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5 Themes for 2018

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On this week's show we're taking a look at the five major themes that may take center stage in the markets through 2018, where might the opportunities be, and how do these themes affect your portfolio?

5 Themes for 2018

Rotation Continues

Over 2017, Technology took the spotlight as the sector's rally allowed it to take on an ever-increasing role in the major indices. While this trend can continue for some time, all good things have their limits. The tech rally is no different. Investors should be mindful that even the best growth companies have their limit and rotation inevitably takes over as one sector becomes overvalued and opportunities turn up in recently overlooked areas.

Infrastructure Builds

With the recent focus in Washington over restoring our nation's focus on domestic affairs, the focus has been on business growth and the US infrastructure. This combined with the potential for inflation as well as potential rotation out of technology means that industrials, materials, and commodities could begin a new trend higher. These areas may be key to watch in 2018.

Inflation Grow

It's been some time since inflation has been worthy of talking about, mostly because it has been hardly existent in recent years. However, as demand picks up and businesses focus on investment and growth, investors may need to be mindful of rising prices leading to inflation. While the Federal Reserve has started raising interest rates in anticipation of this move they're doing so from historically low levels. This means if inflation does pick up steam it may be an area of opportunity for a prudent investor who's ready and waiting.

Interest Rates

For the first time in history, we have an overly transparent Federal Reserve, so far as it comes to their intentions and direction on monetary policy. After three broadcasted rate hikes in 2017, the Fed is pointing towards two to three more in the coming year. It's been a long time since investors have needed to worry about surprises from the Fed and all signs point to this year being no different. Investors' might do well to take the Fed at their word and expect interest rates to move higher from here.

Volatility Shows Up

When reflecting on the fact that we just came from a +20% gain in the broad market indices it wouldn't be uncommon for one to think it came from a landscape of increased volatility. However, the environment over the last year has been quite the opposite, coming in at historically low levels of volatility. Investors may find that extremes in either direction can only last so long and volatility may be poised to show up again soon. Is "this time different"? Maybe. But if not, investors should expect to see less of a steady march higher in the coming year and more short-term ups and downs in the market, as have happened in the past.

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There's been a lot of headlines and talk about the recent tax bill that Republicans managed to pass before Christmas. However, it can be difficult to dissect fact from fiction in many of these accounts. Some sources cite the middle class getting a great tax cut for Christmas. Other sources point towards the majority of Americans getting lumps of coal and a higher tax bill. We'll break down some of the noise and review the key changes of the plan to see how it might affect you.

What is Bitcoin?

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On this week's episode of Tape Talk we're talking all things Bitcoin. What is a bitcoin? Why are people so excited about cryptocurrency? What implications does it have for the future? We'll dive into all this and more with special guest Shane Hadden.

Shane Hadden is a lecturer at the University of Kentucky and the founder of GlobalCurrencyReport.com a fantastic resource for breaking down the world of cryptocurrency and staying up to date on recent developments. Quint and Daniel ask Shane to explain this new technology and currency in the most basic way possible so listeners (and they) can finally understand this interesting new world.

Is Retirement Dead?

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On this week's episode of Tape Talk we consider the question "Is Retirement Dead?" With the changing landscape of retirement today due to saving shortfalls, diminishing pensions, and increased life expectancies, is retirement still the picturesque dream it used to be?

Is Retirement Dead?

The Washington Post recently ran an article painting a bleak picture of the state of retirement in America. One of the stunning facts from the article is the idea that many people are now putting off retiring until later in life. Also, Social Security is buying much less than it did for retirees a decade ago. Given these facts and the reality that many Americans have saved less than they need in their retirement accounts we are forced to asked the question, "Is Retirement Dead?" 

 

What Is Retirement Anyway?

Retirement as we know it is a relatively new concept. To start, we looked at in our episode on pensions the fact that the modern pension system in America is only about 100 years old. Plus, when first created, the purpose was not to provide retirees with a 20-30 year retirement but to allow workers who lived past their life expectancy an opportunity to not try and maintain the same work-level they had done previously. Eventually, as life expectancies grew and retirement savings evolved we arrived at our modern landscape where people attempt to work for 30-40 years with hopes of a 20-30 year retirement. The problem with this is the math doesn't always work. Pension systems have caught on to this and have started shifting the need to save, and the risks that go along with that savings, back to the employee. This means we may need to alter our expectations for retirement today.

 

What to Expect From Retirement.

You'll get out of it what you put into it.

Your savings rate and your discipline at all stages of your saving and retirement journey are going to affect your outcome. This is because, once your retirement finally comes, you can't use what you haven't saved or what you've tapped before retirement. What's going to be there will only be there because you put it there.

Your goals are only as good as your realities.

The vision you have for retirement is going to affect your required savings and your required rate of return. If you have ambitious ideas for retirement it's important that the amount you are saving is equally ambitious. Remember, a goal without a plan is simply a wish.

Retirement may be more of a journey than a destination.

There was a time when retirement meant you simply stopped working. Now, however, you may transition towards retirement in multiple steps over the course of years. Your retirement plan should look at options, as needed, for how you might move from full-time to part-time to on-demand work before you fully retire from working for good.

 

How A Plan Comes Together.

One of the most important aspects of what we help clients with as a wealth management firm is their LIFE Plan. It's through this financial planning journey that we assist clients in examining their goals and dreams while comparing it to the resources they have available to meet those desires. Through this process, we assist clients in finding their required rate of return before implementing their plan and aiming to keep them on track throughout their financial journey. We wrap up this week's show with a look at what that process is like and what goes into crafting each individual's plan.

Want to get started on your own LIFE Plan? Downloading and completing our LIFE Plan Questionnaire is the first step in the journey. Once you've completed and submitted it, our team can begin working with you to craft your own personal plan.

Risk-based Investing

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On this episode of Tape Talk, we talk through the ins and outs of risk-based investing. Plus, the Kentucky pension reform bill has been released, is there anything unexpected in the details?

The Kentucky Pension Bill

There's been a lot of discussion in the news and on social media about the recently released bill to reform the Kentucky pension system and keep it solvent. We'll take a look at some of the key facts and what they mean to you. Are new teachers getting a raw deal with the new 9% mandatory contribution? Is the retiree health care contribution a bait-and-switch? Who gets affected the most by the new retirement payout calculations? 

Risk-based Investing

While the market appears priced to perfection here from both an earnings and economic standpoint, there are many who still put forward the virtues of completely passive index-based investing. What if there was an alternative that took into account the risks present in any particular investment, index, sector, or stock at a point in time? What if investors weren't completely passive but made their investment decisions based on a calculated potential for loss versus the potential for gain. That's precisely what risk-based investing aims to do. We'll break down how risk-based investing works practically and some ways it might be useful in a portfolio. 

Listener Questions

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On this episode of Tape Talk, we're going through some of the questions we get the most regarding finances, investments, and your retirement plan. Plus, the first ever Tape Talk Radio live streaming.

The Market is so "high" right now, how could you suggest getting in?

It's no secret the market has rallied significantly this year. It seems every week the news is filled with headlines about new market highs. If that's the case, is new money really "buying low, and selling high" here? That depends! Investment returns depend in large part on your timeline. If you're decades from your investment goal you may be well served with dollar-cost averaging into the market, even here. If your goal is imminent, such as retirement or the kids' education, then it may be time to assess your financial plan and what allocation is right for you.

If the Fed is raising rates why do you think gold and silver are a good investment?

Precious metals such as gold and silver are often used as a hedge against inflation. If that's the case it may seem contrary to be buying them as the Federal Reserve is actively moving against inflation. However, we'll break down a view of the Fed that's often behind the curve on its interest cycle and how that can affect investors' portfolios.

Whole life insurance or term insurance?

Simple put, term insurance is generally the best for most people.

How much am I supposed to take out of my IRA at age 70?

Your required minimum distribution (or RMD) begins in the year you turn 70 and a half. Because, of course, 70  would be just too simple. Every year from this point on your custodian should do a calculation based on your account balance and your remaining life expectancy. This is the amount the IRS requires you to withdraw that year so they can get some tax on that money you've been sheltering in your tax-deferred accounts.

I calculated my required rate of return is 9%, since the S&P returns 10% a year am I ok?

Approaching retirement and hoping to get the same average returns as the S&P? If you can do that you might just be extraordinary. The fact is few people get the actual S&P returns due to transaction fees, taxes, and, most importantly, withdraw rates. This means if you're required rate of return is approaching that of an all-stock index while you're a few years from retirement it may be time to revisit your financial plan. You can't cheat the math, so the sooner you change your expectations the better.

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On this episode of Tape Talk, we're talking the Kentucky Teachers' Retirement System pension changes, the rotation happening in the market, whether or not the next great crash is imminent, and why you might not want to ride the market's every up and down the same.

KTRS Changes Are Coming

Governor Matt Bevin released a bullet point proposal of changes to shore up Kentucky's struggling pension system. We take a look at the teachers' pension specifically and analyze some of the key changes that might happen there. Are all the changes bad? Not necessarily. Take a listen to find out why some teachers will be no worse off. And, for an in-depth review of the changes and their impact on retirees check out our latest pension update HERE.

Market Rotation

The stock market is made up of numerous sectors and thousands of stocks. This means what you see happening on the surface may not be a full picture of what's happening underneath. While the waters have been calm across the indices of late there have been some key movements across sectors and individual names. Find out what this might mean as investors look to whether the market rally will continue through the holiday season.

Pullbacks versus Crashes

Many investors are starting to get skeptical of the US stock market which has rallied significantly since the 2016 election. It seems as if every week the newspapers and tv stations are announcing a new market high has been reached. However, the question in the back of many investors heads is whether it can keep going. After all, markets don't simply rally forever. If that's the case, should investors be preparing for a 1987 or 1929 style market crash here? Is a pullback from these levels an opportunity or a warning? We talk through some of the difference between pullbacks and crashes as well as what that means for individual investors.

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Most would assume my passion is finance, stocks or maybe even money. In reality, I would classify what I love to do is discover greatness. As a child, I dug for buried treasure in the backyard, was infatuated with the Goonies and searched far and wide for unique baseball cards that I could parlay into vast riches. Well, vast riches for a 10-year-old. As I grew I learned that my detective work and passion for forensics was best suited for the investment world where I could dig in and find unique opportunities that rewarded hard work with real currency. In truth, I get as excited about discovering a new food, recipe, shop, movie or book as I do when I find our next great investment.

It is for this reason when I stumbled upon a relatively unknown author who happened to be the most exceptional historical fiction writers I’ve ever read, I had to bring him in for a chat and share his goodness with the world!

This week’s radio show features Kentucky local, Robert Monahan who has spent the last several decades evolving from a love-struck poet to the creator of the Kentucky Chronicles.  

In full disclosure, Robert became a client a while back and during our very first meeting, relayed his passion for writing.  Working with many folks over the years, it is not uncommon to learn of unique hobbies and passions my clients have. Often, these passions for artwork, crafts, or sculpting are simply for fun and not quite at the level of commercial enterprise. Upon learning that I am a ferocious reader, Robert sent me a copy of Thoroughbred Conspiracy which, sadly, I may have taken a few months to get to. I’m embarrassed to admit that when I finally picked it up, I figured it would be one that I had to struggle through and forcefully finish. Oh my, was I wrong. I pushed through book 1 that very evening and ordered 2 and 3 immediately the next day. I’m excited to now be starting book 4, Coal Dust.

If you like to read, and enjoy the occasional fiction thriller, these books are for you and you’ll love this in-depth interview with the man behind Tucker Flannery and Dr. Gardot. Check out the podcast and then do yourself a favor and get all the books HERE.

Pensions In Peril?

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On this episode of Tape Talk we examine the state of pensions in today's world. Are they the solid and secure retirement tool they're made out to be or are they slowly going the way of the 8-track?

A Brief History of Pensions

When it comes to financial history, pensions are fairly young. The private pension system in the US began in 1875 when American Express was the first company to develop a pension for its retirees, 60 years before social security began. Far from a posh retirement, the original pension paid, at most, half of an employee's ending salary. Further, Employees weren't eligible for the pension until age 60 right about the life expectancy at the time.

How A Pension Works

Most of us are quite familiar with how a company retirement account such as a 401k works, but the discussion gets a bit fuzzy when the topic of pensions come up. While a typical 401k works more like an account, a pension operates more like a contract. In fact, they're much more similar to an insurance plan than a 401k. With a pension, contributions from employees and employers are collected, payments are made to current retirees, and the remainder is saved and invested for future payments. The system actually works quite well when the program is managed prudently.

How Does A Pension Fail

The major issue affecting pensions today is that the math guiding them is based on a wide variety of assumptions. Add to this the fact that budget-strapped states and municipalities often underfund a pension to balance their operating budget and you have a recipe for failure. This is just part of the reason that the Kentucky Employees Retirement System (KERS) is cited as one of the worst-funded pensions in the country and risking failure. What should you know about the Kentucky Pension system or your own pension?

Why Care? What Should You Do?

While many people don't directly rely on a public or private pension for their retirement we are all still directly affected by the state of public pensions today. First, pension shortfalls will result in either higher taxes or cuts to other important areas of state and municipal budgets. Second, if pensions decide to cut benefits the quality of employees they're able to attract and retain may drop this could have a lasting effect on school systems, emergency management, and other critical areas of public service. Finally, while many of us might not have a traditional pension, in many ways our own 401k is our personal pension. The question we all face is whether or not our own personal retirement plan is solvent. When's the last time you sat down with an advisor to run the numbers and figure out if your retirement plan is a dream or a reality?

 

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On this episode of Tape Talk we talk all things IRAs, what are these mysterious vehicles that allow you to live the retirement life of your dreams?

A Quick Look Markets Here.

Before we get into this week's topic we take a look at what's been going on in the markets. With the major stock indices at highs, what's happening beneath the surface? How is rotation playing out across sectors? 

New Name, Same Great Firm.

If you've been listening to the show the last few weeks then you've probably heard, Tatro Capital is transitioning to Joule Financial. Find out a little more of what went into the brand change and what it means going forward.

What's A Traditional IRA?

Most people are familiar with a company retirement plan such as their 401k but we often get questions on what an IRA is and the nuts and bolts of how it works. We'll break down how your contributions work, what the tax implications are, early withdraw penalties, and required minimum distributions. 

What's A Roth IRA?

If you're ready to supercharge your retirement savings strategy you may want to add a Roth IRA to the mix as well. We'll talk through how they differ from a traditional by looking at the tax benefits, early withdraws from a Roth, and Roth required minimum distributions. 

Lightning Round: IRA FAQs

Before we wrap up for the week we do a quick rundown of the questions we get the most on IRAs:

Do I have to take an RMD when I’m 70½?

I have an old 401k, should I roll it into IRA?

What’s up with the new IRA rollover rule?

I inherited an IRA, what do I need to do?

Are there required minimum distributions on Roths?

My company does not have a 401k what do I do?

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