KF Update – Gamestop Craziness

3 Minute Read

While the price swings in GameStop are getting the headlines, that is just the tip of the iceberg of one of the most incredible stories, and incredible weeks in Wall Street history.  When AOC and Don Trump Jr. are on the same side of an issue, it has to be quite the story!  Let’s dive into what we just witnessed this past week:

What is GameStop?
A brick-and-mortar retail store that sells video games, has been trending towards bankruptcy, and traded at around $20 per share to start the year 2021.

What happened this week?
The price per share skyrocketed to as much as $468 yesterday and is currently trading around the $330s.

Why did the price go up so dramatically?
A group of day traders who had been sharing their trading strategies on the social media platform Reddit, jumped into the stock and then the power of the internet took over.  The news of the buying of GameStop, along with several other distressed companies spread, and day traders around the country piled in, sending their stock prices soaring.

Sounds great for those traders, what’s the controversy?
While it was great for these day traders, some big time Wall Street hedge funds were crushed.  These hedge funds had been betting against GameStop along with several other distressed companies through a trading strategy called “Short Selling.”  If the stock price goes down, the hedge funds make money, but if it goes up, they lose money.  The higher the share price goes, the more the hedge funds lose; in essence, there is no limit on the losses if the stock price keeps rising.

At least one hedge fund, Melvin Capital needed emergency cash infusions.  Worse yet, the trading strategy of “Short Selling,” when it goes really wrong, the hedge funds actually have to turn around and buy the stock at these elevated prices.  This is called a Short Squeeze and is contributing to the dramatic price increases in these stocks.

Disclosure: Kane Financial does not engage in short selling, investing in hedge funds, or any other exotic trading strategies.  We stick to the boring (yet effective) long-term buy & hold strategy using low cost index funds, a strong tilt towards quality and value, diversification, and ongoing rebalancing.

What is Robinhood and where does it fall into this story?
Robinhood is a trading app that you can download onto your phone, and trade using many of the same sophisticated strategies that Wall Street firms can use.  This app has helped to democratize trading and make markets available to anybody for no cost to the user.  This is primarily the way that these Reddit users and day traders around the country access markets and trade these stocks.

So it sounds like a bunch of day traders outsmarted the Wall Street professionals, great story right?
Not so fast, mysteriously, yesterday morning Robinhood suspended trading on GameStop and these other distressed companies that the day traders were piling into.  They only allowed these stocks to be sold, but not purchased.  This in turn sent their stock prices tumbling, and is being speculated, helped the hedge funds stop the bleeding and get out of their short positions.  Trading today resumed and went back to normal.  Many of these day traders were furious.

Why would Robinhood do this, infuriate their clientele and help out Wall Street billionaires?
The million, or in this case, billion-dollar question.  The CEO of Robinhood came out and claimed it was due to Net Capital Requirements, liquidity levels that brokerages must keep in case of market stresses and/or panices.

Others are speculating that Wall Street’s elite leaned on their power/influence to get Robinhood (and several other trading platforms) to change the rules in the middle of the night to tank these stocks and save themselves. 

Is what Robinhood did criminal and market manipulation?
This is where congress and the SEC are getting involved, stay tuned.

Bigger Picture
There was a tear in the matrix, you could say.  Regular investors think the rules of the investing game changed right in front of their eyes to help Wall Street’s elite class. 

Ironically, I think Bitcoin and decentralized finance fits into this discussion as well (another article coming soon).  Bitcoin is a decentralized currency that is not controlled by one person, government, or corporation.  It’s owned and controlled by its users, and that is one of the many reasons for its popularity.  Bitcoin is part of a larger movement of decentralized finance, where third party intermediaries (those that wield the power/influence reference above), are eliminated and transactions occur directly between the parties involved.

I think we could see a dramatic shift in finance over this next decade (for the better), and what happened this week is an important part of that story.

If you have any questions at all, or would like to schedule a meeting you can do so utilizing the button below or simply calling our office.  Have a great weekend!

Best,
Clint

KF Update – Year End Planning

4 Minute Read

Good morning,

I hope this email finds you and your families well, and you had a wonderful Thanksgiving.

With the dust mostly settled around the election (except for an incredibly close local house seat), I thought we could shift focus to some year end planning items that could be helpful for clients to consider.

One popular planning tool that is available to clients is something called a Roth Conversion.  This means converting pre-tax money (within an IRA or 401k) to Roth.  The tax on the conversion would be paid now, but all Roth money including earnings is completely tax free going forward.  

Why would somebody do this, or why would it make sense?  If you are in a lower tax bracket now, which many retirees are, it could make sense to lock in these lower tax rates now.  Additionally, pre-tax monies are required to be distributed starting at age 72 (RMDs) to the tune of 4-5% per year to start.  At that point, you have less control over which tax bracket those distributions fall into.

We have our federal income tax brackets for 2020 below which is a tiered system.  If you are Married Filing Jointly (MFJ), your first $19,750 of income is taxed at 10%, between $19,750 to $80,250 at 12%, and then income above $80,250 jumps up to 22%!

For example, let’s say your taxable income for 2020 will be $70,000.  It might make sense to convert $10,250 from pre-tax to Roth, and “Fill Up The Bracket.”  This strategy can be done each year leading up to age 72, as a way to take more control over how your pre-tax monies are taxed.  This could be especially beneficial if you believe taxes will increase in the future.

Additionally, if an IRA balance is large, those Required Minimum Distributions (RMDs) could put you into IRMAA surcharge range shown below.  These are additional premiums retirees would have to pay to Medicare if their income is high in retirement.

One of our newest pieces of financial planning software allows us to do a comprehensive tax analysis for clients, including modeling different scenarios and tax planning tips.  Please contact the office if you would like us to provide you with a comprehensive tax analysis.  As with all of our financial planning tools, there is no additional costs, all included in our service offering to clients.

Here is a list of other considerations for year end planning:

  • Save your charitable donation receipts, you can deduct $300 as an above the line deduction for 2020.
  • Required Minimum Distributions (RMDs) were suspended in 2020, but will be reinstated for 2021.  If you had recently turned 72 or will in 2021, it could be beneficial to start planning for those distributions.  You can take them monthly, quarterly, lump sum, etc.
  • If gifting money, the annual exclusion is $15,000 per year, tax free.
  • Reviewing your investment allocations to ensure they still align with goals, time horizon, and risk tolerance.
  • Can you give yourself a “Raise for Retirement” in 2021, increasing contributions to IRAs and/or company sponsored retirement plans.
  • Review of estate planning documents and beneficiary designations to ensure they are up to date.
  • Are you eligible to contribute to an HSA, and if so, can you max those out for 2020?
  • If you have recently had a child, does staring a 529 make sense, and more importantly, do you have adequate life insurance coverage?
  • Qualified Charitable Distributions – If you will be taking RMDs in 2021, you can direct part of the distribution to a qualified charity.  Why do this?  Because unless you itemize, and very few people can, charitable contributions cannot be deducted from taxable income.  By sending money from your pre-tax IRA directly to your qualified charity of choice, your charitable donation can lower your taxable income.

The year 2020 has been difficult for all of us, to say the least.  Looking at the glass half full, we have some of the most amazing medical professionals and scientists in the world, working tirelessly on new treatments, the vaccine itself, and its distribution.  We are encouraged by the resiliency of the American people and the small businesses who are adapting to a new normal, and the bounce back in equity markets from one of the swiftest, most dramatic declines in its history.  While we have no idea what 2021 will hold, we are encouraged by these developments.

If you have any questions at all, or would like to schedule a meeting you can do so utilizing the button below or simply calling our office.  We wish you and your families a wonderful, safe, and healthy holiday season and look forward to a new year!

Best,
Clint

KF UPdate – Taxes, IRAs, & Market Thoughts

4 Minute Read

Good afternoon and Happy Spring!  A beautiful few days in the forecast in upstate New York, golf courses are starting to open, and Syracuse came out with a great performance and win in the opening round of the NCAA tournament!  Things are certainly looking up after a long and challenging year for all of us.

I wanted to touch on a few items in terms of annual IRA contributions, updates to tax filing, and some of my thoughts around the markets.  I hope you find this information helpful, and as always, if you have any questions please do not hesitate to contact our office.

Tax & IRA Updates:

  • The 2020 tax filing deadline has been extended to May 17th, 2021. 
  • This also includes the deadline for IRA contributions for 2020.  You can contribute up to $6,000 to an IRA if under the age of 50; $7,000 if over the age of 50.  If you wish to still make a 2020 IRA contribution, please contact the office and we will coordinate that for you.
  • The first $10,200 of unemployment benefits received in 2020 is not federally taxable if your Adjusted Gross Income is under $150,000. 
    • If you have already filed your taxes, the IRS has issued guidance to not amend just yet, they are going to try and issue refunds.
  • Recovery Rebate Credit – The stimulus checks that went out last year for $1,200 and then $600 were based off of 2018 or 2019 income.  If you did not receive stimulus checks because your income was too high for those years, but your 2020 income was under those thresholds, you can receive a refundable tax credit when you file your 2020 taxes for the amounts of the stimulus you didn’t receive.
  • Another round of stimulus checks started going out this past week.  To see if/when you will receive your payment, you can use the following link to check the IRS website:

Get My Payment

  • The child tax credit was increased from $2,000 to $3,600 for each child under the age of 6, and $3,000 for those ages 6 to 17.  They are still working through the details of how that money is going to be delivered to eligible parents, so stay tuned on this front.

Market Thoughts:
After a strong start to the year, markets have cooled off recently as bond yields have spiked; more on that later. 

The S&P 500 is up around 4.5% on the year, US Value companies have outpaced US Growth companies year to date in a reversal of what we saw in 2020, and Small US companies have outpaced them both.  Diversification and rebalancing continue to be an important staple our ongoing portfolio management process.

Currently, the metric I am most closely following is inflation and bond yields.  As the economy continues to recover, and as these tax credits/stimulus get to consumers, inflation and higher bond yields could follow.  What does this mean for investments?

Longer duration bonds could go down, we are positioning client portfolios by keeping our durations shorter in maturity.  As an example, TLT (we do not hold this fund in client accounts), a 20+ year treasury bond fund is down over 14% year to date.  

Growth company values can decline.  A key calculation in determining the value of a growth oriented company is closely tied to yields.  If yields go up, valuations go down and vice versa.  The Russell 1000 Growth index is up 1.19% for the year while the Russell 1000 Value index is up over 11%.

Cash savings could lose purchasing power.  With bank yields low, any significant pickup of inflation will hurt those with significant cash savings as purchasing power would decline.  If you have significant cash savings, consider opening an investment account with monthly contributions to take advantage of dollar cost averaging and help protect against rising inflation.

As I always advise, there is no way to predict how the markets will perform over short periods of time.  Who would have thought the S&P 500 would be up over 18% in 2020 in the face of a global pandemic and contentious election season. 

We could see a strong economic recovery and record GDP numbers, and a flat market in 2021, there is just no way of really telling.  Diversification, quality investments, and ongoing rebalancing (especially during times of market weakness) continue to be an excellent way to grow capital over longer periods of time.

If you have any questions at all, please do not hesitate to contact the office.  If you would like to schedule a meeting, you can use the blue button below which is directly linked to my calendar.  Have a great Spring!

Best,
Clint

KF Update – Charitable Giving

4 Minute Read

Strategies around charitable giving have evolved since the updates in the most recent tax law, specifically changes around the standard deduction. Far fewer people have the ability to itemize and take a tax deduction for their charitable gifts. That said, there are ways to utilize retirement accounts and gifting strategies to be charitable in a tax efficient manner.

If you are over 70.5, you can make what is called a Qualified Charitable Distribution to the qualified charity of your choice. As long as the money goes directly from a Pre-Tax IRA to the charity, you will not have to pay taxes on the distribution. If you are over 72, this distribution can be counted towards your Required Minimum Distribution.

As part of the 2020 CARES Act, individuals can now take a $300 above the line tax deduction for charitable gifts, so be sure to save those receipts!

Below is a detailed checklist that you can go through to develop a gifting strategy and/or learn about ways to make charitable donations in a tax efficient manner. If you have any questions on this checklist, or would like to create a strategy, please contact the office and we will be glad to help with that process.

We wish you and your families a wonderful, healthy, and safe holiday season!

KF Update – Election Thoughts

4 Minute Read

Good Evening,

I hope this email finds you and your families well, and you had a wonderful Fall season thus far!

First, I wanted to apologize for the delay in getting out what are usually my monthly emails to clients.  We have been very busy revamping our entire technology infrastructure, digesting all things Covid related to investments/financial planning, and preparing for both the end of the year, and 2021. 

I will be sending out a separate email in the near future with somewhat of a ‘End of Year Financial Planning’ checklist along with the tools we have available to clients.

With that said, one of the most contentious elections in recent memory is just a week away.  I would like to take this opportunity to share some of my thoughts, as well as how markets have reacted in past election years.  

In 2005, I started my career in financial planning, and got my first cell phone!  I remember learning how to text using the three letters above the numbers, and the first time I could read my email directly from my cell phone, the technology at the time was incredible.

If we look back over these past 15 years, so much has changed, particularly the way we receive news and information.  The independent newspaper industry is largely shrinking, replaced by 24 hour cable news networks and social media. 

The current business model of delivering news seems to have become more about playing on our emotions, and less on delivering fact based information for us to form our own opinions.  This is particularly true when the news reports on the daily moves of the stock market, potential volatility around a presidential election, or any other economic event for that matter.

A volatile day(s) in the markets is amplified fifty fold in 2020 versus years ago.  We cannot get away from it by simply not opening up our monthly investment statement.  Any semi-newsworthy economic event leads to hours of analysis, opinions, and predictions both ways of how the market will react. 

Now more than ever it is incredibly difficult to ignore the noise and just “Ride It Out” as we say.  But, as this most recent downturn proved once again, as difficult as it can be, it remains the most prudent strategy for long-term investing success.

As for the presidential election, let’s take a look at how markets have reacted over the past 100 years.  The below graphic is the growth of $1 starting in 1926 through 2019.  While the short-term is unpredictable, the general trend of the markets are upward, regardless of the party and overall economic conditions.

As to what the markets think will happen, interestingly, the S&P 500 performance in the 3 months leading up to the election has correctly predicted the presidential winner 20 of the last 23 elections.  If the S&P 500 was positive in the 3 months leading up the election, the incumbent party wins the White House, and the opposite if the S&P 500 is negative in those three months.  Here is the graphic:

The S&P 500 is currently up around 5% over the past 3 months with 5 trading days left until the election which bodes well for our current president.  That said, most national polls and odds makers show our current president as an large underdog with the exception our local pollster, Mr. John Zogby, who has the race within 2 points.  It’s anybody’s guess at this point how all of this plays out.

We certainly understand the anxiety with this election, the different ways the three branches of our federal government could be shaped starting in 2021, and the various ways the markets could react on a short-term basis.  History tells us that regardless of the makeup of the three branches, stocks follow an upward trend line over longer periods of time.

If you are interested in scheduling a review meeting to review your portfolio, or just have a quick question you can schedule a time for us to meet using the blue button below.  It links directly to my calendar and you can find a time that is most convenient for you.  You can always call the office also at (315) 801-9028.  I look forward to talking, and hope you have a great rest of what has been a beautiful Fall season.

Best,
Clint