I wanted to send out a short note regarding the Coronavirus that has spread throughout the Hubei province of China, and how it is causing volatility throughout global financial markets. It is still surprising to me that this type of news can rattle markets, so here is some historical perspective. We remember back to 1997 and the H5N1 bird flu and how the Chinese ended up killing 1.3 million chickens, ducks, & other birds to stop this virus. In 2002-2003 there was the SARS epidemic that went unreported by the Chinese government for months before it alerted the World Health Organization and finally brought the virus under control. In 2014 there were even a couple of cases of Ebola that reached the US from the African outbreak. These are all serious occurrences, though they tend to have a small, short-term impact on the global economy. I do not want to minimize the severity of these outbreaks, but rather try and give some understanding about how these have impacted markets in the past. One of the biggest concern’s coming out of this virus is China’s continued lack of disclosure. They are still not letting the world know when there is the potential for a serious health issue spreading throughout their country.
During the course of a “normal” flu season, an average of 250,000-650,000 people die each year from the flu, yet this goes mostly unreported. Let’s not let this most recent crisis derail us from our long-term plans. In the winter issue of Market Perspectives, I mentioned there will more than likely be volatility around the upcoming primaries & November elections, who would’ve guessed it would start with another bird flu out of China?
Brett Carleton, CFP, ChFC
The Impact of the SECURE Act on Required Minimum Distributions and Qualified Charitable Distributions
Age Raised to 72 for the Required Minimum Distribution (RMD)
It’s 2020, and if you turn 70 ½ this year, it’s no longer your “magic year” for taking a required minimum distribution (RMD). With the stroke of a pen, the new SECURE Act has pushed your magic year back to the year you turn 72. You can delay your start date back until April 1 of the year you turn 73, but you must then take both your age 72 and age 73 distributions in the same year.
If you turned 70 ½ in 2019 or before, then nothing has changed. You need to abide by the old rules and continue taking your distributions as previously required. If you delayed your start date to this year, then you must take the first distribution by April 1 and the second one by December 31.
No Change to the Qualified Charitable Distribution (QCD)
Nothing has changed for clients who are age 70 ½ or older and are making qualified charitable distributions (QCDs) directly to their church or other charities. For those turning 70 ½ this year, you may still make a charitable distribution from your IRA even though you don’t have an RMD until age 72. Remember, the QCD must start after your actual 70 ½ birthday, not just the year in which you turn 70 ½.
Good Bye to the Stretch IRA
If you inherited an IRA before 2020, you can continue “stretching” required minimum distribution payments over your lifetime. If you inherit an IRA this year or later, there are no more RMDs, but you must distribute the entire balance of the account by the end of the 10th year following the year of the owner’s death. You can structure payments any way you want so long as the balance is zero after the 10th year. There are 5 exemptions: 1) for your surviving spouse, 2) for minor children, 3) for disabled individuals, 4) for the chronically ill, and 5) for beneficiaries who are less than 10 year younger than the owner.
If you have any questions regarding the SECURE Act about these or other aspect of the SECURE Act, feel free to call or email us to discuss it.
Ian Harris, CFP®
Warren Buffett recently came out with his letter to Berkshire Hathaway shareholders, where he not only discusses the performance of Berkshire, but also shares some investing tidbits. In this year’s letter, he made several comments that I felt were spot on during this recent period of volatility. The first being,
“The connection of value building…that I’ve just described will be impossible to detect in the short-term. Stocks surge and swoon seemingly untethered to any year to year buildup in their underlying value. Over time however, Ben Grahams oft-quoted maxim proves true: In the short run the market is a voting machine: in the long-run, however, it is a weighing machine”.
He pointed out that Berkshire Hathaway stock was not spared during the great recession and went down in value over 50% (the share price is up almost four-fold since the lows of 2009). Buffett did not panic during this time either; he made multi-billion-dollar investments in Goldman Sachs, Bank America, and GE, just to name a few.
One other quote I thought worthy of sharing:
“Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics, or a familiarity with Wall Street jargon such as Alpha & Beta. What investors need instead is an ability to both disregard mob fears or enthusiasms, and to focus on a few simple fundamentals.”
Many of us invested in the dot-com bubble, and here we are twenty years later, with this euphoria surrounding technology stocks again (aka the FAANG stocks, including Facebook, Apple, Amazon, and Google).
This past Saturday, Yahoo live streamed the question & answer session with Warren Buffett and his partner Charlie Munger from the annual shareholder meeting. It is always interesting to get the perspective on things from the greatest investor of our time, so this is how I spent part of my Saturday. I always find it interesting how shareholders want to ask him about the investments they did not make, like Google and Amazon. Mr. Buffet always comes back around to the solid businesses they have invested in, and how they cannot invest in every company. There were a couple of questions from Chinese investors asking about investing in China and other countries outside of the U.S. He shared how they have made direct investments in China as well as other countries around the world. This has been a change in their philosophy over the past several years from always owning only U.S.-based companies. Mr. Buffett is still “bullish” on the American economy and says there is no other country quite like ours. There was a shareholder question about bitcoin and what their perspective was on crypto-currencies. Mr. Buffett came back with what I think is the best response I have heard yet on crypto-currencies, and it went something like this:
“I am sure checks were very disruptive to other payments methods when they were first introduced, but I doubt anyone invested in them thinking they would go up in value over time.”
The “Oracle of Omaha” is always informative. As much as things change, it’s always amazing to me how investor behavior does not. Investors know there will be volatility in the equity markets, yet every time things get a little dicey, they panic. Let’s heed the Sage’s advice and focus on what we can control.
Brett S. Carleton, CFP®
Now that we know what the new tax law will look like for 2018, there are a couple of things to consider before the end of this year. The new law puts limits on itemized deductions, as well as increasing the standard deduction, so you will want to take all of the deductions in 2017 that you can. If you can, be sure to pay your property taxes before year-end. If you have a mortgage, consider making an extra mortgage payment to pull more interest into this year. If there is a charity that you have been considering giving a gift to, now might be a good time to make that gift. If you live in one of the seven states without an income tax and have been considering making a big purchase, you may want to do this before the end of the year. The ability to deduct sales tax will be limited going forward.
So in summary:
1.Pay your property taxes this year.
2. Make an extra mortgage payment this year.
3. Consider making charitable deductions before year-end.
4. If you live in Texas, Florida, or South Dakota, and are considering making a big purchase, now may be the time to buy (you better take advantage of this as it’s not often I will be telling you to make a big purchase).
We will follow-up after the first of the year with more information on how this will affect you.
Brett S. Carleton, CFP®
This time of the year can be very challenging to try and stick with a budget. We are bombarded with images of the latest must have gadgets everywhere we look. Then there are the end of the year holiday parties and family gatherings where we feel obligated to bring a gift. How can one possibly stick with a budget? Here are 5 ideas to help create a plan for your holiday gift giving.
1. Have a budget and stick to it. It is a good idea to set aside the money and pay for the gifts in cash. This will also help if you must buy something online and pay with a credit card.
2. Create a list of who you will buy gifts for and what you will get for them. This will help to prevent impulse buys for someone.
3. Do a little research before purchasing the gifts. Check for the best prices online before going to the store.
4. If you normally buy gifts for everyone in your family, consider drawing names so everyone will only have to buy one gift. This can be fun because you can put more thought into the gift. Some families will do a white elephant gift exchange where everyone brings a gift and receives a gift. This can be fun especially if everyone starts exchanging gifts.
5. Start a new family tradition that doesn’t require anyone to buy a gift. Go see Christmas lights, go ice skating, or some other type of holiday activity. This is something that will be remembered much longer than whatever gift you receive.
The holidays can be such a fun time, we do not want to ruin it by going into debt. If everything goes onto credit cards and you cannot pay them off, your only lasting memory of Christmas 2017 will be paying your monthly bills. Don’t let that happen this year!
I am thankful for family, including our wonderful grand baby, who puts a smile on our faces every time we see him. I am also, thankful for friends, extended family including my work family. What a great group of professionals to be with daily and a wonderful company to work for. I’m grateful we had the opportunity this year to travel and visit with extended family that we haven’t been able to see for many years. We noticed on our trip that some things never change, which brought back many childhood memories. I’m thankful that none of our friends and family were affected by Hurricane Harvey, what a devesting storm, but I wish hope for those who were affected. I am thankful that this year, our family will be all together on Thanksgiving. Thanksgiving is one of our favorite holidays, you can’t go wrong with family, food and good stories.