Topics:
⦁ Converting to a Roth IRA
⦁ Family Income Protection
When it comes to discussing money, the questions “How is the Economy?” and “How is the Stock Market?” seem to be interchangeable to most. However, there is a huge difference.
The Oxford dictionary defines the economy as “The wealth and resources of a country or region, especially in terms of the production and consumption of goods and services.” With the economy, we tend to be concerned with the amount of unemployment, consumer confidence, home sales, and other metrics.
In contrast, the stock market refers to the buying and selling of equities in companies across exchanges in the US and internationally. The Economy and Markets don’t always move in tandem with one another. The markets often reflect optimism or pessimism for the future. Despite an outrageous spike in unemployment, the markets are increasing because of the market’s confidence in the future! Despite companies currently reporting a reduction in earnings, equities have climb out of the March 23rd low of -33% to -3.12%.1
So, is the economy alright? It seems that the pandemic is still going and may be getting worse. However, people are returning to work and the economic indicators are improving (see below). We do believe risk is building up. Remember, if markets do decline, they always come back, every time. Most of the time, a second drop will follow the first one. In technical analysis this is called a double bottom.2 There is always a news headline or trigger, and it will probably sound bad. Earnings season is upon us, so companies will begin to report how much money they made and expect to make going forward. This might be the trigger. We have begun raising cash in our client’s accounts (where we have discretion) to anticipate this potential risk.3 Our goal is to lower risk and possibly move back to equities at a lower price for more upside if another drop occurs.
Here are a few data points for the economy.4
May Existing Home Sales fell -9.7% in May. (April fell -17.8%) [Negative]
• May New Home Sales rose 16.6% in May. (April fell -5.2%) [Positive]
• April FHFA House Price Index rose 0.2% and is up 5.5% from year ago. [Positive]
• June Markit Manufacturing PMI rose from 39.8 in May to 49.6. [Positive]
• June Markit Services PMI rose from 37.5 in May to 46.7. [Positive]
• June Consumer Sentiment rose from 72.3 to 78.1 [Neutral] (100 target)
• June Jobs report added 4.8 million payrolls and the unemployment rate fell to 11.1%.5 [Positive]
• New orders for manufactured goods, both durable and nondurable, advanced 8.0% in May, or $30.5 billion, to $412.8 billion. (expected +8.65%) [Positive]
As you can see, unemployment is improving but still very high. We are coming into the election season of the election year, which adds additional risks to equities. We are optimistic long-term, but cautious in the short-term. Call us if you have any questions or concerns for your portfolio. We are here to help!
Converting to Roth IRA
Will taxes be higher or lower in the future? Is your income lower this year? These questions are important to think about. Tax rates are near all-time lows. With the US DEBT AT 26 TRILLION DOLLARS, taxes eventually have to go up, unfortunately. When you get close to retirement, Social Security benefits are affected by your income if you claim before full retirement age. That income even includes tax-free bond interest! After full retirement age, your benefits are taxed depending on your marital status and amount of income.
One way to reduce these taxes and Social Security benefit reductions is to fund your retirement (even partially) with a ROTH IRA. Distributions are tax free. If you die, your family will inherit these funds tax-free! Converting some of an IRA (forever taxed) into a ROTH IRA (never taxed) is a smart money move. It may make sense to convert only part of an IRA annually to keep tax rates low.7
Call us to discuss how to convert an IRA to a ROTH IRA today.
Family Income Protection
In these difficult times, many people are considering the impact their death or disability would have on their family. There are 2 ways to financially protect your family.
1. Life Insurance. We can help you get quotes from A-rated insurance companies. Since we are Independent Insurance agents, we can shop for a policy that benefits your individual situation. Benefits are paid out tax-free to beneficiaries. For this reason, there may be benefits in moving large sums of money into life insurance policies. We can discuss the estate planning and family protection benefits of Life Insurance with tax-free income too!
2. Income Protection. If you become disabled, this replaces your income. The benefits are usually tax-free. My first client (in 2000) was a dentist that was confined to a wheelchair due to MS. He had Income Protection before his confinement, so the $80k a year of tax-free income made a big difference in his life with his wife. There are some complex nuances to policies that can affect the benefits. If you have a policy, let us review it. If you don’t, we can help you get a quality, customized coverage plan that protects your income.
Sources Citations Bibliography:
⦁ As of June 2nd, 2020 on the SP500 Index.
⦁ See Investopedia under double bottom for a detailed explanation
⦁ Some accounts require us to solicit portfolio changes. Please call us to discuss your portfolio.
⦁ Source: Herb Morgan at Efficient Market Advisors, Economic and Market Commentary 06/29/2020
⦁ Source: Yahoo Finance Emily McCormick, June 2020 Jobs Report
⦁ U.S. Commerce Department
⦁ Converting IRA funds into a Roth IRA is taxable. Consult with your tax advisor before converting.
Supplemental Disclaimers:
This article is informational only and is not investment advice. This is not an offer to buy, hold, or sell investments like securities or insurance products.
Securities and Investment Advisory Services are offered though Toro Bravo Investment Advisors, LLC. Life Insurance and Annuities sold as an insurance broker are not a fiduciary relationship and are not offered by Toro Bravo Investment Advisors, LLC.
Securities or Insurance are not FDIC/SIPC insured and investments contain risk plus could be subject to loss.
Losses could be short term or permanent. Numbers and figures illustrated are hypothetical in nature and past performance is not a guarantee or indication of future results/performance.
We are not affiliated with the Social Security Administration (SSA), Internal Revenue Service (IRS), or any Governmental Agency.
Do not rely solely on the Legal, Tax, or Financial information presented for it may not be suitable for your individual situation.
Consult your legal, tax, and/or financial professional before acting on any strategy or recommendation (i.e. major changes or before initiating the purchase, hold, or sale of any investment or investment strategy).
Every individual’s strategy can differ depending on current circumstances and goals.