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 – 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 – New Team Member & Business Updates

4 Minute Read

Good morning, I hope this email finds you well and you are having a great summer!

I am really excited to announce that we have officially added a new full-time team member to Kane Financial, Renee Jarosz.  

Renee lives in Frankfort with her husband Chris, and their 3 children Nolan, Sadie, and Nashton.  She is a Financial Paraplanner Qualified Professional (FPQP), and has spent over 12 years in the financial planning industry specializing in operations and client service.  This will be Renee’s main role at Kane Financial, and I am really excited to welcome her and introduce her to all of you.

Renee will be a regular presence in the office, helping me with the day to day operational activities of running the practice, along with helping clients with any and all questions if I am unavailable. 

Having Renee onboard will provide an even higher level of service to our clients, allowing me to step away from some of the day to day operational tasks and to focus even more on meeting with clients, financial planning, and investment management.

Other Business Updates:
We found that having a business phone line, business texting line, and separate fax line were super confusing for clients, so we have hired Ring Central and consolidated to a single number.  Going forward, our main business line (315) 801-9028 will be the only number clients need, and you can call, text, or fax to this one number.

In May, we hired a compliance consultant from XY Planning Network to assist with our ongoing compliance duties, and helping us to keep up on the ever changing regulatory landscape. 

XY Bean Counters was hired in the first quarter of 2021, they specialize in bookkeeping for independent financial planning practices.

Finally, I just wanted to detail services currently available to clients in addition to investment management:

Comprehensive Financial Planning & Income Projections – We can build you a complete picture (literally) of your finances including investment accounts, insurances, real estate, income, and provide income projections to help you plan and navigate your retirement.

Social Security Analysis – With your social security statement, we can take your earnings history and provide all of your options as to when the most ideal time may be for you and/or a spouse to start taking the benefit.

Tax Planning – We can take your most recent 1040 and provide a complete analysis of your taxes, along with scenario analysis for future years to help you proactively plan your taxes.

Insurance Planning – A review of your existing insurance policies, and recommendations as to if your coverage is sufficient, or if additional coverage could be helpful.  As a reminder, we do not sell any insurance, we simply provide our professional opinion on your existing coverage(s).

Outside Account Reviews – On a quarterly basis, we reach out to clients and ask them to provide us the most recent statements of any accounts we don’t directly manage so we can review the portfolio.  If you are not already on this list, please contact the office and we will reach out quarterly and review any outside investment accounts you have.

Thank you for the trust you have placed in our practice.  We are really excited to be able to continue putting resources back into the practice, and building out the services we can provide to our clients.

I hope you found this information helpful.  If you have any questions at all, please do not hesitate to contact the office.  Have a great Summer!

Best,
Clint

KF Update – Inflation Thoughts

6 Minute Read

Good afternoon, I hope this emails finds you well and you are getting ready for some wonderful weather headed our way in upstate New York.

I wanted to touch on a few of this week’s events in the markets, particularly the inflation data that came out.  If you have any questions at all, please do not hesitate to contact the office.

What was the inflation data that came out this week?
The Consumer Price Index (CPI) rose by 4.2% year over year.  The CPI measures the price of a basket of goods including food, energy, housing, transportation, medical care, recreation, education, and apparel.  The CPI is the predominant index we use to measure inflation in the U.S. economy.

The basket is designed to be weighted as an approximation of how it would be weighted for a household.  As an example, housing is the largest component of the CPI accounting for around 42% of the index.

What does a 4.2% year over year increase mean, and what is the context?
The price of the basket of goods in the CPI rose by 4.2% in aggregate from April 2020 to April 2021.  Price increases in this basket over the past decade have been very low, around 2% and even lower some years. 

Is the higher than expected inflation the reason for the market decline this week?
It looks to be part of the reason.  Inflation affects stocks differently; for example growth oriented stocks (The Nasdaq) suffer more from inflation.  Higher inflation means higher interest rates, and their future earnings, of which their valuations are based upon, tend to decline.  Value oriented companies (Dow Jones) are less affected because their cash flows are more current.

Take Airbnb (ABNB) as an example.  They currently do not make a profit, so they have no earnings to share with investors.  If you invest in Airbnb today, you are not doing it to lose money, you are buying the company because you believe in the future they will have strong earnings.  Higher interest rates mean those future earnings are not as valuable.

If you buy Apple (AAPL) today, they are already a wildly profitable company so you as an investor would immediately be sharing in those profits.  A company like Apple could be less affected by higher interest rates, and higher prices could even start to flow into their bottom line, increasing their margins.

What is causing this higher than expected inflation?
It depends on the economist you ask.  My opinion is that it’s a combination of supply chain disruptions due to COVID that we are still dealing with world wide, accommodative monetary policies by the federal reserve, an increase in the supply of dollars from the many stimulus measures, and pent up demand from an economy that was essentially shut down for an entire year. 

For context, there is still widespread disagreement on the cause of the Great Depression and Great Financial Crisis; it’s difficult to pinpoint a single culprit to any event in such a complex world economy.

What does this mean for my portfolio?
For those of you that always read my emails you already know what I’m going to say!  The short-term is impossible to predict, but longer term stocks provide an excellent opportunity for growth.  As an investor, it’s truly important to periodically revisit goals, time horizon, and risk tolerance; and if any of those have changed in between our regularly scheduled review meetings, please contact the office so we can discuss.

What are my thoughts on inflation, the markets, and managing client portfolios?
To start with inflation, we need to take a more granular view of its components (see below).  All of us have different inflation rates because we spend our money differently.  If you are doing a home improvement project this year (gulp), the price increases you will experience will be much higher than most.  Did you buy a used car/truck?  Those prices are up 21% from a year ago!  If someone spends most of their money on cereal, dairy products, baked goods, soda, and alcohol they are probably in great shape (inflation wise that is).  You get the picture, while the 4.2% number was shocking and inflation is discussed in generalizations, it truly is important to take a more granular view of the measure of price changes in an economy. 

I would keep an eye on June, July, and August readings.  If they continue to come in at these elevated levels, it will be difficult for the Federal Reserve to ignore these increases and dismiss them as “Transitory.”

Market wise, we’ve had a very encouraging recovery from one of the swiftest, most violent downturns we have ever had, and hopefully will ever again experience.  I’m very optimistic for the future, and bullish on stocks in general. 

In terms of portfolio management, I am avoiding longer dated bonds in client portfolios as they are also negatively affected by inflation and higher interest rates.  Ongoing rebalancing continues to be an important part of our portfolio management process.  If we do continue to see a downturn in the markets, I’ll be looking to buy into lower valuations as these opportunities arise.

I hope you found this information helpful.  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 Summer!

Best,
Clint

Here are the components of the Consumer Price Index, and their percent rise from April 2020 to April 2021 taken from the U.S. Bureau of Labor Statistics.

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!