a bear market. They first appeared in 2010. Passive investment management is one of their hallmarks. How adroitly will their algorithms respond and rebalance a portfolio when the bears come out? That has yet to be seen.2

Does a robo-advisor have a fiduciary duty? Many investment and retirement planning professionals assume a fiduciary role for their clients. They have an ethical and legal duty to provide advice that is in the client’s best interest. How many robo-advisors have developed the discernment to do this?3

The robo-advisor “revolution” may be fleeting. Why, exactly? The whole robo-advisor business model may invite the demise of many of these firms. Robo-advisors pride themselves on low account fees, but as CNBC reports, those fees are now so minimal that many robo-advisors are having a hard time making back their client acquisition costs. Ultimately, robo-advisors may be remembered for the way they stimulated the financial services giants to offer low-minimum, low-cost investment tools.4

In fact, hybrid platforms have also emerged. Some robos now offer investors the chance to talk to a real, live financial advisor as well as actual financial planning services when an account balance surpasses a certain threshold. At the same time, some of the major brokerages have introduced robo-advisor investment platforms with potential human interaction to compete with the upstart investment firms that challenged their old-school approach.5

It appears the traditional approach of working with a human financial advisor may be hard to disrupt. The opportunity to draw on experience, to have a conversation with a professional who has seen his or her clients go through the whole arc of retirement, is so essential.

Some investors will never talk to a financial advisor in their lives. Just why is that? TIAA (formerly TIAA-CREF) surveyed 2,000 adults online and found some answers. Of those who hadn’t consulted financial advisors: 55% feared it would be too expensive, and 49% said it was “hard to know which sources or whom I can trust.” Forty percent were unsure of what questions to ask a financial professional, and 38% said that it would be awkward discussing their finances with someone else.1

These responses point to uncertainty about the process of financial and retirement planning. The process is really quite worthwhile, quite illuminating, and quite helpful. It is not just about planning to improve “the numbers,” it is also about planning ways to sustain and improve your quality of life.

Michael Bellush

Financial Advisor Bedford IN

 

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – tinyurl.com/hso3ahk [2/28/16]
2 – time.com/money/4616753/robo-advisor-online-financial-planning-advice/ [1/18/17]
3 – investopedia.com/terms/f/fiduciary.asp [2/21/17]
4 – cnbc.com/2016/06/14/is-the-twilight-of-the-robo-advisor-already-at-hand.html [6/14/16]
5 – forbes.com/sites/katherynthayer/2017/02/15/why-betterment-added-a-human-touch-to-its-roboadvisor-tool/ [2/15/17]
HSA

The Advantages of HSAs

Health Savings Accounts offer you tax breaks & more. 

Why do people open up Health Savings Accounts in conjunction with high-deductible health insurance plans? Well, here are some of the compelling reasons why younger, healthier employees decide to have HSAs.

#1: Tax-deductible contributions. These accounts are funded with pre-tax income – that is, you receive a current-year tax deduction for the amount of money you put into the plan. Your annual contribution limit to an HSA depends on your age and the type of high-deductible health plan (HDHP) you have in conjunction with the account. For 2017, limits are set at $3,400 (individual plan) and $6,750 (family plan). If you are 55 or older, those limits are nudged $1,000 higher.1,2

#2: Tax-free growth. In addition to the perk of being able to deduct HSA contributions from gross income, the interest on an HSA grows untaxed. (It is often possible to invest HSA assets.)3

#3: Tax-free withdrawals (as long as they pay for health care costs). Under federal tax law, distributions from HSAs are tax-free as long as they are used to pay qualified medical expenses.4

Add it up: an HSA lets you avoid taxes as you pay for health care. Additionally, these accounts have other merits.

You own your HSA. If you leave the company you work for, your HSA goes with you – your dollars aren’t lost.5

Do HSAs have underpublicized societal benefits? Since HSAs impel people to spend their own dollars on health care, the theory goes that they spur their owners toward staying healthy and getting the best medical care for their money.

The HSA is sometimes called the “stealth IRA.” If points 1-3 mentioned above aren’t wonderful enough, consider this: after age 65, you may use distributions out of your HSA for any purpose; although, you will pay regular income tax on distributions that aren’t used to fund medical expenses. (If you use funds from your HSA for non-medical expenses before age 65, the federal government will hit you with a 20% withdrawal penalty in addition to income tax on the withdrawn amount.)1,2

In fact, you can even transfer money from an IRA into an HSA – but you can only do this once, and the amount rolled over applies to your annual IRA contribution limit. (You can’t roll over HSA funds into an IRA.)1

How about the downside? In the worst-case scenario, you get sick while you’re enrolled in an HDHP and lack sufficient funds to pay medical expenses. It is worth remembering that HSA funds don’t pay for some forms of health care, such as non-prescription drugs.5

You also can’t use HSA funds to pay for health insurance coverage before age 65, in case you are wondering about such a move. After that age limit, things change: you can use HSA money to pay Medicare Part B premiums and long-term care insurance premiums. If you are already enrolled in Medicare, you can’t open an HSA; Medicare is not a high-deductible health plan.1,5

Even with those caveats, younger and healthier workers see many tax perks and pluses in the HSA. If you have a dependent child covered by an HSA-qualified HDHP, you can use HSA funds to pay his or her medical bills if that child is younger than 19. (This also applies if the dependent child is a full-time student younger than 24 or is permanently and totally disabled.)2

 

Who is eligible to open up an HSA? You are eligible if you enroll in a health plan with a sufficiently high deductible. For 2017, the eligibility limits are a $1,300 annual deductible for an individual or a $2,600 annual deductible for a family.2

Your employer may provide a match for your HSA. If an HSA is a component of an employee benefits program at your workplace, your employer is permitted to make contributions to your account.5

With the future of the Affordable Care Act in question, and more and more employers offering HSAs to their employees, perhaps people will become more knowledgeable about the intriguing features of these accounts and the way they work.

 

Michael Bellush

Website

812-275-5907

___________________________________________

Wealth Advisor Bedford IN

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.     
Citations.
1 – thebalance.com/hsa-vs-ira-you-might-be-surprised-2388481 [10/12/16]
2 – shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-sets-2017-hsa-contribution-limits.aspx [5/2/16]
3 – tinyurl.com/hhpdb3y [1/27/17]
4 – marketwatch.com/story/a-health-savings-account-could-power-your-retirement-2017-01-13 [1/13/17]
5 – nerdwallet.com/blog/taxes/health-savings-accounts/ [3/23/15]
Estate Taxes

A Brief History of Estate Taxes

Federal estate taxes have long since been a lucrative source of funding for the federal government.

Bedford Indiana Financial Advisor

Source: A Brief History of Estate Taxes

Making & Keeping Financial New Year’s Resolutions

Author: Michael Bellush, Wealth Advisor

What could you do (or do differently) in the months ahead?

How will your money habits change in 2017? What decisions or behaviors might help your personal finances, your retirement prospects, or your net worth?

Each year presents a “clean slate,” so as one year ebbs into another, it is natural to think about what you might do (or do differently) in the 12 months ahead.

Financially speaking, what New Year’s resolutions might you want to make for 2017 – and what can you do to stick by such resolutions as 2017 unfolds?

Strive to maximize your 2017 retirement plan contributions. Contribution limits are set at $18,000 for 401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan; if you will be 50 or older in 2017, you can make an additional catch-up contribution of up to $6,000 to those accounts. The 2017 limit on IRA contributions is $5,500, and $6,500 if you will be 50 or older at some point in the year. (If your household income is in the six-figure range, you may not be able to make a full 2017 contribution to a Roth IRA.)1 

Under 40? Set up automatic contributions to retirement & investment accounts. There are two excellent reasons for doing this.

One, time is on your side – in fact, time may be the greatest ally you have when it comes to succeeding as a retirement saver and an investor. An early start means more years of compounding for your invested assets. It also gives you more time to recover from a market downturn – a 60-year-old may not have such a luxury, but a 35-year-old certainly does.

Two, scheduling regular account contributions makes saving for retirement a given in your life – month after month, year after year. You can contribute without having to think about it, and without having to wait months or years to amass a lump sum. Those two factors can become barriers for people who fail to automate their retirement saving and investing. 

Can you review & reduce your debt? Look at your debts, one by one. You may be able to renegotiate the terms of loans and interest rates with lenders and credit card firms. See if you can cut down the number of debts you have – either attack the one with the highest interest rate first or the smallest balance first, then repeat with the remaining debts.

Rebalance your portfolio. If you have rebalanced recently, great. Many investors go years without rebalancing, which can be problematic if you own too much in a declining sector.

See if you can solidify some retirement variables. Accumulating assets for retirement is great; doing so with a planned retirement age and an estimated retirement budget is even better. The older you get, the less hazy those variables start to become. See if you can define the “when” of retirement this year – that may make the “how” and “how much” clearer as well. 

The same applies to college planning. If your child has now reached his or her teens, see if you can get a ballpark figure on the cost of attending local and out-of-state colleges. Even better, inquire about their financial aid packages and any relevant scholarships and grants. If you have college savings built up, you can work with those numbers and determine how those savings need to grow in the next few years.

How do you keep New Year’s resolutions from faltering? Often, New Year’s resolutions fail because there is only an end in mind – a clear goal, but no concrete steps toward realizing it.

Mapping out the incremental steps can make the goal seem more achievable. So, can visualizing the goal – something as simple as a written or calendared daily or weekly reminder may reinforce your commitment to it. Two New York University psychology professors, Gabriele Oettingen and Peter Gollwitzer, have developed what they call the “WOOP” strategy for achievement. Its four steps: pinpoint a challenging objective that can be met; think about the best result that could come from trying to reach the goal; identify any obstacles in your way; and distinguish the “if-then” positive steps you could take that would help you realize it.2

Financial new year’s resolutions tend to boil down to a common goal – the goal of paying yourself first. That means saving and investing money for your future rather than paying your creditors or buying expensive consumer items bound to depreciate. Think ahead – five, ten, or even twenty or thirty years ahead – and make this the year to plan to accomplish money goals, both big and small.

Author: Michael Bellush, Wealth Advisor

 

www.bedfedwealth.com

812-275-5907


This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – kiplinger.com/article/retirement/T047-C001-S003-making-ira-and-401-k-contributions-in-2017.html [11/7/16]
2 – usatoday.com/story/money/2016/12/20/five-doable-strategies-financial-success-2017/95521556/ [12/20/16]
compound interest

The Power of Compound Interest

Benjamin Franklin used compound interest to make big contributions to his two favorite cities. Watch this short but powerful video to learn how he did it!

The Power of Compound Interest

Michael Bellush
Wealth Advisor Bedford, IN
www.bedfedwealth.com
812-275-5907

____________

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
retirement plan contributions

2017 Retirement Plan Contribution Limits

Minor inflation means small, but notable, changes for the new year.

Each October, the Internal Revenue Service announces changes to annual contribution limits for IRAs and workplace retirement plans. Are any of these limits rising for 2017?

Will IRA contribution limits go up? Unfortunately, no. Annual contributions for Roth and traditional IRAs remain capped at $5,500 for 2017, with an additional $1,000 catch-up contribution permitted for those 50 and older. This is the fifth consecutive year those limits have gone unchanged. The SIMPLE IRA contribution limit is the same in 2017 as well: $12,500 with a $3,000 catch-up permitted.1,2

Bedford, Indiana Financial Advisor Michael Bellush reports that there are some changes pertaining to IRAs for 2017. The limit on the employer contribution to a SEP-IRA rises $1,000 in 2017 to $54,000; this adjustment also applies for solo 401(k)s. The compensation limit applied to the savings calculation for SEP-IRAs and solo 401(k)s gets a $5,000 boost to $270,000 for 2017.1

Next year will bring an adjustment to IRA phase-out ranges. Your maximum 2017 contribution to a Roth IRA may be reduced if your modified adjusted gross income falls within these ranges, and prohibited if it exceeds them.1

*Single/head of household         $118,000-133,000 ($1,000 higher than 2016)

*Married couples                            $186,000-196,000 ($2,000 higher than 2016)

If your MAGI falls within the applicable phase-out range below, you may claim a partial deduction for a traditional IRA contribution made in 2017. If it exceeds the top limit of the applicable phase-out range, you can’t claim a deduction.1

*Single or head of household,
covered by workplace retirement plan  $62,000-72,000 ($1,000 higher than 2016)

*Married filing jointly,
spouse making IRA contribution
covered by workplace retirement plan  $99,000-119,000 ($2,000 higher than 2016)

*Married filing jointly,
spouse making IRA contribution not
covered by workplace retirement plan,
other spouse is covered by one                                $186,000-196,000 ($2,000 higher than 2016)

*Married filing separately,
covered by workplace retirement plan  $0-10,000 (unchanged)

Will you be able to put a little more into your 401(k), 403(b), or 457 plan next year? No. The maximum yearly contribution limit for these plans stays at $18,000 for 2017. (That limit also applies to the Thrift Savings Plan for federal workers.) The additional catch-up contribution limit for plan participants 50 and older remains at $6,000.1

Are annual contribution limits on Health Savings Accounts rising? Just slightly. In 2017, the yearly limit on deductible HSA contributions stays at $6,750 for family coverage and increases $50 to $3,400 for individuals with self-only coverage. You must participate in a high-deductible health plan to make HSA contributions. The annual minimum deductible for an HDHP remains at $1,300 for self-only coverage and $2,600 for family coverage in 2017. Next year, the upper limit for out-of-pocket expenses stays at $6,550 for self-only coverage and $13,100 for family coverage. HSAs are sometimes called “backdoor IRAs” because they can essentially function as retirement accounts for people 65 and older; at that point, withdrawals from them can be used for any purpose.3,4

Are you self-employed, with a defined benefits plan? The limit on the yearly benefit for those pension plans increases by $5,000 next year. The 2017 limit is set at $215,000.1

Michael Bellush, Wealth Advisor

www.bedfedwealth.com

mbellush@bedfed.com

812-275-5907

_________________________

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. 
Citations.
1 – forbes.com/sites/ashleaebeling/2016/10/27/irs-announces-2017-retirement-plans-contributions-limits-for-401ks-and-more/ [10/27/16]
2 – irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits [10/28/16]
3 – tinyurl.com/h4x5cf6 [4/29/16]
4 – cnbc.com/2016/08/19/dont-use-your-health-savings-account-funds-right-away.html [8/19/16]
election-and-stock-market

Election Series: The Outcome and What Investors Should Expect

Donald Trump has completed his landmark quest and will become the nation’s 45th president after a contentious and often divisive campaign. In addition, the Republican Party has retained control of both houses of Congress. This outcome marks a significant reversal from just a few weeks ago when a Hillary Clinton presidency was highly probable and even a Democratic Party sweep of Congress was possible.

While this outcome is certainly a shock to many, it is important to remember that the result isn’t a surprise to the plurality of American voters that spoke their collective will at the ballot boxes. The strength of a democracy is not in whether we like the outcome, but rather in how we accept the result as the voice and will of our republic.

While many things are promised on the campaign trail, all newly elected presidents enter with a constrained ability to enact their agenda unilaterally. As a result, immediate and sweeping political changes are a process, which give markets and the American public time to digest and react. Although often derided by partisans, the inability of a president to swiftly change policies is a strength of our political system, not a weakness of it.

Moreover, any market volatility we may experience in the short term should not be attributed to who was elected president, as markets do not have political affiliations. Rather, this volatility would reflect the market’s adjustment to a surprise presidential winner and the market’s tentativeness regarding the vast uncertainty over which of President-elect Trump’s stated policies he will be able to enact. The first major step towards clarity will come with Trump’s choices for key administration officials; his selections will give a better sense of the priorities for the Trump administration. This should provide further understanding and facilitate calm markets.

For the first time in 10 years, the Republican Party will have control of the presidency and both houses of Congress. As in all things, this may solve some problems, and perhaps exacerbate others. For example, potentially divisive upcoming issues, such as the necessary expansion of the debt ceiling and reforms to the corporate tax code, could be easier to navigate. There is a common perception that the markets like divided government. While that may often be correct, it is not necessarily true at every point in time.

Most importantly, however, over time we have witnessed corporations and financial markets adapting smoothly to new political environments. The uncertainty surrounding the Trump presidency could be greater than a typical transition; therefore, the markets may take additional time to process any changes. However, the uncertainty itself is not unusual.

Separating political views and emotions from investment decisions is difficult. Whether this election result was your favored outcome or not, what we have learned over the years is that although presidents can set an overall tone for the markets, over the long term, it is the underlying fundamentals of the economy and the strength of corporate profits that matter more. Overall, we continue to be encouraged by the underlying fundamentals in the economy and the related resilience of the stock market. Recently, encouraging economic data, including a record 73 consecutive months of private sector jobs growth, high consumer confidence, and an increase in manufacturing activity, all suggest a recession in the next year is unlikely.[1] And, although the stock market has been essentially flat over the past three months, the S&P 500 has returned 5.2% year to date (through market close on November 8, 2016).

As this historic election cycle comes to a close, I suggest casting a “vote of confidence” for the U.S. economy and markets. While uncertainty will certainly be prevalent over the short run, our political and economic systems are resilient and can, after a period of adjustment, adapt to new realities. As investors, we all need to try and put this election into perspective, as our investment horizons extend far beyond any political cycle. And, the keys to your investment success of relying on independent investment advice and sticking to your long-term investment strategies should not change, regardless of who is in office.

As always, if you have questions, I encourage you to contact me.

Michael Bellush
Wealth Advisor Bedford, IN

Bedford Federal Wealth Management
812-275-5907

_____________________

Wealth Planning

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
Economic forecasts set forth may not develop as predicted.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
This research material has been prepared by LPL Financial LLC.
Securities offered through LPL Financial LLC. Member FINRA/SIPC.
Tracking # 1-553712 (Exp. 11/17)
 1 According to U.S. Bureau of Labor Statistics, ISM Manufacturing Index, and Consumer Confidence Index data as of 11/7/16

 

October Is National Financial Planning Month

Saving is a great start, but planning to reach your financial goals is even better.

Are you saving for retirement? Great. Are you planning for retirement? That is even better. Planning for your retirement and other long-range financial goals is an essential step – one that could make achieving those goals easier. Bedford Federal Wealth Management works with clients to put together a plan to work toward those important financial goals.

Saving without investing isn’t enough. Since interest rates are so low today, money in a typical savings account barely grows. It may not even grow enough to keep up with inflation, leaving the saver at a long-term financial disadvantage. 

Very few Americans retire on savings alone. Rather, they invest some of their savings and retire mostly on the accumulated earnings those invested dollars generate over time.    

Investing without planning usually isn’t enough. Most people invest with a general idea of building wealth, particularly for retirement. The problem is that too many of them invest without a plan. They are guessing how much money they will need once they leave work, and that guess may be way off. Some have no idea at all.

Growing and retaining wealth takes more than just investing. Along the way, you must plan to manage risk and defer or reduce taxes. A good financial plan – created with the assistance of an experienced wealth planner – addresses those priorities while defining your investment approach. It changes over time, to reflect changes in your life and your financial objectives.

With a plan, you can set short-term and long-term goals and benchmarks. You can estimate the amount of money you will likely need to meet retirement, college, and health care expenses. You can plot a way to wind down your business or exit your career with confidence. You can also get a good look at your present financial situation – where you stand in terms of your assets and liabilities, the distance between where you are financially and where you would like to be.

Last year, a Gallup poll found that just 38% of investors had a written financial plan. Gallup asked those with no written financial strategy why they lacked one. The top two reasons? They just hadn’t taken the time (29%) or they simply hadn’t thought about it (27%).1

October is National Financial Planning Month – an ideal time to plan your financial future. The end of the year is approaching and a new one will soon begin, so this is the right time to think about what you have done in 2016 and what you could do in 2017. You might want to do something new; you may want to do some things differently. Your financial future is in your hands, so be proactive and plan.

Our advisory firm has developed an efficient and holistic 4-step wealth planning process that we call Wealth Blueprinting.™ We utilize a Wealth Blueprinting™ Financial Organizer that serves as an online portal for our clients’ financial plans. It also serves as a secure personal financial organizer. 

Author: Michael Bellush

Financial Advisor located in Bedford, IN

Bedford Federal Wealth Management

 

 ________________________

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
     
Citations.
1 – gallup.com/poll/184421/nonretired-investors-written-financial-plan.aspx [7/31/15]
Bedford IN Wealth Advisor
ROTH IRA

The Many Benefits of a Roth IRA

The Roth IRA changed the whole retirement savings perspective. Since its introduction, it has become a fixture in many retirement planning strategies.

The key argument for going Roth can be summed up in a sentence: Paying taxes on retirement contributions today is better than paying taxes on retirement savings tomorrow.

Here is a closer look at the trade-off you make when you open and contribute to a Roth IRA – a trade-off many savers are happy to make.

You contribute after-tax dollars. You have already paid federal income tax on the dollars going into the account. But, in exchange for paying taxes on your retirement savings contributions today, you could potentially realize great benefits tomorrow.1

You position the money for tax-deferred growth. Roth IRA earnings aren’t taxed as they grow and compound. If, say, your account grows 6% a year, that growth will be even greater when you factor in compounding. The earlier in life that you open a Roth IRA, the greater compounding potential you have.2

You can arrange tax-free retirement income. Roth IRA earnings can be withdrawn tax-free as long as you are age 59½ or older and have owned the IRA for at least five tax years. The IRS calls such tax-free withdrawals qualified distributions. They may be made to you during your lifetime or to a beneficiary after you die. (If you happen to die before your Roth IRA meets the 5-year rule, your beneficiary will see the Roth IRA earnings taxed until it is met.)2,3

If you withdraw money from a Roth IRA before you reach age 59½ or have owned the IRA for five tax years, that is a nonqualified distribution. In this circumstance, you can still withdraw an amount equivalent to your total IRA contributions to that point, tax-free and penalty-free. If you withdraw more than that amount, though, the rest of the withdrawal may be fully taxable and subject to a 10% IRS early withdrawal penalty as well.2,3

Withdrawals don’t affect taxation of Social Security benefits. If your total taxable income exceeds a certain threshold – $25,000 for single filers, $32,000 for joint filers – then your Social Security benefits may be taxed. An RMD from a traditional IRA represents taxable income, which may push retirees over the threshold – but a qualified distribution from a Roth IRA isn’t taxable income, and doesn’t count toward it.4


How much can you contribute to a Roth IRA annually? The 2016 contribution limit is $5,500, with an additional $1,000 “catch-up” contribution allowed for those 50 and older. (The annual contribution limit is adjusted periodically for inflation.)5 

You can keep making annual Roth IRA contributions all your life. You can’t make annual contributions to a traditional IRA once you reach age 70½.2

Does a Roth IRA have any drawbacks? Actually, yes. One, you will generally be hit with a 10% penalty by the IRS if you withdraw Roth IRA funds before age 59½ or you haven’t owned the IRA for at least five years. (This is in addition to the regular income tax you will pay on funds withdrawn prior to age 59 1/2, of course.) Two, you can’t deduct Roth IRA contributions on your 1040 form as you can do with contributions to a traditional IRA or the typical workplace retirement plan. Three, you might not be able to contribute to a Roth IRA as a consequence of your filing status and income; if you earn a great deal of money, you may be able to make only a partial contribution or none at all.3,5

A chat with the financial professional you know and trust will help you evaluate whether or not a Roth IRA is right for you given your particular tax situation and retirement horizon.

Michael Bellush, Wealth Advisor

Bedford Federal Wealth Management

812-275-5907

_____________________________

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – forbes.com/sites/gurufocus/2016/07/12/dividend-investing-in-a-roth-ira/#15a5276e320b [7/12/16]
2 – fool.com/retirement/2016/07/03/5-huge-roth-ira-advantages-you-need-to-know.aspx [7/3/16]
3 – hrblock.com/free-tax-tips-calculators/tax-help-articles/Retirement-Plans/Early-Withdrawal-Penalties-Traditional-and-Roth-IRAs.html?action=ga&aid=27104&out=vm [8/8/16]
4 – investopedia.com/ask/answers/013015/how-can-i-avoid-paying-taxes-my-social-security-income.asp [7/6/16]
5 – fool.com/retirement/general/2016/01/02/ira-contribution-limits-in-2015-and-2016-and-how-t.aspx [1/2/16]
tax plans

Election Series: Which Party Has Been Better for Stocks?

After the second presidential debate this week, the race continues to heat up. According to Senior Market Strategist Ryan Detrick, “‘Under which party do stocks perform better, Democrats or Republicans?’ is always a popular question. As we discussed in our Midyear Outlook, going back to 1900, the Dow has done slightly better under a Democratic president than a Republican president. Although stocks have performed slightly better under Democrats over time, the bottom line is that gridlock is the best case for stocks.” Gridlock is a split Congress or a president from the party opposite the one in control of both houses of Congress.

Here is how the S&P 500 has done under various presidents going back to President Eisenhower. Only three times has the S&P 500 been negative during a president’s term, with all three happening under a Republican president, and all three taking place during an economic recession. History has shown that economic recessions usually lead to lower equity prices. The best total return was the 84.5% gain during President Obama’s first term, which came on the heels of the Great Recession and the rebound from a deep bear market.

101016_blog_figure1

Michael Bellush

Wealth Advisor

Bedford Federal Wealth Management

812-275-5907

michael.bellush@lpl.com

_______________

IMPORTANT DISCLOSURES
Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
The economic forecasts set forth in the presentation may not develop as predicted.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
Stock investing involves risk including loss of principal.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments.
Because of its narrow focus, specialty sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average (DJIA) Index is comprised of U.S.-listed stocks of companies that produce other (nontransportation and nonutility) goods and services. The Dow Jones Industrial Averages are maintained by editors of The Wall Street Journal. While the stock selection process is somewhat subjective, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors, and accurately represents the market sectors covered by the average. The Dow Jones averages are unique in that they are price weighted; therefore, their component weightings are affected only by changes in the stocks’ prices.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor
Member FINRA/SIPC
Tracking #1-543704 (Exp. 10/17)
election-and-stock-market

Election Series: Stocks & Presidential Elections

What does history tell us –  should we value it?

As an investor, you know that past performance is no guarantee of future success. Expanding that truth, history has no bearing on the future of Wall Street.

That said, stock market historians have repeatedly analyzed market behavior in presidential election years, and what stocks do when different parties hold the reins of power in Washington. They have noticed some interesting patterns through the years, which may or may not prove true for 2016.

Do stocks really go through an “election cycle” every four years? The numbers really don’t point to any kind of pattern. (Some analysts contend that stocks follow a common pattern during an election year; more about that in a bit.)

In price return terms, the S&P 500 has gained an average of 6.1% in election years, going back to 1948, compared to 8.8% in any given year. The index has posted a yearly gain in 76% of presidential election years starting in 1948, however, as opposed to 71% in other years. Of course, much of this performance could be chalked up to macroeconomic factors having nothing to do with a presidential race.1

Overall, election years have been decent for the blue chips. Opening a very wide historical window, the Dow has averaged nearly a 6% gain in election years since 1833. Across that same time frame, it has averaged a 10.4% gain in “year three” – years preceding election years.2

Many election years have seen solid advances for the small caps. The average price return of the Russell 2000 is 10.9% in election years going back to 1980, with a yearly gain occurring 78% of the time.1

Do stocks respond if a particular party has control of Congress? A little data from InvesTech Research will help to answer that.

InvesTech studied S&P 500 yearly returns since 1928 and found that the S&P returned an average of 16.9% in the two years after a presidential election when the White House and Congress were controlled by the same party. In the 2-year stretches after a presidential election, when Congress was controlled by the party that didn’t occupy the White House, the price return of the S&P averaged 15.6%. When control of Congress was split – regardless of who was President – the S&P only returned an average of 5.5% in those 2-year periods.2

Could stock market performance actually influence the election? An InvesTech analysis seems to draw a correlation, however mysterious, between S&P 500 performance and whether the incumbent party retains control of the White House.

There have been 22 presidential elections since 1928. In those 22 years, the incumbent party won the White House 86% of the time when the S&P advanced during the three months preceding Election Day. When the S&P lost ground in the three months prior to the election, the incumbent party lost the White House 88% of the time. Of course, other factors may have been considerably more influential in these elections, such as a given president’s approval rating and the unemployment rate.2

Annual returns aside, is there a mini-cycle that hits stocks in the typical election year? Some analysts insist so, with the cycle unfolding like this: stocks gain momentum during primary season, rally strongly as the presumptive nominees appear and party conventions occur, and then go sideways or south in November and December.3

There might be something to this assertion, at least in terms of S&P 500 performance. A FactSet/Wall Street Journal analysis shows that, in election years starting in 1980, the S&P has advanced an average of 4.9% in the period between when a presumptive nominee is declared and Election Day. After Election Day in these nine years, it declined about half a percent on average.3

How much weight does history ultimately hold? Perhaps not much. It is intriguing, and some analysts would instruct you to pay more attention to it rather than less. Historical “norms” are easily upended, though. Take 2008, the election year that brought us a bear market disaster. The year 2000 also brought an S&P 500 loss. While a presidential election undoubtedly affects Wall Street every four years, it is just one of many factors in determining a year’s market performance.1

Michael Bellush
Wealth Advisor

Bedford Federal Wealth Management
michael.bellush@lpl.com
812-275-5907

_______________________________________

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – marketwatch.com/story/2016-predictions-what-presidential-election-years-mean-for-stocks-2015-12-29 [12/29/15]
2 – kiplinger.com/article/investing/T043-C008-S003-how-presidential-elections-affect-the-stock-market.html [2/16]
3 – tinyurl.com/j82mg4c [6/12/16]
Budget Proposals

Election Series: The Trump & Clinton Budget Proposals

A look at the two plans & the effects they might have over the next decade.

Hillary Clinton & Donald Trump have big plans for America. How might their proposed federal budgets impact the federal deficit and the national debt?

Any discussion of this must proceed from a fundamental understanding: regardless of who wins the election, the Congressional Budget Office estimates that the deficit will near $800 billion in 2020.1

Hillary Clinton’s budget would boost health, education, & infrastructure spending. It would increase Affordable Care Act subsidies; resolve the “family glitch,” making some households ineligible for such credits; and eliminate the “Cadillac tax” on “high-cost,” employer-sponsored health plans. It would direct grants to states, so that students whose parents earn less than $85,000 a year could attend public universities in their home states for free. (That threshold would incrementally rise to $125,000 within four years of implementation.) Another $275 billion (or more) would be spent on projects to rebuild highways and bridges.1,2,3

To help cover the increased expenditures resulting from the proposals in her budget, Clinton would utilize the 3.8% investment surtax, which is currently levied on incomes greater than $200,000 or $250,000 for individuals and couples, respectively, and apply it to pass-through business income as well. Thus, this surtax would not only be implemented to eligible households, but also to limited partners, members of LLCs and owners of S-corporations. In addition, owners of CPA firms, law firms, consulting firms and other professional services businesses would face payroll taxes on their incomes.3

Under the Clinton plan, the non-partisan Committee for a Responsible Federal Budget sees the federal government spending $350 billion more on higher education, an additional $300 billion on infrastructure, $300 billion on paid family leave and almost $500 billion on other programs over the next decade. About $1.25 trillion in tax increases would offset this, it projects.2,3

Donald Trump’s budget would also carry out some big changes. As of late August, Trump had not released a greatly detailed budget proposal. He has outlined some moves he would like to make. For one, Trump would do away with the Affordable Care Act. He would also curtail illegal immigration, and, possibly deport millions of undocumented workers. Each of these plans would take $50 billion to accomplish, according to CRFB estimates. Trump says that he would “at least double” what Clinton proposes to assign to infrastructure repairs, meaning an expenditure of $500 billion or more. He also seeks to overhaul the Department of Veterans Affairs to make the health care it provides more privatized. That could cost about $500 billion.2,4   

Tax reform is high on Trump’s agenda: he proposes eliminating the estate tax, capping the corporate income tax at 15%, and raising the standard deduction to $25,000 for single filers and $50,000 for joint filers. These tax reforms would reduce federal government revenue by around $9.25 trillion over the next decade, the CRFB projects.2,5   

How could these budget ideas impact the federal deficit over the next 10 years? The CRFB analyzed each candidate’s proposals this summer and made calculations based on CBO forecasts of cumulative GDP from 2017-2026. The CRFB notes that if the status quo simply continued, federal revenues would run 4.0% less than federal spending across the next decade. Under Clinton’s proposals, the gap would be 4.1%; under Trump’s proposals, it would be 9.0%.2  

And how about the national debt? The CRFB forecasts the national debt rising by $250 billion under the Clinton budget and $11.5 trillion under the Trump budget.1

In terms of reducing the debt, both Trump and Clinton may be promising more than they can deliver. CRFB projections show that if Congress implemented Clinton’s major budget proposals, the federal government would have to reduce overall spending 6-15%, raise marginal tax rates 3.5-8.5%, ramp up real GDP growth 35-125%, or, possibly, even use these moves in tandem to keep the national debt from rising further.6 

Trump has volunteered a radical idea to attack the debt: a haircut for owners of Treasuries. Institutional investors would redeem Treasuries at less than their face value. So would individual investors, including seniors and retirement savers. Economists have roundly criticized this suggestion.6  

In the future, these budget proposals may be greatly amended. Any politician makes compromises in pursuit of a legislative goal, and the politician who becomes our next president will, undoubtedly, make or accept compromises when it comes to his or her envisioned budget.    

Michael Bellush, Wealth Advisor

Bedford Federal Wealth Management

812-275-5907

michael.bellush@lpl.com


This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – nytimes.com/2016/08/01/business/economy/clinton-trump-either-way-count-on-deficit-spending-to-rise.html [8/1/16]


2 – crfb.org/papers/promises-and-price-tags-fiscal-guide-2016-election [7/27/16]


3 – crfb.org/blogs/analyzing-clintons-health-and-education-expansions [8/3/16]


4 – fortune.com/2016/08/03/donald-trump-infrastructure/ [8/3/16]


5 – taxanalysts.org/tax-analysts-blog/trump-s-tax-plan-version-20/2016/08/12/194511 [8/12/16]


6 – kiplinger.com/article/credit/T025-C000-S001-where-clinton-and-trump-stand-on-the-public-debt.html [8/5/16]

 

tax plans

Election Series: The Trump & Clinton Tax Plans

Seemingly every presidential candidate offers a plan for tax reform. You can add Donald Trump and Hillary Clinton to that long list. Here is a look at their plans, and the key reforms to federal tax law that might result if they were enacted. 

Donald Trump revised his tax plan this summer. The latest plan put forth by Trump and his advisors contains the key features of the one introduced last year.

Under Trump’s plan, the standard deduction would rise. It would rise from the current level of $6,300 to $25,000 for single filers. Joint filers could claim a $50,000 standard deduction. (The GOP plan proposes respective standard deductions of $12,000 and $24,000.) Instead of seven federal income tax rates, there would just be three – 12%, 25%, and 33%. (In his original tax reform blueprint, the rates were 10%, 20%, and 25%.)1

The estate tax would vanish entirely under Trump’s plan. Taxes on capital gains and dividends would top out at 20%.2,3

Trump wants to reduce the corporate tax rate from 35% to 15%. The new lower rate would apply to partnerships, LLCs, and S corps as well as C corps. (With a proposed corporate tax ceiling of 15% and a proposed individual tax ceiling of 33%, some economists have wondered if a Trump presidency might generate a wave of individuals incorporating themselves.) Full expensing would also be allowed for business investments under Trump’s plan.1

Notably, Trump’s reforms would do away with the deferral of taxes on foreign profits. As it stands now, corporate taxes on foreign profits are deferred until overseas affiliates repatriate them. It can take years for those inbound dividends to arrive. The Trump plan would tax domestic and foreign profits on the same current-year basis.1

Trump has also publicly spoken of greater tax relief for families raising children. This would likely not be an expansion of the Child and Dependent Care Credit, but something new – either a deduction, a credit, or an exclusion. Given the high standard deductions that would be offered if Trump’s tax plan becomes law, higher-income households might be most interested in such an expanded child care deduction. If the Trump plan applies a child care deduction to payroll taxes rather than income taxes, many lower-income households could, theoretically, claim it. Less payroll tax revenue would mean less revenue for some key government programs.1

Hillary Clinton’s tax plan would lower some taxes & raise others. As the non-partisan Tax Policy Center has noted, only around 5% of Americans would see any real change to their taxes under the Clinton reforms – but the richest Americans would pay higher income taxes under her plan. Clinton’s corporate tax reforms would encourage firms to do more business in America, while her estate tax reforms could prompt changes in wealth transfer planning for some families.2,3

High-earning households could see marginal rates rise. Under Clinton’s plan, taxpayers with adjusted gross incomes greater than $5 million would pay a 4% surtax, effectively setting their marginal tax rate at 43.6%. Anyone earning more than $1 million would face an effective tax rate of 30%. Investors would have to buy and hold for longer intervals to take advantage of long-term capital gains tax rates. The current long-term rate of 20% would only apply if an investor owned an investment for six years; in preceding years, it would be incrementally higher.2,3,4

The federal estate tax would also rise to 45% through Clinton’s reforms. The current $5.45 million individual exemption would be reduced to $3.5 million ($7 million for married couples).2

Clinton’s plan would adjust corporate taxation. U.S. firms would find it harder to make tax inversions, whereby they merge with an overseas competitor and move their headquarters to another country to exploit that nation’s lower corporate tax rate. Earnings stripping – in which U.S. affiliates of multinational corporations “strip” profits from their stateside taxable income and send them to overseas parent companies in pursuit of tax savings – would cease. Companies would also face limits on deducting interest payments on their debt. While she has talked of a tax on the biggest financial institutions, Clinton has also expressed a desire to make the process of estimating, filing, and paying taxes less involved for small business owners.2,3

Like Trump, Clinton wants tax relief for families. She wants a new kind of tax credit for child care; the details have yet to emerge at this writing.2

These plans have one destination. That is Congress, and there is no telling how many or how few of these reforms may become law if Clinton or Trump are elected.

Michael Bellush, Wealth Advisor

Bedford Federal Wealth Management

michael.bellush@lpl.com

812.275.5907

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – taxanalysts.org/tax-analysts-blog/trump-s-tax-plan-version-20/2016/08/12/194511 [8/12/16]


2 – nytimes.com/2016/08/13/upshot/how-hillary-clinton-and-donald-trump-differ-on-taxes.html [8/13/16]


3 – cbsnews.com/news/hillary-clinton-donald-trump-taxes-presidential-campaign-2016/ [8/3/16]


4 – fool.com/investing/2016/06/19/how-would-hillary-clinton-change-your-taxes.aspx [6/19/16]

college loans

College Loan Confusion

College students have steep learning curves. In high school, they were tasked with doing well academically, participating in extracurricular activities, complying with the rules of their parents’ homes and, possibly, having a job. At college, they must decide what to study, how many credits to take, and other important decisions, while adapting to a new environment and learning to manage time, communicate with professors and administrators, network with peers, and manage finances.

Borrowing for college

A key aspect of finances for many college students is student loans. When scholarships, grants, income, and savings are not enough to cover the cost, students often borrow to pay for college. In fact, 70 percent of college graduates leave school with a loan, and the average amount owed is about $30,000, according to a survey by Lendedu.com.1 At graduation, accumulated debt may include:2

  • Direct subsidized loans (the government pays interest while students are in school)
  • Direct unsubsidized loans (students owe interest while in school)
  • Direct PLUS loans (for parents and graduate students)
  • Perkins loans
  • State and private loans (usually co-signed with an adult)

Different types of loans offer different interest rates and repayment schedules. The federal government finances some loans. Private lenders finance others. Some loans are need-based, while others are not.2 All in all, outstanding student loan debt in the United States totals about $1.2 trillion.1

Many students don’t know much about their loans

There are a lot of details to understand and track when students borrow. That’s one reason many colleges and universities require student borrowers to attend loan counseling sessions before receiving loans.3 Unfortunately, the survey found few students retain much of the information presented:1

  • 94 percent of students did not know their repayment terms
  • 93 percent were uncertain what type of loan they held
  • 92 percent did not know their current loan interest rates
  • 75 percent understood how interest rates work

A Brookings Institute study found about one-half of students underestimate the amount of debt they have and one-third cannot provide an accurate estimate of their debt. The survey concluded:4

“It is clear from the analysis presented here that enrolled college students do not have a firm grasp on their financial positions, including both the price they are paying for matriculation and the debt they are accruing. Without this information, it’s unlikely that students will be able to make savvy decisions regarding enrollment, major selection, persistence, and employment. Without knowledge of their financial circumstances, a student with a large sum of debt might be unprepared to compete for the jobs that would pay generously enough to allow them to repay their debt without having to enter an income-based repayment program.”

The confusion carries into repayment options

Unfortunately, student loan confusion doesn’t end with college. In large part, that’s because there a multitude of repayment options for college graduates. The Department of Education’s Federal Student Aid website offers an overview of the eight repayment options for Direct Loans and Federal Family Education Loans. These include:5

  • Standard repayment plan (fixed payments)
  • Graduated repayment plan (increasing payments)
  • Extended repayment plan (fixed payments over 25 years)
  • Income-based Repayment Plan (income-based repayment)
  • Income Contingent Repayment (income-based repayment)
  • Income Sensitive Repayment Plan (income-based repayment)
  • Pay As You Earn Repayment Plan (income-based repayment)
  • Revised Pay As You Earn Repayment Plan (revised income-based repayment)

Of course, the choices available for repaying private student loans are different and vary by lender. In addition, marketplace and peer-to-peer lending platforms make it possible to refinance and consolidate student loan debt, sometimes at lower interest rates.6

Tax implications may also play a role into loan repayment decisions. Interest paid on student loan debt may be tax deductible. Earlier this year, Forbes suggested it could reduce taxable income by as much as $2,500 for some Americans. However, this article cautioned monthly loan payments could limit the ability of many young Americans to save for financial goals like starting a business, buying a home, or retiring from work at a reasonable age.7

Is borrowing for college worth it?

A college degree is almost a necessity today. In 2014, Pew Research Center reported, “On virtually every measure of economic well-being and career attainment – from personal earnings to job satisfaction…young college graduates are outperforming their peers with less education.”8

When a degree confers so many benefits, borrowing to pay for college appears to be a reasonable choice as long as students make sound repayment choices. In a world where so many repayment options are available, graduates may want to work with financial professionals to accurately determine which repayment programs may be the most beneficial.

Michael Bellush, Wealth Advisor

Bedford Federal Wealth Management




Sources:


1 https://lendedu.com/blog/January-student-loan-survey


2 https://bigfuture.collegeboard.org/pay-for-college/loans/types-of-college-loans


3 https://studentloans.gov/myDirectLoan/index.action


4 http://www.brookings.edu/~/media/research/files/reports/2014/12/10-borrowing-blindly/are-college-students-borrowing-blindly_dec-2014.pdf (Pages 1 and 10)


5 https://studentaid.ed.gov/sa/repay-loans/understand/plans#direct-and-ffel


6 http://www.business.com/finance/finance-meet-your-new-match-fintech-trends-to-watch-in-2016/


7 http://www.forbes.com/sites/stephendash/2016/03/04/long-term-tax-strategies-for-student-loan-borrowers/#4360b54b443f (or go to
https://s3-us-west-2.amazonaws.com/peakcontent/Peak+Documents/Forbes-Long-Term_Tax_Strategies_for_Student_Loan_Borrowers-Footnote_7.pdf
)


8 http://www.pewsocialtrends.org/2014/02/11/the-rising-cost-of-not-going-to-college/


Securities offered through LPL Financial, Member FINRA/SIPC.

Top 10 Things the Elderly Regret Most When Looking Back On Their Lives

My work as a wealth advisor gives me the opportunity to meet with many people who are in the later stages of their life. I have always particularly enjoyed learning about them and their families. One thing I am certain of is that there is an amazing amount of wisdom that you can obtain by having a conversation with an elderly person.

Goodness knows I have made my share of mistakes in life. Who hasn’t? I’ve gotten to the point where I try to learn everything I can from others so I can increase the chances that I’ll avoid the big mistakes in the future. I thought it might be a good idea to do a little research and find out what elderly people typically regret the most when looking back at their lives. The following list includes the top ten most common answers that I found.

  1. They wish they hadn’t spent so much of their lives worrying – This was the most common response that I found. Many seniors feel that looking back over their lives they really wish they had not spent so much time worrying anxiously about the future. Worry can affect your health, wealth and happiness.
  1. They wish they had spent more time with the people they love – Time is a precious resource but it can seem even more so to someone who is in the final stages of their life. This was a common regret. The lesson here is to hold your family close while you can and don’t take anything for granted.
  1. Slow Down – Life is short. Modern society is a very busy place. Everyone is constantly connected to their digital devices and on the move. Don’t forget to stop and smell the roses.
  1. Travel More – Explore while you can. Visit that remote destination that you’ve always dreamed of before it is too late. Don’t wait until you are too old and your health is failing before you realize you have wanted to explore and travel and you are no longer able to.
  1. Follow Your Passion – It is very easy to be satisfied with a decent job, a never-changing routine and a comfortable life. But is that really all there is? Aren’t we supposed to be full of joy and happiness? Aren’t we supposed to be excited and fired up about what we are doing with our lives? The common advice from elderly people who have been there and done that is to find your passion and pursue it.
  1. Take More Risks – A common regret is that seniors feel they never took enough risks. They are left feeling that they missed out on much of the adventure that life has to offer.
  1. Speak Up More – Go after what you want in life. Speak up for yourself. Nobody else is going to speak up for you. Don’t be afraid to stand up for yourself and speak your mind. Leave no regrets.
  1. Save More Money – Save more money and start saving earlier in life. It is much easier to reach your retirement goals when you start saving small amounts at age 25 than if you wait until age 40 or later and try to play catch up.
  1. Incur Less Debt – Debt is no fun. It doesn’t matter if it is a low interest rate loan or if you think it is helping you keep a good credit score. Don’t buy things you don’t need and stop trying to keep up with the Jones’.
  1. Know When to Walk Away – Know when to walk away from a bad situation. Whether it is a job, a relationship or a business situation. While walking away can be very difficult, it can sometimes be the best thing you could ever do from both an emotional and a financial perspective.

“Knowledge comes from learning. Wisdom comes from living.” – Anthony Douglas Williams

 

Written By: Michael Bellush

Wealth Advisor

Bedford Federal Wealth Management

812.275.5907

michael.bellush@lpl.com

______________________________________________

http://www.huffingtonpost.com/2014/11/19/advice-to-my-younger-self_n_6135112.html


http://www.huffingtonpost.com/karl-a-pillemer-phd/how-to-stop-worrying-reduce-stress_b_2989589.html


http://www.inc.com/lolly-daskal/12-things-people-regret-the-most-before-they-die.html


http://www.lifehack.org/articles/communication/20-things-people-regret-the-most-before-they-die.html

 

Do Our Biases Inhibit Our Retirement Savings Efforts?

Picture an 18-wheeler, its 4,000-cubic-foot cargo trailer filled to capacity with stacks of $100 bills. The driver shuts and locks the trailer, closing the door on roughly $10 billion.

Now imagine that truck driving off to a landfill, where that $10 billion will be dumped, shredded and buried, rendered useless.

As the day goes on, 170 more 18-wheelers start up their engines and carry the exact same payload to the same destination. When the convoy finishes its work, $1.7 trillion is gone.

Unimaginable? Metaphorically speaking, perhaps not. The National Bureau of Economic Research, a respected non-profit think tank, says we are forfeiting $1.7 trillion in potential retirement savings. Why? Simply because of our biases.1

Two major biases can impact our saving & investment decisions. NBER identified them in a study published in its Bulletin on Aging & Health in April.1

Present bias occurs when we value the present over the future. To see how common this bias is, NBER’s research team asked people a simple question: “Would you rather receive $100 today or $120 in 12 months?” As a variation, they also offered a choice between having $100 now or having $144 after waiting 24 months. Fifty-five percent of the respondents turned out to be “present biased” – that is, they wanted to take the $100 right away rather than wait to get a greater sum.1,2

Patience, of course, is fundamental to investing and retirement saving. Present bias is one of its enemies. From another angle, it also rears its head when volatility rocks Wall Street and we see panic selling. That panic is partly fueled by present bias. The sellers feel the pain of the moment, and lose sight of the potential in the future.

Present bias may also influence participation in workplace retirement plans. If an employee has tight personal finances or little understanding of investment principles, dollars in hand today may seem much more tangible and important than dollars that might be earned years from now. That leads us straight to the second bias NBER says plagues us.       

Exponential-growth bias occurs when we misunderstand compounding. Illustrate the power of compounding to a young adult starting to save for retirement, and “it all becomes clear” – there is perhaps no better way to show the long-term savings potential of a tax-deferred retirement account.1

Sadly, this is a lesson some people never grasp – either because it is not shown to them or because they lack mathematical or financial literacy. Someone unfamiliar with compounding may reason that assets in a retirement account simply grow by a fixed amount each year. That kind of misconception may make a workplace retirement plan less attractive to an employee – or alternately, it may make them think of it as if it were a fixed-rate investment vehicle.

As part of its research, NBER asked retirement savers a simple compounding question. Seventy-five percent of the survey respondents answered it incorrectly, and about 70% of respondents underestimated how much the asset in question would grow in value over time.1,2

Even meager compounding can be impressive. The Rule of 72 is widely known, but the 2-20-50 Rule also deserves to be remembered: an asset that increases in value by just 2% annually for 20 years will be worth about 50% more at the end of that 20-year period.2,*

Present bias & exponential-growth bias can deter people from saving for the future. They are easy to harbor, and easy to fall back on. Even longtime investors and retirement savers may fall prey to them. Challenging these biases is not only wise, but potentially useful. NBER estimates that if Americans could rid themselves of these two biases, our nation’s total retirement savings would increase by 12%.1    

Published by: Michael Bellush

LPL Financial Advisor, Wealth Advisor

Bedford Federal Wealth Management

812-275-5907

michael.bellush@lpl.com

* The rule of 72 and the 2-20-50 rule are mathematical concepts and do not guarantee investment results nor functions as a predictor of how an investment will perform. They are an approximation of the impact of a targeted rate of return. Investments are subject to fluctuating returns and there is no assurance that any investment will double in value or increase by 50%.


This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


Citations.


1 – bloomberg.com/news/articles/2016-04-27/how-americans-blow-1-7-trillion-in-retirement-savings [4/27/16]


2 – theatlantic.com/business/archive/2016/07/two-biases/491576/ [7/6/16]

 

Guest Post: Is the S&P 500 in a Bubble?

Written By: LPL Research

Economist John Maynard Keynes noted, “The market can stay irrational longer than you can stay solvent.” With the S&P 500 and Dow both making new all-time highs amid a bevy of reasons the market should be much lower, there has been more “bubble” talk creeping into conversations. So, the big question for investors becomes, is the market acting irrationally or not?

Whether the market is in a bubble usually isn’t known until well after the fact, but there are typically clues along the way that things are getting extremely stretched. We noted one such concern in our Weekly Market Commentary this week, as the 12-month trailing price-to-earnings (PE) ratio on the S&P 500 broke out to an 11-year high. Valuations tend to get much higher at true bubble peaks, but they are still nowhere close to the 30 level that was reached at the height of the tech bubble in the late 1990s.

072716_Blog_Figure1

Probably the best way to determine if something is in a bubble is by how vertical the price has been. Looking at a seven-year annualized return of the S&P 500 (back to when the bull market began), it recently reached 15%, which last happened during the tech bubble and right before the 1987 crash. If all you had was this chart, you could argue prices are extended and maybe a bubble could be forming.

072716_Blog_Figure2

Here’s where it pays to take a different angle on things before making a decision. The S&P 500 peaked in August 2000, or 16 years ago next month. Looking at the 16-year annualized return shows a much different picture than the chart above. Taking this approach shows that the annualized return was recently 2%, the lowest since July 1982 and August 1953. Both times were right before major bull markets that lasted years.

072716_Blog_Figure3

Therefore, either now is the worst time to be long stocks since the tech bubble, or the best buying opportunity since 1982. That’s confusing, isn’t it? In reality, we are probably somewhere in the middle of these two extremes—and not in a bubble. We continue to think we are late in the economic cycle, but the odds of a recession over the next year or two may still be rather low. With earnings looking to potentially rebound over the second half of this year and yields near historic levels, equities may be one of the better places to beat inflation over the near term. Sentiment is something we didn’t talk about today, but have in the past. Although sentiment levels are much more optimistic than they were a few months ago, most sentiment indicators are still nowhere near past major market peaks. Be on the lookout for next week’s Weekly Market Commentary, when we will take a closer look at sentiment.

________________________________________________
IMPORTANT DISCLOSURES
Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

The economic forecasts set forth in the presentation may not develop as predicted.


The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
Stock investing involves risk including loss of principal.


The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.


This research material has been prepared by LPL Financial LLC.


To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.


Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit


Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC
Tracking #1-520289 (Exp. 07/17)

Money Habits That May Help You Become Wealthier

Financially speaking, what do some households do right?

Why do some households tread water financially while others make progress? Does it come down to habits?

Sometimes the difference starts there. A household that prioritizes paying itself first may end up in much better financial shape in the long run than other households.

Some families see themselves as savers, others as spenders. The spenders may enjoy affluence now, but they also may be setting themselves up for financial struggles down the road. The savers better position themselves for financial emergencies and the creation of wealth.

How does a family build up its savings? Well, money not spent can be money saved. That should be obvious, but some households take a long time to grasp this truth. In the psychology of spenders, money unspent is money unappreciated. Less spending means less fun. 

Being a saver does not mean being a miser, however. It simply means dedicating a percentage of household income to future goals and needs rather than current wants.

You could argue that it is harder than ever for households to save consistently today; yet, it happens. As of May, U.S. households were saving 5.3% of their disposal personal income, up from 4.8% a year earlier.1

Budgeting is a great habit. What percentage of U.S. households maintain a budget? Pollsters really ought to ask that question more often. In 2013, Gallup posed that question to Americans and found that the answer was 32%. Only 39% of households earning more than $75,000 a year bothered to budget. (Another interesting factoid from that survey: just 30% of Americans had a long-run financial plan.)2 

So often, budgeting begins in response to a financial crisis. Ideally, budgeting is proactive, not reactive. Instead of being about damage control, it can be about monthly progress.   

Budgeting also includes planning for major purchases. A household that creates a plan to buy a big-ticket item may approach that purchase with less ambiguity – and less potential for a financial surprise.

Keeping consumer debt low is a good habit. A household that uses credit cards “like cash” may find itself living “on margin” – that is, living on the edge of financial instability. When people habitually use other people’s money to buy things, they run into three problems. One, they start carrying a great deal of revolving consumer debt, which may take years to eliminate. Two, they set themselves up to live paycheck to paycheck. Three, they hurt their potential to build equity. No one chooses to be poor, but living this way is as close to a “choice” as a household can make.

Investing for retirement is a good habit. Speaking of equity, automatically contributing to employer-sponsored retirement accounts, IRAs, and other options that allow you a chance to grow your savings through equity investing are great habits to develop.

Diversification is important. Directing a majority of invested assets into one or two investment classes can heighten exposure to risk. Investing in such a way that a portfolio includes both conservative and opportunistic investment vehicles can help to reduce that risk.  

Taxes and fees can eat into investment returns over time, so watchful families study what they can do to reduce those negatives and effectively improve portfolio yields.

Long-term planning is a good habit. Many people invest with the goal of making money, but they never define what the money they make will be used to accomplish. Wise households consult with financial professionals to set long-range objectives – they want to accumulate X amount of dollars for retirement, for eldercare, for college educations. The very presence of such long-term goals reinforces their long-term commitment to saving and investing.

Households may want to consider adopting these money habits. They are vital for families that want more control over their money. When money issues threaten to control a family, a change in financial behavior is due.

Michael Bellush, LPL Financial Advisor

michael.bellush@lpl.com

812-275-5907

www.bedfed.com

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


Citations.


1 – ycharts.com/indicators/personal_saving_rate [6/29/16]


2 – gallup.com/poll/162872/one-three-americans-prepare-detailed-household-budget.aspx [6/3/13]

The A, B, C, & D of Medicare

Breaking down the basics & what each part covers.

Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover, and where they come from.

Parts A & B: Original Medicare. America created a national health insurance program for seniors in 1965 with two components. Part A is hospital insurance. It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long, and only under certain parameters.1

Seniors are frequently warned that Medicare will only pay for a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the part that does so. Under current rules, you pay $0 for days 1-20 of skilled nursing facility (SNF) care under Part A. During days 21-100, a $161 daily coinsurance payment may be required of you.2

If you stop receiving SNF care for 30 days, you need a new 3-day hospital stay to qualify for further nursing home care under Part A. If you can go 60 days in a row without SNF care, the clock resets: you are once again eligible for up to 100 days of SNF benefits via Part A.

Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (scooters, wheelchairs), and other medical services such as lab tests and varieties of health screenings.1

Part B isn’t free. You pay monthly premiums to get it and a yearly deductible (plus 20% of costs). The premiums vary according to the Medicare recipient’s income level; in 2016, most Medicare recipients are paying $121.80 a month for their Part B coverage. The current yearly deductible is $166. Some people automatically get Part B, but others have to sign up for it.3

Part C: Medicare Advantage plans. Insurance companies offer these Medicare-approved plans. Part C plans offer seniors all the benefits of Part A and Part B and more: many feature prescription drug coverage and vision and dental benefits. To enroll in a Part C plan, you need have Part A and Part B coverage in place. To keep up your Part C coverage, you must keep up your payment of Part B premiums as well as your Part C premiums.4

 

To say not all Part C plans are alike is an understatement. Provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits can all vary widely, so shopping around is wise. During Medicare’s annual Open Enrollment Period (Oct. 15 – Dec. 7), seniors can choose to switch out of Original Medicare to a Part C plan or vice versa; although any such move is much wiser with a Medigap policy already in place.5

How does a Medigap plan differ from a Part C plan? Medigap plans (also called Medicare Supplement plans) emerged to address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you. Some Medigap policies can even help you pay for medical care outside the United States. You have to pay Part B premiums in addition to Medigap plan premiums to keep a Medigap policy in effect. These plans no longer offer prescription drug coverage; in fact, they have been sold without drug coverage since 2006.6

Part D: prescription drug plans. While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare. As per Medigap and Part C coverage, you need to keep paying Part B premiums in addition to premiums for the drug plan to keep Part D coverage going.7

Every Part D plan has a formulary, a list of medications covered under the plan. Most Part D plans rank approved drugs into tiers by cost. The good news is that Medicare’s website will determine the best Part D plan for you. Go to medicare.gov/find-a-plan to start your search; enter your medications and the website will do the legwork for you.8

Part C & Part D plans are assigned ratings. Medicare annually rates these plans (one star being worst; five stars being best) according to member satisfaction, provider network(s), and quality of coverage. As you search for a plan at medicare.gov, you also have a chance to check out the rankings.9

Michael Bellush

Financial Advisor

812-275-5907

michael.bellush@lpl.com

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


Citations.


1 – mymedicarematters.org/coverage/parts-a-b/whats-covered/ [6/13/16]


2 – medicare.gov/coverage/skilled-nursing-facility-care.html [6/13/16]


3 – medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html [6/13/16]


4 – tinyurl.com/hbll34m [6/13/16]


5 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/when-can-i-join-a-health-or-drug-plan.html#collapse-3192 [6/13/16]


6 – medicare.gov/supplement-other-insurance/medigap/whats-medigap.html [6/13/16]


7 – ehealthinsurance.com/medicare/part-d-cost [6/13/16]


8 – medicare.gov/part-d/coverage/part-d-coverage.html [6/13/16]


9 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/five-star-enrollment/5-star-enrollment-period.html [6/13/16]

 

The Brexit Shakes Global Markets & Rumor Has It That The Ministry of Magic Is About Take Over

A worldwide selloff occurs after the United Kingdom votes to leave the European Union.

 A wave of anxiety hit Wall Street Friday morning. Thursday night, the United Kingdom elected to become the first nation state to leave the European Union. The “Brexit” can potentially be finalized as soon as the summer of 2018.1

Voters in England, Scotland, Wales, and Northern Ireland were posed a simple question: “Should the United Kingdom remain a member of the European Union (E.U.) or leave the European Union?” Seventy-two percent of the U.K. electorate went to the polls to answer the question, and in the final tally, Leave beat Remain 51.9% to 48.1%.2,3

The vote shocked investors worldwide. The threat of a Brexit was supposed to have decreased. As late as Thursday, key opinion surveys showed the Remain camp ahead of the Leave camp – but at 10:40pm EST Thursday, the BBC called the outcome and projected Leave would win.4

Why did Leave triumph? The leaders of the Leave campaign hammered home that E.U. membership was a drag on the U.K. economy. They criticized E.U. regulations that impeded business growth. They felt that the U.K. should no longer contribute billions of pounds per year to the E.U. budget. They had concerns over E.U. immigration laws, which permit free movement of people among E.U. nations without visas.1

Financial markets were immediately impacted. The pound fell almost 11% Thursday night to a 31-year low, and the benchmark U.K. equities exchange, the FTSE 100, slipped 5% after initially diving about 8%. Germany’s DAX exchange and France’s CAC-40 exchange respectively incurred losses of 7% and 9%. In Tokyo, the Nikkei 225 closed nearly 8% lower, taking its largest one-day slide since 2008.5

Stateside, S&P 500 and Nasdaq Composite futures declined more than 5% overnight; that triggered the Chicago Mercantile Exchange’s circuit breaker, briefly interrupting trading. The Chicago Board Options Exchange Volatility Index, or CBOE VIX, approached 24 after midnight. The price of WTI crude fell more than $2 in the pre-dawn hours.5,6

At the opening bell Friday, the Dow Jones Industrial Average was down 408 points. The Nasdaq shed 186 points at the open; the S&P, 37 points.7

Fortunately, the first trading day after the Brexit referendum was a Friday, giving Wall Street a pause to absorb the news further over the weekend.

How could the Brexit impact investors & markets going forward? Consider its near-term ripple effect, which could be substantial.

The Brexit could deal a devastating blow to both the United Kingdom and the European Union. Depending on which measurements you use, the E.U. collectively represents either the first or third largest economy in the world. In terms of international trade, its import and export activity surpasses that of China (and that of the United States).2

An analysis by the U.K.’s Treasury argued that the country would be left “permanently poorer” by the Brexit, with less tax revenue and lower per-capita GDP and productivity. The Brexit certainly hurt the U.K.’s major trading partners, which include China, India, Japan, and the United States. Some Chinese and American companies have established operations in the U.K. specifically to take advantage of its E.U. membership and the free trade corridors it opens. With the U.K. exiting the E.U., the profits of those firms may be reduced – and the U.K. will have to quickly negotiate new trade deals with other nations. The most recently available European Commission data shows that in 2014, U.S. direct investment in the E.U. topped €1.8 trillion (roughly $2 trillion), with a slightly greater amount flowing back to the U.S.2

You could also see a sustained flight to the franc, the yen, and the dollar in the coming weeks. The stronger the dollar becomes, the weaker the demand for American exports.

Investors should hang on through the turbulence. There is no need to fear that Voldemort and his band of death eaters are about to take over the world’s financial markets. The Ministry of Magic has got this one under control. The Brexit is a historic and unsettling moment, but losses on Wall Street may be less severe than those happening overseas. Retirement savers should not mistake this disruption of market equilibrium for the state of the market going forward. A year, a month, or even a week from now, Wall Street may gain back all that was lost in the Brexit vote’s aftermath. Historically, it has recovered from many events more dramatic than this.

Michael Bellush, Financial Advisor

812-275-5907

Michael.bellush@lpl.com

 

 

This material was prepared by MarketingPro, Inc. along with Michael Bellush, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

 

Citations.

1 – bbc.com/news/uk-politics-32810887 [6/23/16]

2 – cnbc.com/2016/06/21/uk-brexit-what-you-need-to-need-to-know.html [6/24/16]

3 – bbc.com/news/politics/E.U._referendum/results [6/23/16]

4 – bbc.com/news/live/uk-politics-36570120 [6/23/16]

5 ­- nytimes.com/aponline/2016/06/24/world/asia/ap-financial-markets.html [6/24/16]

6 – rE.U.ters.com/article/us-usa-stocks-idUSKCN0Z918E [6/24/16]

7 – marketwatch.com/story/us-stocks-open-sharply-lower-joining-global-post-brexit-selloff-2016-06-24 [6/24/16]

 

Could Social Security Really Go Away?

Just how gloomy does its future look?

Will Social Security run out of money in the 2030s? For years, Americans have been warned about that possibility. Those warnings, however, assume that no action will be taken to address Social Security’s financial challenges.

Social Security is being strained by a giant demographic shift. In 2030, more than 20% of the U.S. population will be 65 or older. In 2010, only 13% of the nation was that old. In 1970, less than 10% of Americans were in that age group.1

Demand for Social Security benefits has increased, and the ratio of retirees to working-age adults has changed. In 2010, the Census Bureau determined that there were about 21 seniors (people aged 65 or older) for every 100 workers. By 2030, the Bureau projects that there will be 35 seniors for every 100 workers.1

As payroll taxes fund Social Security, the program faces a major dilemma. Actually, it faces two.

Social Security maintains two trust funds. When you read a sentence stating that “Social Security could run out of money by 2035,” that statement refers to the projected shortfall of the Old Age, Survivors, and Disability Insurance (OASDI) Trust. The OASDI is the main reservoir of Social Security benefits, from which monthly payments are made to seniors. The latest Social Security Trustees report indeed concludes that the OASDI Trust could be exhausted by 2035 from years of cash outflows exceeding cash inflows.2,3

  Congress just put a patch on Social Security’s other, arguably more pressing problem. Social Security’s Disability Insurance (SSDI) Trust Fund risked being unable to pay out 100% of scheduled benefits to SSDI recipients this year, but the Bipartisan Budget Act of 2015 directed a slightly greater proportion of payroll taxes funding Social Security into the DI trust for the short term. This should give the DI Trust enough revenue to pay out 100% of benefits through 2022. Funding it adequately after 2022 remains an issue.4

If the OASDI Trust is exhausted in 2035, what would happen to retirement benefits? They would decrease. Imagine Social Security payments shrinking 21%. If Congress does not act to remedy Social Security’s cash flow situation before then, Social Security Trustees forecast that a 21% cut may be necessary in 2035 to ensure payment of benefits through 2087.3

 No one wants to see that happen, so what might Congress do to address the crisis? Three ideas in particular have gathered support.

*Raise the cap on Social Security taxes. Currently, employers and employees each pay a 6.2% payroll tax to fund Social Security (the self-employed pay 12.4% of their earnings into the program). The earnings cap on the tax in 2016 is $118,500, so any earned income above that level is not subject to payroll tax. Lifting (or even abolishing) that cap would bring Social Security more payroll tax revenue, specifically from higher-income Americans.3

  *Adjust the full retirement age. Should it be raised to 68? How about 70? Some people see merit in this, as many baby boomers may work and live longer than their parents did. In theory, it could promote longer careers and shorter retirements, and thereby lessen demand for Social Security benefits. Healthier and wealthier baby boomers might find the idea acceptable, but poorer and less healthy boomers might not.3

*Calculate COLAs differently. Social Security uses the Consumer Price Index for Urban Wage Workers and Clerical Workers (CPI-W) in figuring cost-of-living adjustments. Many senior advocates argue that the Consumer Price Index for the Elderly (CPI-E) should be used instead. The CPI-E often gives more weight to health care expenses and housing costs than the CPI-W. Not only that, the CPI-E only considers the cost of living for people 62 and older. That last feature may also be its biggest drawback. Since it only includes some of the American population in its calculations, its detractors argue that it may not measure inflation as well as the broader CPI-W.3

Social Security could still face a shortfall even if all of these ideas were adopted. The Center for Retirement Research at Boston College estimates that if all of these “fixes” were put into play today, the OASDI Trust would still face a revenue shortage in 2035.3

In future decades, Social Security may not be able to offer retirees what it does now, unless dramatic moves are made on Capitol Hill. In the worst-case scenario, monthly benefits would be cut to keep the program solvent. A depressing thought, but one worth remembering as you plan for the future.

Michael Bellush, Financial Advisor

812-275-5907

www.bedfed.com

michael.bellush@lpl.com

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   

Citations.

1 – money.usnews.com/money/retirement/articles/2014/06/16/the-youngest-baby-boomers-turn-50 [6/16/14]


2 – fool.com/retirement/general/2016/03/20/the-most-important-social-security-chart-youll-eve.aspx [3/20/16]


3 – fool.com/retirement/general/2016/03/19/1-big-problem-with-the-3-most-popular-social-secur.aspx [3/19/16]


4 – marketwatch.com/story/crisis-in-social-security-disability-insurance-averted-but-not-gone-2015-11-30 [11/30/15]

 

Wisdom from Warren Buffett

One of the world’s most heralded investors simply keeps calm and carries on.

If you ask someone who the “world’s greatest investor” is, the answer more often than not may be “Warren Buffett.” That honor has never formally been awarded to him, and many other names might be in the running for that hypothetical title, but one thing is certain: the “Oracle of Omaha” is greatly admired in investing circles.

Warren Buffett is often a voice of reason in volatile times. Through the years, the Berkshire Hathaway CEO has dispensed many nuggets of investing wisdom. Like Ben Franklin’s aphorisms in Poor Richard’s Almanac, they are grounded in common sense and memorable. Here are some particularly good ones, culled from recent articles posted at Bloomberg, TheStreet, and Zacks Investment Research:

“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”1

“Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.”2

“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”1

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”1

“Price is what you pay. Value is what you get.”1

“The cemetery for seers has a huge section set aside for macro forecasters.”2

A business with terrific economics can be a bad investment if it is bought at too high a price.”3

“Risk comes from not knowing what you’re doing.”1

Buffett’s clarity and candor stand out in a financial world marked by jargon. Some of the quotes above are from his annual letters to Berkshire Hathaway shareholders, and show his genius for distilling investment lessons into plain English.

A classic value investor (if not a strict one), Buffett is also a great optimist. He has never stopped being bullish on America. “America is great now. It’s never been better,” Buffett told the audience at Fortune Magazine’s 2015 Most Powerful Women summit. “The stock market does wonderfully over time because American business does wonderfully over time.” He remains bullish on China, as well; he thinks Chinese stock benchmarks will sustain their momentum at least through 2017 because businesses and consumers in China have “found a way to unlock their potential.”4,5

Buffett’s blend of optimism and pragmatism have helped make him the world’s third-richest person, and the average investor might do very well to keep some of his maxims in mind, day after day.5

 

Michael Bellush, Financial Advisor

812-275-5907

michael.bellush@lpl.com

 

Citations.

1 – zacks.com/stock/news/181853/15-memorable-investing-quotes-from-warren-buffett [7/15/15]


2 – bloomberg.com/news/articles/2016-02-24/here-s-what-buffett-wouldn-t-do-and-maybe-you-shouldn-t-either [2/24/16]


3 – thestreet.com/story/13494470/1/3-new-warren-buffett-quotes-you-can-t-live-without.html [3/20/16]


4 – fortune.com/2015/10/16/why-the-most-powerful-women-and-warren-buffett-are-bullish-on-the-economy/ [10/16/15]


5 – globaltimes.cn/content/919951.shtml [5/4/15]

Why Aren’t You Maxing Out Your 401(k)?

It may be the best retirement planning tool you have.

Do you have a million dollars? At the moment, probably not. But if you invest and save diligently and let your assets compound, who knows? You may be a millionaire or multi-millionaire someday. In fact, you may need to be a millionaire someday. If you stay retired for twenty or thirty years, it could take well over $1 million to fund that retirement. In fact, Andrés Cardenal, CFA and financial analyst, recommends $1.25 million if you plan to match inflation over a three-decade retirement. This is one reason why you should contribute the maximum to your 401(k) plan.1

Your 401(k) is your friend. For years, employers have wondered: why don’t people contribute more to their 401(k)s?  Some people don’t speak “financial” and don’t look at financial magazines or websites. It’s “boring.” So they mentally file “401(k)” under “boring.” But the advantages of a 401(k) should not bore you; they should motivate you.

Tax-deferred growth and compounding. The money in your 401(k) has the potential to compound year after year on a tax-deferred basis.  The earlier you start, the more compounding you get. Let’s say you put $2,400 annually or $200 a month in a 401(k) starting at age 30, and for the sake of example, let’s assume you get an 8% annual return. How much money would you have at 65? You would have a retirement nest egg of $437,148 from putting in $200 per month. But if you started putting in that $200 a month five years later, you would have only $285,588. You can put up to $18,000 into a traditional or “safe harbor” 401(k), and if you turn 50 or are older than 50 this year, you can put in an additional $6,000 in “catch-up” contributions. You can contribute up to $12,500 to a SIMPLE 401(k), with “catch-up” contributions of up to $3,000 if you are 50 or older. These annual contribution limits are indexed for inflation. *,2

Potential matching contributions. Who would turn down free money? Big companies will often match an employee’s 401(k) contributions. Usually, the corporate match is 50¢ for each dollar up to 6% of your salary.3

Reducing your taxable income. Many employees don’t recognize this benefit. Your 401(k) contributions are pulled out of your wages before taxes are withheld (pre-tax dollars). So you get reduced taxable income and tax-deferred growth potential; you pay taxes on 401(k) assets when you withdraw them from the plan. With the Roth 401(k), the contributions are after-tax (no reduction in taxable income), but you can enjoy both tax-free compounding and tax-free withdrawals.

Why not take advantage? If you don’t contribute greatly to your 401(k), 403(b), or 457 plan, you are ignoring a great retirement savings and investment opportunity. Call us for a complimentary financial review or retirement plan consultation.

Michael Bellush, Financial Advisor

812-275-5907

michael.bellush@lpl.com


Qualified accounts such as 401ks are accounts funded with tax deductible contributions in which any earnings are tax deferred until withdrawn, usually after retirement age. Unless certain criteria are met, IRS penalties and income taxes may apply on any withdrawals taken prior to age 59 1/2. RMDs (required minimum distributions) must generally be taken by the account holder within the year after turning 70 ½ .


* Keep in mind, this is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rate of return used does not reflect the deduction of fees and charges inherent to investing. There is no guarantee that an 8% annual return will be achieved.


Citations.


1 – fool.com/retirement/general/2016/01/25/how-much-money-will-you-need-in-retirement.aspx [1/25/16]


2 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-401k-and-Profit-Sharing-Plan-Contribution-Limits [10/26/15]


3 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/401(k)-Resource-Guide-Plan-Participants-401(k)-Plan-Overview [10/26/15]

Explaining the Basis of Inherited Real Estate

What is cost basis? Stepped-up basis? How does the home sale tax exclusion work?

 At some point in our lives, we may inherit a home or another form of real property. In such instances, we need to understand some of the jargon involving inherited real estate. What does “cost basis” mean? What is a “step-up?” What is the home sale tax exclusion, and what kind of tax break does it offer?

Very few parents discuss these matters with their children before they pass away. Some prior knowledge of these terms may make things less confusing at a highly stressful time.     

Cost basis is fairly easy to explain. It is the original purchase price of real estate plus certain expenses and fees incurred by the buyer, many of them detailed at closing. The purchase price is always the starting point for determining the cost basis; that is true whether the purchase is financed or all-cash. Title insurance costs, settlement fees, and property taxes owed by the seller that the buyer ends up paying can all become part of the cost basis.1

At the buyer’s death, the cost basis of the property is “stepped up” to its current fair market value. This step-up can cut into the profits of inheritors should they elect to sell. On the other hand, it can also reduce any income tax liability stemming from the transaction.2

Here is an illustration of stepped-up basis. Twenty years ago, Jane Smyth bought a home for $255,000. At purchase, the cost basis of the property was $260,000. Jane dies and her daughter Blair inherits the home. Its present fair market value is $459,000. That is Blair’s stepped-up basis. So if Blair sells the home and gets $470,000 for it, her complete taxable profit on the sale will be $11,000, not $210,000. If she sells the home for less than $459,000, she will take a loss; the loss will not be tax-deductible, as you cannot deduct a loss resulting from the sale of a personal residence.1

The step-up can reflect more than just simple property appreciation through the years. In fact, many factors can adjust it over time, including negative ones. Basis can be adjusted upward by the costs of home improvements and home additions (and even related tax credits received by the homeowner), rebuilding costs following a disaster, legal fees linked to property ownership, and expenses of linking utility lines to a home. Basis can be adjusted downward by property and casualty insurance payouts, allowable depreciation that comes from renting out part of a home or using part of a residence as a place of business, and any other developments that amount to a return of cost for the property owner.1

The Internal Revenue Code states that a step-up applies for real property “acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent.” In plain English, that means the new owner of the property is eligible for the step-up whether the deceased property owner had a will or not.2

In a community property state, receipt of the step-up becomes a bit more complicated. If a married couple buys real estate in Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, or Wisconsin, each spouse is automatically considered to have a 50% ownership interest in said real property. (Alaska offers spouses the option of a community property agreement.) If a child or other party inherits that 50% ownership interest, that inheritor is usually entitled to a step-up. If at least half of the real estate in question is included in the decedent’s gross estate, the surviving spouse is also eligible for a step-up on his or her 50% ownership interest. Alternately, the person inheriting the ownership interest may choose to value the property six months after the date of the previous owner’s death (or the date of disposition of the property, if disposition occurred first).2,3

In recent years, there has been talk in Washington of curtailing the step-up. So far, such notions have not advanced toward legislation.4

What if a parent gifts real property to a child? The parent’s tax basis becomes the child’s tax basis. If the parent has owned that property for decades and the child cannot take advantage of the federal home sale tax exclusion, the capital gains tax could be enormous if the child sells the property.2

Who qualifies for the home sale tax exclusion? If individuals or married couples want to sell an inherited home, they can qualify for this big federal tax break once they have used that home as their primary residence for two years out of the five years preceding the sale. Upon qualifying, a single taxpayer may exclude as much as $250,000 of gain from the sale, with $500,000 being the limit for married homeowners filing jointly. If the home’s cost basis receives a step-up, the gain from the sale may be small, but this is still a nice tax perk to have.5

Michael Bellush, Financial Advisor

michael.bellush@lpl.com

812-275-5907

Citations.


1 – nolo.com/legal-encyclopedia/determining-your-homes-tax-basis.html [3/30/16]


2 – realtytimes.com/consumeradvice/sellersadvice1/item/34913-20150513-inherited-property-understanding-the-stepped-up-basis [5/13/15]


3 – irs.gov/irm/part25/irm_25-018-001.html


4 – blogs.wsj.com/totalreturn/2015/01/20/the-value-of-the-step-up-on-inherited-assets/ [1/20/15]


5 – nolo.com/legal-encyclopedia/if-you-inherit-home-do-you-qualify-the-home-sale-tax-exclusion.html [3/31/16]

Budget Proposals

Comprehensive Financial Planning: What It Is, Why It Matters

Your approach to building wealth should be built around your goals & values.

Just what is “comprehensive financial planning?” As you invest and save for retirement, you will no doubt hear or read about it – but what does that phrase really mean? Just what does comprehensive financial planning entail, and why do knowledgeable investors request this kind of approach?

While the phrase may seem ambiguous to some, it can be simply defined.

Comprehensive financial planning is about building wealth through a process, not a product.

Financial products are everywhere, and simply putting money into an investment is not a gateway to getting rich, nor a solution to your financial issues.

Comprehensive financial planning is holistic. It is about more than “money”. A comprehensive financial plan is not only built around your goals, but also around your core values. What matters most to you in life? How does your wealth relate to that? What should your wealth help you accomplish? What could it accomplish for others?

Comprehensive financial planning considers the entirety of your financial life. Your assets, your liabilities, your taxes, your income, your business – these aspects of your financial life are never isolated from each other. Occasionally or frequently, they interrelate. Comprehensive financial planning recognizes this interrelation and takes a systematic, integrated approach toward improving your financial situation.

Comprehensive financial planning is long-range. It presents a strategy for the accumulation, maintenance and eventual distribution of your wealth, in a written plan to be implemented and fine-tuned over time.

What makes this kind of planning so necessary? If you aim to build and preserve wealth, you must play “defense” as well as “offense.” Too many people see building wealth only in terms of investing – you invest, you “make money,” and that is how you become rich.

That is only a small part of the story. The rich carefully plan to minimize their taxes and debts, and adjust their wealth accumulation and wealth preservation tactics in accordance with their personal risk tolerance and changing market climates.

Basing decisions on a plan prevents destructive behaviors when markets turn unstable. Impulsive decision-making is what leads many investors to buy high and sell low. Buying and selling in reaction to short-term volatility is a day trading mentality. On the whole, investors lose ground by buying and selling too actively. The Boston-based investment research firm Dalbar found that from 1994-2013, the average retail investor earned 5% a year compared to the 9% average return for U.S. equities – and chasing the return would be a major reason for that difference. A comprehensive financial plan – and its long-range vision – helps to discourage this sort of behavior. At the same time, the plan – and the financial professional(s) who helped create it – can encourage the investor to stay the course.1

A comprehensive financial plan is a collaboration & results in an ongoing relationship. Since the plan is goal-based and values-rooted, both the investor and the financial professional involved have spent considerable time on its articulation. There are shared responsibilities between them. Trust strengthens as they live up to and follow through on those responsibilities. That continuing engagement promotes commitment and a view of success.

Think of a comprehensive financial plan as your compass. Accordingly, the financial professional who works with you to craft and refine the plan can serve as your navigator on the journey toward your goals.

The plan provides not only direction, but also an integrated strategy to try and better your overall financial life over time. As the years go by, this approach may do more than “make money” for you – it may help you to build and retain lifelong wealth.

You can reach Financial Advisor, Michael Bellush, at 812-275-5907 if you would like to schedule a complimentary financial review.

 

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   

Citations.


1 – fool.com/investing/general/2015/03/22/3-common-mistakes-that-cost-investors-dearly.aspx [3/22/15]