Stocks Hit A Six-Month High

I saw something for the first time the other morning.

Before walking into the office I decided to grab a coffee at the Starbucks one block down from our building. There was only one problem...

The Starbucks was gone.

I was stunned to see the trademark green and white decor replaced with boarded-up windows. I cannot remember a Starbucks store closing, although they obviously have. As you could expect, there are two other Starbucks locations that are equidistant from our office, so all was good. But still, I was surprised.

I find this ironic considering that consumer confidence is back to levels not seen since the 1990s. I am sure the store closure is more of a one-off thing, but nonetheless found it pretty funny considering you always see new Starbucks locations popping up, not shutting down. After all, there are more than 28,000 Starbucks shops worldwide.

While we're talking retail, Amazon "Prime Day" starts today. There should be a frenzy of buying as Amazon unveils massive discounts over the next week.

In The Market...

The S&P 500 gained +1.5% this past week. Let's look under the hood:

(price data via

Eight of the 10 stock sectors were higher, with 7 of them rising more than +1.0% on the week. This was the second-straight weekly gain for the S&P 500, which finished the week at its highest close since Jan 31st. The index is now just 2.5% below its all-time high set back in January, as shown here:

(chart created in

The edge goes to the market moving higher in the long-term. But as I have said for weeks, while I suspect that the S&P will run back up to its previous January high, it is likely to be met with a wave of selling when it does. I would be pleasantly surprised if stocks burst through that previous high and take off much higher without resistance from sellers. I believe it will take a few weeks for that to shake out before the long-term rally actually can resume.

A number of you have asked me about individual stocks in the past year. We do buy individual stocks for certain client accounts, so I want to share some analysis around how we evaluate stocks. This past week provided a good example, as we purchased Activision Blizzard (ATVI) for those accounts that own individual stocks.

ATVI meets many of the criteria that we seek before buying a stock:

  1. The Technology sector that it resides in is performing well. We prefer to buy stocks in sectors where peer companies are performing well too.
  2. In terms of its price trend, ATVI looks good on all 3 timeframes we analyze - Monthly, Weekly, Daily. This gives us confidence that the long-term trend will continue rising.
  3. ATVI meets most of the statistical criteria we care about. For example, the price is above its 200-day moving average as well as its 21-day moving average. Also, Relative Strength (RSI) is building momentum.

The one thing that jumps out about ATVI right now is the fact that it just logged a new record high, eclipsing the price it hit back in both March and June, as highlighted here:

(chart created in

These kind of price patterns - where the price keeps bumping up against a particular level without surpassing it -- often results in a big rally that zooms past it. This is what we are betting on here with Activision. New price highs are bullish. It is exactly what we want to see. It certainly is no guarantee, but I believe based on our analysis that it will rally. We will now wait and see if that is the case.

In Our Portfolios...

What's New With Us?

I have a question for everyone... Would you be interested in hearing from us quarterly by webinar? The intent of a webinar would be to:

  • Quickly recap the prior quarter in the market
  • Look ahead to the upcoming quarter
  • Discuss what we own and why
  • Provide timely financial planning guidance (e.g. tax-planning)
  • Answer your questions

We would try to keep the webinar to within 45 minutes, since I know most of you are very busy. If you cannot attend it live we would make the recording available afterward so you can listen at your leisure.

I am interested to hear your feedback before making any decisions. Let me know.

Have a great week,

Brian E. Betz, CFP®

Seattle City Council Is Playing With (Amazon) Fire

For some companies, the cost of hiring is going up in Seattle.

The Seattle City Council, by way of a 5-4 vote, approved a "Head Tax" that would charge Seattle companies that earn more than $20 million each year a tax of $500 for every worker they employ. This would generate $75 million in yearly revenue for the city. Of that, $50 million would go toward the construction of "affordable housing", $20 million would go toward emergency shelters to improve the rampant homelessness problem and $5 million would go toward administrative costs.

Critics accuse the tax of being punitive on large companies like Amazon that employ thousands of people. Amazon has protested the tax by halting development on a particular downtown real estate project.

Interestingly, Mayor Jenny Durkan opposed the Head Tax in its original form. She prefers to cut the tax in half to $250 per-employee, but City Council quickly rejected that. The existing proposal can bypass a mayor's veto if it receives 6 votes (one more than the initial vote).

The City Council is playing with fire. The nerve its members have to push Amazon's buttons is pretty stunning. If you compare the South Lake Union area 10 years ago to what it is today you would think it was a different city altogether if not for the Space Needle. That is all due to Amazon.

I have many thoughts on the housing market here/around Seattle, but that is for another time. Regarding homelessness, instead of arbitrarily levying a tax why not work with Amazon, Starbucks, Zillow, etc. to create a plan and obtain funding?

This leads to the main issue I have with it, which is the lack of detail. When there is already a general distrust in how government will use its money, it is especially surprising to target its largest generators of economic growth without a coherent plan. The 500 companies that will be affected may think twice about where they hire in the future.

If Amazon were to scale back development or move its operations, how would that hurt businesses that have benefited from its presence? Construction companies, home contractors and other industries that touch commercial or residential real estate would be adversely impacted.

The City Council is due to vote soon to see if it can collect the 2/3 vote needed to overcome a mayoral veto and enact the Head Tax in its current form.

In The Market...

The S&P 500 gained +2.6% this past week. Let's look under the hood:

(price data via

No doubt last week was solid. Nearly every stock sector was positive and the bond market even finished in the green. The two sectors we have liked most -- Technology and Energy -- led the way, rising nearly +4.0% apiece on the week.

Looking more broadly at the entire market as a whole, the S&P 500 has broken free above its recent downtrend, as shown here:

(chart created in

Notice how the price of the S&P index broke above the falling trend line (in pink). This is encouraging but not necessarily a guarantee that stock prices are off to the races. The index remains roughly -4.5% below its all-time high. I could see the rally persisting up until it starts to press against that high, at which point prices will likely hit some headwinds.

Coming into this week, Tech continues to look the best. We added a Tech sector fund to many accounts last week. We are looking to add either Energy or Consumer Discretionary sector funds in the coming days if prices continue to rise.

In Our Portfolios...

What's New With Us?

For those of you who actively login to Morningstar to view portfolio performance information, there is a new-and-improved site that you should use moving forward. The new site is:

This revamped Morningstar platform provides greater account detail, smoother navigation and a better overall interface. Let me know if you have any questions. It remains the place where monthly fee summaries will be posted.

Finally, happy belated Mother's Day to all you moms!

Brian E. Betz, CFP®

An Iconic Toy Company Closes Up Shop

"I don't want to grow up, I'm a Toys 'R' Us kid."

One of the first commercials I remember as a kid will soon fade into an even more distant memory. That is because Toys 'R' Us is going out of business here in the U.S.

The toy giant is reportedly closing all of its U.S. stores despite attempts to restructure its massive debt. The company decided that it can pay off more of the billions it owes by liquidating the business entirely rather than continuing its struggling operations. At least one bankruptcy hearing remains, but it looks like operations will wind down in the very near future.

Toys 'R' Us is just one of the many retail companies that will succumb to Amazon in the years ahead, which has rendered such traditional brick-and-mortar distribution obsolete. It also continues to chip away at commercial real estate, as these Toys 'R' Us warehouse-like locations will remain empty for some time.

If you have gift cards to either Toys 'R' Us or Babies 'R' Us, use them as soon as possible. In a CNN Money article I was reading, a company spokesman said gift cards would only be honored for the next 30 days. To that end, if you plan on returning something purchased at either store, do not wait. On the bright side you should expect massive discounts in the weeks ahead as Toys 'R' Us winds down its operations in the next couple months.

In The Market...

The S&P 500 fell -1.3% this past week. Let's look under the hood:

(price data via

Stocks continue to see-saw, having alternated between weekly gains and losses since early February. Investors migrated to safety last week, namely Utilities and Real Estate, which were the only stock sectors that finished in the green. The surge in these defensive sectors would suggest that more losses are coming for the broader market, but overall conditions still look pretty good despite last week's decline and general choppiness. The S&P 500 has been inching its way back toward its record high of 2,873 set in January. The index enters this week at 2,752, roughly -4.5% below that peak.

The bond market had its best week of the year, rising for just the fourth time in the past 11 weeks. Treasury Bonds, Corporate Bonds and Preferred Stock all finished positive. Our more conservative client accounts continue to hold a cash position. This cash would normally be invested in bonds but the bond market has looked weak for the past few months. If that changes and the bond market continues to strengthen then those funds will be reinvested sooner than later.

In Our Portfolios...

In Financial Planning...

The long-awaited Dept of Labor Fiduciary Rule was rejected by the Fifth Circuit Court of Appeals. I am not sure exactly what that means, but it does imply that it will be a while longer before the law goes into effect. The Fiduciary Rule requires stock brokers to begin serving as true fiduciaries to their clients, rather than meeting the current, minimum standard of recommending investments that are solely considered suitable.

This distinction of "suitability" vs. "fiduciary" can be summed up by the following analogies:

"That shirt fits you." (Suitability requirement met)
"That shirt fits you AND looks good on you." (Fiduciary requirement met)

The second analogy is the standard we are already held to by virtue of being a Registered Investment Adviser (RIA) firm. As such, this DOL Fiduciary Rule does not impact our firm like it will other brokerage firms. Nonetheless, it is important to be aware of what checks/balances are being implemented across the broader financial services industry.

What's New With Us?

The good news is I mowed our lawn for the first time this year. The bad news is the engine was steaming when I finished, so I need to figure out what is wrong and fix it. Hopefully this great weather we have had continues throughout this week.

Finally, if you need help prepping the investment-related details for your tax return, just ask. By now you should have all the materials you need or have the instructions that I sent to obtain your Scottrade tax information from TD Ameritrade.

Have a great week,

Brian E Betz, CFP®

Quite Possibly The Worst 401k Idea Ever

In The News...

After dropping off our daughter at day care this week I stopped by Walgreens to refill a prescription. There was just one problem...

The pharmacy didn't open until 9am.

I was not going to wait an hour so I continued on to the office. As I sat in traffic on Highway-99 I thought: there must be a better way. Six hours later, the solution has arrived.

Dr. Amazon: The Seattle logistics giant reported quarterly earnings on Thursday, which included news that Amazon has acquired pharmaceutical licenses to distribute wholesale prescription drugs in 12 states. This implies being able to order prescriptions and have them delivered right to your doorstep. On the earnings call Amazon was coy about its pharmaceutical intentions, but I assume their plans will disrupt the industry and spell trouble for the likes of Walgreens and CVS. Additionally, the move into health care introduces potentially millions of Baby Boomers to Amazon.

The worst 401k idea ever: In an effort to balance their tax reform package, Republicans have apparently discussed reducing the 401k contribution limit from the current $18,000 per-year to a fraction of that, reportedly $2,400 per-year. Their logic: If workers put less into their 401k plans, which provides tax-deferral, they will be forced to pay more in current income taxes year to year.

This is true. It is also incredibly stupid.

A 401k plan is as much about providing a vehicle that encourages good retirement savings behavior as it is about postponing taxes on contributions. The overwhelming majority of Americans do not save enough for retirement. I know this because I am in the trenches. I routinely see situations where people could save more and should save more, but do not. Most Americans consume what they do not save and it would be naive to think that those lost 401k contributions would seamlessly get funneled elsewhere (though we would do our best to help). Maybe the alternative will be the "MyRA" savings vehicle that President Obama unveiled in a State Of The Union speech a few years back. Remember that? Exactly, because it was a poorly engineered idea and has since been phased out.

If the 401k contribution cap is somehow cut by 86% ($15,600), I would likely advise most of you to scrap your 401k contributions and max-out a Traditional IRA instead. The maximum IRA contribution right now is $5,500 per-year ($6,500 if over age 50). For comparison, your employer would have to match 130% of your 401k contributions just to break-even with the IRA cap!

(max 401k contribution of $2,400) + ($2,400 x 130%) = $5,500

The good news is that this proposal appears to be dead-on-arrival, wisely shot down by President Trump (though it hasn't gone away completely). But the fact it was even muttered outside of a group brainstorm has me worried about whoever is in charge of tax reform.

In The Market...

The S&P 500 climbed +0.2% this past week. Let's look under the hood:

(price data via

This was a bumpier week for stocks than we have seen in a couple months, which is what I had said I expected in last week's blog. The S&P 500 was higher by week's end, but not before falling more than -1% midweek. The S&P extended its weekly winning streak to seven, which is rare territory.

While the 10 sectors were largely split between gainers and losers, this was a net-positive week for stocks, in my view. I do still think we'll see some flattening out in the weeks ahead, but it was good to see buyers step in and "buy the dip" (ourselves included) when stocks started to fade.

Earnings season seems to have lured buyers back into the fold too, particularly across the big tech names like Google, Facebook and Microsoft. Technology was the runaway winner, up +2.4% weekly. This was nice to see considering most client accounts owned the tech-sector fund (XLK) or the comparable Nasdaq-100 fund (QQQ) -- the former being tech-exclusive and the latter being tech-heavy. We sold XLK off Friday's gains. I still like the long-term outlook for technology but selling made sense in the near-term based on my analysis. This resulted in a nice gain for accounts that owned it.

In Our Opinion...

Have you ever heard a financial professional say that investing is about removing emotion?

I would hope so, because I have said it before. But that statement needs to be tweaked. Investing is about limiting emotion, not removing it. It is impossible to totally remove emotion when deciding when to invest, what to invest in or if it is time to sell. Here are a few examples:

  1. Loving your company too much. As a result, many people own a disproportionately high amount of company shares relative to other investments (primarily through their 401k plan, exercised stock options or restricted stock).
  2. Believing the market is "due to correct". Just because you think the market cannot continue at this pace means nothing. If you think we are on the brink of World War III or that the market is rigged, to each their own. But such sentiments are usually rooted in emotion, not rational analysis.
  3. Being quick to buy a falling stock or sell a rising one. I often say there is a reason an investment is rising or falling and you typically want to be on that side of the trend.
  4. Holding an investment due to special meaning. I see this often when investors hold a certain stock simply because a family member owned it for years. There is implicit confidence because someone you trust owned it. This is poor reasoning, in a vacuum, because the world changes so much generation to generation.

You may work for a great company, especially around Seattle or the Bay Area. But do you truly know both how your company will perform in the future as well as how investors will react to that performance? The answers are maybe and no.

Now, it is ironic in a sense. If you are heavily weighted in company stock it is probably due, in part, to company success. But at some point it makes sense to find some balance and diversify away from that one stock. I'm not saying sell everything or even sell the majority, but put down the kool-aid for a moment and assess the investment risk.

If you believe the market is going to fall or crash, why is that? Fear that we will see a repeat of 2008? Your political views? Anything can happen but it could be a long wait.

Just for fun, let's say it isn't. Let's say the market drops -10% tomorrow. Would you buy then? If not, how much would the market have to fall before you buy? If you are determined to wait until the next recession passes, you have to be right not once but twice. You first have to be right about the market falling in the near future. You then have to identify when the recovery begins, which could take weeks or months. Easier said than done, especially if your rationale stems from emotion rather than a disciplined investment process.

I would be lying if I said emotion never creeps into my decision-making process when choosing investments to buy or sell. But it is a fraction of thought as compared to leaning on our statistics-driven investment process.

In Our Portfolios...

Q&A/Financial Planning...

If you own an IRA or 401k and are approaching age 70, here are three letters to know: RMD.

RMD stands for "Required Minimum Distribution". It is the amount you must withdraw from your tax-deferred retirement accounts each year once you turn age 70 1/2 (don't ask why the half year applies -- the IRS is weird). The RMD rules are the government's way of saying that you have delayed paying taxes for too long and now must start recognizing your savings as taxable income.

How RMDs work: To keep it simple, you look up your age on one of two charts provided by the IRS. Your age will correlate to a "life expectancy factor" that you divide into the cumulative value of your tax-deferred 401k's and IRAs. The resulting figure is what you are required to withdraw and recognize as ordinary income in your tax return. Each year thereafter you look up your age and divide the new factor into your overall account balance. This life expectancy factor declines as you age past 70 because presumably your account balance is falling each year that you withdraw more and more funds.

The first year is unique! Take special notice when you turn 70.5 years old. Whenever that is, your first RMD must be taken by April 1st of the following year. Every year thereafter your RMD must be taken by Dec. 31st.

Why is the first RMD deadline April 1st rather than Dec. 31st? Likely because most people are unaware of the RMD laws so the IRS gives you a break in that first year. However, it gets a bit more complicated. Not only must you take that first RMD by April 1st, you must take the second RMD by Dec. 31 of that same year. Year 1 is the only year subject to taking two, separate RMD amounts.

Let's work through a quick example. Let's assume you turned age 70.5 on July 12, 2017. Here are the deadlines for taking your first few RMDs:

Year 1, taken by April 1, 2018 = (Balance on Dec. 31, 2016) / (Factor for age 70)
Year 2, taken by Dec 31, 2018 = (Balance on Dec. 31, 2017) / (Factor for age 71)
Year 3, taken by Dec 31, 2019 = (Balance on Dec. 31, 2018) / (Factor for age 72)
Year 4, taken by Dec 31, 2020 = (Balance on Dec. 31, 2019) / (Factor for age 73)

Note that this requires you to go back and look at what your account balance was at the previous year-end. If you need help calculating this, let me know.

What if I don't take my full RMD? This is where the IRS cleans up... You are penalized 50% of whatever amount you did not take but were supposed to take. So.... let's say your RMD is $10,000 and for whatever reason you only withdraw $2,000. The $8,000 missed RMD is penalized 50%, which means an additional $4,000 tax penalty! Now you see why the RMD rules are a big deal.

Can I avoid taking RMDs? The best way to avoid taking RMDs is to convert a portion (or all) of your tax-deferred funds into Roth IRA funds prior to age 70. RMD rules do not apply to Roth IRAs. Of course, whatever balance you convert to a Roth IRA must be recognized as income, so you are still paying Uncle Sam one way or another. However, by not being subject to RMDs it is less administrative hassle during retirement and it also means future tax-free growth because that is the biggest perk provided by a Roth IRA.

I often recommend doing Roth IRA conversions in chunks by doing a series of them as you near age 70. This spreads out the tax burden over multiple years. Or even better, if you anticipate a year or two where your household income will be unusually low, that would be a good time to convert to a Roth IRA because your income tax rate would be lower than normal.

Can I apply IRA withdrawals made prior to age 70 toward future RMDs? No.

Say I am 72 years old and I take MORE than my stated RMD for the year. Can I apply the excess amount toward next year's RMD? No.

What's New With Us?

Unfortunately we do not get any trick-or-treaters on our street, which I think is due to being on a steep hill. But we will be dressing up and going to a Halloween party this weekend.

Have a great weekend!

Betz Signature 250px.png

Brian E Betz, CFP®

"Black Monday" Turns 30 Years Old

In The News...

Thirty years ago, on Oct. 19th 1987, this happened:

(chart created via

Now known as "Black Monday", the S&P 500 fell -20% in one day. It remains the largest daily decline ever in the market - more than two times worse than any other day on record (for reference, the worst one-day decline during the 2008 recession was -9.0%). Following Black Monday it took roughly one year for stocks to recover those losses, also shown in the above chart.

Earnings season is here again. So far 17% of S&P 500 firms have reported third-quarter financial results. Among those 100 or so companies that have reported, profits are up +1.7% (vs. +3.0% estimate) and sales are up +5.1% (vs. +4.9% est.), according to data provider FactSet. Earnings kick into high gear this week, with many of the big boys reporting in the coming days. Google, Amazon and Microsoft all release results after-market on Thursday Oct. 26th.

Change at TD Ameritrade: Our custodian, TD Ameritrade, has revamped its commission-free ETF (fund) lineup. This brings good news, bad news and no news.

The good news is that TD has expanded its list of transaction-cost-free funds from 100 to 296. This means more investments to choose from that will cost us/you nothing to buy and sell. For context, when we buy or sell a fund (ETF) for your account that is not on this list, it is $6.95 to do so. We try to use funds from this list because it means there are zero trade costs, provided we hold the investment for the required 30-day minimum (which we most often do).

The bad news is that while TD has increased the overall number of funds to 296, it has removed certain funds from the list. This includes the S&P 500 index fund we use (IVV), along with most of the bond funds we use (AGG, LQD, JNK and TLT). We do not trade the bond funds nearly as often so in that sense it isn't a big deal. But it does mean I will need to research new, comparable commission-free bond funds and start using those instead when practical.

This is no news if you have $100,000 or more of invested, billable funds with us because we already pay for all trade costs if that is the case.

This is something I considered when deciding which custodian to choose upon leaving Scottrade. I had asked TD whether the list of commission-free funds could be reduced and the answer I got was a pretty vanilla corporate response. Honestly though, I could not expect much else. Changes happen and we roll with the punches. If this type of change were the deciding factor that kept me from choosing TD Ameritrade then our priorities were misguided when choosing a custodian. It's something we will adjust to and move forward.

In The Market...

The S&P 500 rose +0.9% this past week. Let's look under the hood:

(price data via

It was the 6th-straight weekly gain for the S&P 500 index, which has risen more than +4% over that time. The last time the S&P went seven-straight weeks? Dec. 2014. History suggests we should see a pullback here, though it may only be in the 2-3% loss range over the next few weeks. We'll most likely see the broad market flatten out over the next month or so. But seasonality still plays in the favor of the market rally continuing through December, as again, Q4 is typically the best three-month stretch of the year.

Meanwhile, bonds sold off as stocks continued to rise. Long-term interest rates look like they might be on the cusp of spiking higher, but have had a tough time doing so when they have reached this point (to be specific, whenever the 10-year Treasury bond yield has hit 2.4%). This is a tad concerning for our bond positions, but we will continue to monitor bond values with patience over the coming days and weeks before making any changes.

In Our Opinion...

Should you invest in Bitcoin?

A number of people have asked me this in recent weeks. The short answer is, I don't know. The longer answer requires researching and learning more about Bitcoin before feeling comfortable recommending it to anyone.

What is Bitcoin? Bitcoin is a digital currency, designed as an alternative form of payment to U.S. dollars or other foreign currencies. In effect, it provides a uniform currency across economies and eliminates the need for exchange rates. Bitcoin makes international buying/selling easier, but it is unregulated.

What is one Bitcoin worth? This is where it gets tricky, given its recent value surge. According to the NYSE Bitcoin Index, one year ago Bitcoin was worth roughly $600, six months ago it was worth $1,000, three months ago it was worth $4,000 and today it is worth $5,700. That is a +450% gain in just one year!

Bitcoin's rise may be the problem. Not because Bitcoin isn't "worth" $4,000 or $5,700 or whatever amount on a given market day. An investment is worth whatever buyers and sellers are willing to buy and sell for provided they have access to the same information. Bitcoin's value is a problem because it is supposed to be used as a currency and currencies should be somewhat stable. The extreme day-to-day price volatility makes it difficult to use in the exchange of goods and services, at least I would assume...

So... is it an asset or a currency? Given the increasing demand and rapid value growth, the result is that consumers buy Bitcoin as an investment and not for its original, intended use. This makes Bitcoin more of an asset and less of an actual currency, kind of like gold or other precious metals. This isn't to say that it won't become a mainstream currency, but for now it looks and smells a lot more like an investment/asset.

My biggest Bitcoin fear: When people start buying it for no other reason than they think they will get rich quick that makes it ripe for turning into a bubble. I suspect this is the case based on some of the inquiries I have gotten.

We could say the same thing about any given stock, but there is one key difference. For many investors, it is calming to be able to see the company they invest in and read things about what the company is doing. It emotionally helps validate the investment decision. Bitcoin, in comparison, is a bit of a black hole. Even if that is not truly the case, I know a few people who have blindly thrown money into Bitcoin without knowing anything about it. My fear is that the moment its value falls, investors will be quick to bail. Unlike stocks, which have lived more than a century and have a track record of rebounding from massive price declines, Bitcoin has yet to weather any real storms.

The Verdict: I need to dig a bit deeper on Bitcoin. For now I would refrain from buying it, but if you are interested let me know and we can discuss.

In Our Portfolios...

Q&A/Financial Planning...

Is it open enrollment time for benefits at your company?

If so, don't simply go through the motions with regards to your health care options and other available benefits, such as flexible spending accounts. Take the time to assess the differences between health care plan options, particularly if you anticipate any major medical expenses coming in 2018. Evaluate whether the tax-savings of the Health Savings Account (HSA) make it a worthier choice than the PPO, HMO or whatever other options are provided. We are happy to help if you have questions regarding your plan options.

What's New With Us?

I spent the weekend battling a stomach virus that I picked up from our daughter (who got it at day care), but I am all better now and ready for a great week.

Enjoy the week ahead,

Betz Signature 250px.png

Brian E Betz, CFP®

A New Richest Person In The World And A New Law In Seattle

In The News...

There was a new sheriff in town, for a moment.

His name: Jeff Bezos.

Bezos, the CEO of Amazon, had supplanted Bill Gates as the world's richest person following Amazon's earnings release. Amazon's share price rose and Bezos' net worth climbed to $92 billion, narrowly edging the Microsoft founder.

But... by the end of the week, the stock price fell back and Bezos is again #2 in the world.

It is only a matter of time though. Perhaps more impressive than Bezos' meteoric rise is the fact that Gates has been the world's richest man in 18 of the past 23 years (per CNBC). Not only that, but the fact that the two-richest people in the world reside in Seattle (within blocks of each other) is mind-boggling.

Drop that device! Washington State passed a new law that went into effect last week, barring mobile device use while driving. The biggest change, which bolsters the existing law preventing drivers from texting or holding a phone to their ear, is that you cannot even hold your electronic device while driving. On top of that, you cannot eat or do your makeup while driving, either.

The law obviously aims to reduce injuries stemming from collisions. I approve it. Traffic has become horrendous in Seattle as the population has exploded in the absence of additional roads/infrastructure. The traffic is bad enough, but it worsens when people pull out their phones the second they hit a red light or bumper-to-bumper traffic. This legislation will hopefully curb what has been a self-perpetuating problem. Even if traffic does not dramatically improve, it should reduce the number of crashes and injuries.

In The Market...

The S&P 500 was flat this past week. Let's look under the hood...

(price data via Yahoo Finance)

Stocks: Role-reversal occurred last week, as previously weak sectors such as Energy and Consumer Staples led and stronger sectors (Health Care, Tech) declined. The last two times we saw the S&P 500 stall on a weekly basis like this (In June and March) the following few weeks were flat-to-down, before again chugging higher. We'll see if history repeats itself here, entering what is seasonally the worst month of the year for stocks.

Below in the Portfolios section you will notice that we bought Financials (XLF) and sold Real Estate (VNQ). This might seem funny considering my comments last week about patience. Sometimes things happen quick and conviction rises. That was the case here. Simply put, I believe Financials have a better technical outlook, led by the fact that Financials are knocking on the door of all-time-highs.

Bonds: A down week for conservative bonds (TLT, LQD), but not terribly unexpected given the yo-yo behavior the past few weeks. High-yield bonds were positive on the week, which bodes well for stocks, I believe.

In Our Opinion...

On Wednesday the Federal Reserve opted to leave short-term interest rates unchanged, keeping the federal funds rate at 1.00%. It was the 5th time the Fed has met this year. It would have been the 3rd rate increase this year, had that decision been made.

I always say to ignore the noise around the Fed. The below image typifies why. A lot of investors have grown so obsessed with finding clues within Fed statements and meeting minutes/notes that there are now side-by-side comparisons of current vs. previous Fed statements. Not just general comparisons of tone or major economic issues, but comparing Fed statements word-for-word. Take a look...

(source: Michael Sheetz,

The infatuation with the Fed baffles me. It has cooled a bit since the Fed began raising rates in late-2015, but nonetheless, the 24-hour news cycle and continuing narrative that the Fed dictates market returns attracts clicks.

My advice remains the same: Know what is going on but do not let speculation over the direction of short-term interest rates guide your investment decisions.

In Our Portfolios...

(Note: Each client's account is uniquely managed, based on account size and risk tolerance. Your account will only own some, not all, of the investments bought and sold over time.)

Q&A/Financial Planning...

I was asked to present to a group of new parents (myself included) this past week, on topics most relevant to financial planning for kids. After soliciting feedback on topics they were most interested in, my talk centered on 3 main areas:

  1. College savings
  2. Life insurance
  3. Estate planning

I realize most of you are not new parents, but many of the concepts within these categories may still apply. In no particular order, here were some takeaways I thought worth sharing...

  • Are you helping save toward your grandchild's college savings? If you use a 529 plan (the most popular option) make sure you understand how your eventual account withdrawals will impact, and potentially hurt, your grandchild's financial aid eligibility.
  • If you are already saving for college, have you run the math to know that you are saving the right amount to afford the type of school and number of years you want to accommodate? Most do not, which often starts with ignoring the fact that college costs increase 4-5% per-year.
  • Are you nearing retirement and in need of life insurance? Check to see what coverage you currently have with your employer, or what coverage you can obtain prior to leaving. It will likely be much more expensive to obtain a new life insurance policy in your 60s than it would to continue your existing policy held through work ("portability" feature).
  • If you own a permanent life insurance policy, does it still meet your needs? Do you need less coverage? More? How much cash value is there within the policy?
  • If you have a Last Will And Testament in place, how recently have you reviewed it? For example, if family dynamics have changed and you would prefer a different Executor to carry out your wishes post-death, you should update it.
  • Do you own a Living Trust? Among other things, a trust helps certain assets seamlessly pass to the intended heir, bypassing what can be a lengthy probate process. It also helps keep your personal/financial matters more private. A trust layers on top of your Will.
  • Are estate taxes a concern? The federal limit allows a married couple to pass roughly $10 million tax-free to their heirs, but you may still owe state estate taxes. Right now the WA State exemption is $2.1 million, a much lower threshold than the federal exemption.

What's New With Us?

There are a number of exciting things I have in the works. Sorry for being vague about it, but once I have more detail I will share it.

Have a great weekend!


Brian E Betz, CFP®

When Heirs Cry: A Lesson Learned From The Death Of A Pop Icon

In The News...

When pop-icon Prince died in April 2016, he left behind a lot of things, totaling an estate valued at a whopping $200 million.

Unfortunately though, there is one thing he failed to leave behind...

A Will.

Nothing resembling an estate plan. Prince passed away without, it seems, having taken any estate planning measures whatsoever. The fallout has resulted in a long, drawn out series of court appearances and rulings to determine who his rightful heirs are, what they get and by how much. According to an article in Rolling Stone, a staggering 45 different people came forward as potential heirs, trying to stake a claim to his riches. Last week, the court finally deemed his sister and five other half-siblings as the rightful heirs to his estate.

How did this happen? Most of us know we need a Will, but do you actually know why? It isn't just about saying who gets what, it is equally about ensuring certain people do not get things. A Will safeguards against instances like Prince's heirs have experienced, where long-lost "cousins" are coming out of the woodwork following his untimely death.

What is "probate"? When you die your estate goes through probate, which is the process of proving the intentions in your Will. Probate can take quite a while (in Prince's case, well over a year) because the public is given an opportunity to stake claims against your estate. Said differently, probate is a period that allows anyone to challenge your Will.

(NOTE: In community property states, such as Washington and California, probate for married couples does not really play out until the second spouse passes away. Community property is defined as anything you or your spouse acquired during marriage (with some exceptions). This usually ends up being most of what a married couple owns. Community property is jointly owned, 50-50, between both spouses. When one spouse passes away, the surviving spouse instantly becomes 100% owner of the community property. So for the purpose of explaining the true purpose of an estate plan in a community property state, assume we're talking about a widow or someone single.)

It gets worse: The wealthier you are the more problematic these post-death issues become without proper planning. Assets are frozen while probate plays out, and worse, if you are really wealthy your heirs may owe a hefty estate tax bill (federal and state). Due to the 40% federal estate tax rate, nearly half of Prince's $200 million fortune will go to Uncle Sam (~$100 million!). Oh, and because of court appeals, his heirs may not be able to access his wealth for another year, if not longer.

The estate tax laws change every few years. Right now, with minimal planning, estate taxes are avoided if your married estate is less than $10 million. But that threshold is debated every presidential cycle and it wasn't long ago that the exemption threshold was only $1,000,000 (which sounds like a lot, but not so much when you add up all assets, including real estate). Also, state estate taxes may still apply (in Washington, anything above $2 million is subject to estate taxes).

More on this, including my recommendations, below in the Q&A/Financial Planning section.

In The Market...

The S&P 500 gained +1.4% this past week. Let's look under the hood...

(data source: Yahoo Finance)

Stocks: The S&P 500 did it. It finished the week above 2,400 for the first time ever (2,416 to be exact). This is a bullish development, although it may be met with some choppiness in the days ahead. Nine of the 10 stock sectors were higher this past week, led by Utilities (a current holding of ours). Only Energy was down and is the lone negative sector year-to-date.

Bonds: A pretty inspiring week for bonds considering the stock rally. Conservative bonds (treasuries, investment-grade) were only down minimally, which is better than I would have anticipated considering the S&P 500 was up more than 1%. High-yield bonds were up nicely, following the lead of the stock market.

We purchased a Utilities fund (XLU) a few weeks back, anticipating a potential rally. We may have gotten that this past week, as Utilities were up +2.5%. The following chart shows this breakout, following weeks of calm. (For reference, the last "candle" on the right, where the arrow points, represents this past week.)

(chart created in

This is certainly no prediction that Utilities will continue to gain, but we like the odds.

In Our Opinion...

Someone asked me this week if Amazon, whose share price is currently $995, might split its stock sometime soon.

In this instance it was not a loaded question, but oftentimes when I get this question it is. When a company "splits" its stock, anyone who owns it sees the number of shares they own double following the split. A lot of people are inclined to believe that they now have more money because they have more shares.


Yes, when a stock splits you double the number of shares you own. However, the share price is cut in half when it does. Effectively, you have the exact same value of stock that you had pre-split. For whatever reason, many people feel as though they become wealthier when their stock splits, when that is not the case.

Now, there is an argument that it helps the stock's future prospects because a split makes the per-share price more affordable for smaller investors to buy. In theory, this would increase demand, which would push the share price higher than if it had not split. There is some merit to this rationale but no real proof. Apple did a 7-for-1 split back in 2014 (7 times the shares received and price cut by one-seventh) and did that help its price moving forward? No one knows. The stock price sure was choppy for the following two years after that massive split.

Amazon may or may not choose to split its stock, but here is the thing to remember... If you have $1,000 and are interested in buying Amazon, purchasing one share for $1,000 is exactly the same thing as buying 5 shares for $200, 10 shares for $100 or 1,000 shares for $1. Do not let the absolute price alone dissuade you from buying a particular stock.

In Our Portfolios...

Stocks: No changes this week, but we are looking to add the Nasdaq 100 fund (QQQ) or S&P 500 fund (IVV) next week. The specific fund will be determined by account size.

Bonds: Investment-grade corporate bonds (LQD) were bought for certain accounts. Next week we will look to add high-yield bonds (JNK) to certain accounts that do not own them. I also continue to eye long-term Treasury bonds (TLT) as a potential buy, but am awaiting the price movement I would like to see before doing so. Some of this bond-jockeying comes after having sold our preferred stock position over the past two weeks.

Q&A / Financial Planning...

Revisiting the above story about Prince's estate, here are my recommendations:

  1. Establish a Will. If you already have a Will, update it if life circumstances have dramatically changed.
  2. Consider adding a Living Trust as well. The concept of a Trust is often associated with the ultra-wealthy, but that word association is wrong. A Trust adds an extra layer of security and peace-of-mind to your estate because assets in your Trust bypass the probate process. This means your heirs can inherit your property (real estate, stocks/bonds, cash, etc.) quickly post-death than if those assets pass through your Will and become subject to probate. A Trust is also a private record, whereas your Will is public record. I, for one, value the privacy a Trust provides.

There are other life decisions that basic estate planning can solve too, namely guardianship for your minor children and health-care directives for making those tough decisions that occur as you age. If your wealth is substantial enough, certain Trusts can help reduce the estate tax burden your heirs become responsible for paying.

Let me know if you have questions. I am clearly not an attorney, so do not misconstrue this as legal advice. With that said, I can certainly refer you to a qualified attorney who can assist you.

What's New With Us...

Most client accounts have transitioned over to TD Ameritrade. As we wind down our firm's relationship with Scottrade, do not worry about the empty, zero-dollar balance in the account(s) you left behind. I will handle that in the near future and let you know if anything is required.

Have a great, LONG weekend!

Betz Signature 250px.png

Brian E Betz, CFP®

Something To Know About Mortgage Refinancing And Something To Forget About Stock Prices

In The News...

Another month in the books in 2017.

The U.S. market, per the S&P 500, gained +1.0% in April. It was a nice bump higher considering stocks had been slipping over the six-week stretch from March 1st to mid-April. The last two weeks was a nice bounce that helped the market finish positive for the month.

Seattle housing laps the nation: Home prices rose slightly in February and by an average of +5.8% annually, according to the latest S&P/Case-Shiller housing report. Seattle continues to dominate real estate, where prices are up +2% month-over-month and +12% over the past year. Seattle housing growth has doubled the national average in recent months and maintains a sizable lead over the #2 housing market, Portland, where prices have risen +9.7% annually. Here is a complete city-by-city look at the 20 major markets:

(source: S&P/Case-Shiller Home Price Index)

Seattle has thrived thanks to the success of Amazon and Boeing, the reemergence of Microsoft and the ongoing technology migration. I would suspect that home values will level off a bit next year, meaning a slower pace of price increases. That would channel a pattern already experienced by San Francisco, where prices led the nation for a very long time before the pace of growth began to slow a bit in late-2016.

In The Market...

The S&P 500 gained +1.4% last week. Let's look under the hood...

(data source: Yahoo Finance)

Stocks: Stocks sprang higher to start last week and held those gains the rest of the way. Health Care, Technology and Consumer Discretionary led while only Real Estate lagged.

Bonds: High-yield bonds and preferred stock steadily rose again. Treasury bonds sold off, causing interest rates to jump. Despite last week's decline, I actually believe we may see interest rates fall again here in the next few weeks. If you are interested in knowing why, let me know -- I am happy to share my analysis.

Earnings bonanza! As of Friday, April 28th, roughly half (58%) of the 500 companies in the S&P index had reported quarterly results. Both revenue and earnings growth are the highest since 2011, as sales and profits are up +7.5% and +12.5%, respectively (per Factset). Sales and profits have risen across all 10 stock sectors, which reflects broad market strength rather than leadership by a few, concentrated sectors. Forty percent of S&P 500 companies have yet to report, so while impressive, these numbers are still preliminary.

In Our Opinion...

Stock price does not matter. Let me explain.

Amazon stock price recently surpassed $900. A lot of people would consider this expensive. To think that $900 would only get you one Amazon share does not feel as worthwhile as buying a bunch of shares of a much cheaper stock.

All else being equal though, price does not matter.

Instead of buying Amazon, let's say you use $900 to buy 10 shares of Kraft (currently priced around $90). If the price of Kraft goes up 10% to $99, will you earn more or less than if your one share of Amazon goes up by 10% from $900 to $990?


A 10% gain is a 10% gain, regardless if you own one share that costs $1,000 or 1,000 shares that cost $1 apiece. You will cumulatively earn the exact same dollar amount. I prefaced this with "all else being equal" because, clearly, no two companies are alike. Amazon and Kraft are entirely different businesses whose stock prices have separate supply and demand characteristics.

"Yeah, but what if the higher-priced stock splits and I double my shares?"

That is fine, but on paper there is no benefit to a stock split. Your equity does not change. The stock price proportionally adjusts to the size of the split.

2-for-1 split? The share price is cut in half.
3-for-1 split? The price is slashed by one-third.

There is some merit to believing that a lower stock price will enable and encourage more investors to buy the stock, which increases demand and subsequently its price. While that may be true in theory, it is pure speculation. If you buy a stock in hopes that it will split, or continue holding it for only that reason, you may want to rethink your decision.

We put zero emphasis on a stock's price in terms of the number of shares that can be purchased. Neither should you.

In Our Portfolios...

Stocks: No changes this week.

Bonds: We bought an investment-grade bond fund (LQD) for our conservative and moderate accounts.

Q&A/Financial Planning...

I am helping a client refinance their home mortgage, which will allow them to lower their interest rate, as well as lock in a fixed percentage and dispose of their current, variable rate.

We often think about refinancing as "saving money". On the surface this is true. If you go from a 5.0% 30-year fixed rate to a 4.3% 30-year fixed rate you are saving on interest once you get passed what I call the break-even date. Since it costs you something to refinance, I like to calculate the number of months it will take to make that money back through interest savings. I find the break-even date by dividing the interest dollars saved per-month into the cost to refinance.

But there is another thing to remember, especially the closer you are to retirement. If your new loan term is longer than the remaining years on your existing loan, your loan payoff date gets pushed out. This is quite common, as many people will be 5 or 10 years into their existing mortgage and choose to refinance into a 30-year fixed loan. It has been especially popular the past few years, as interest rates have fallen and homeowners have recovered equity post-2009.

Pushing out your payoff date is not a problem if you have the right plan. It is something to be aware of, particularly if your goal is to pay off your mortgage by a certain date. If you are refinancing then presumably your monthly payment is going down (unless you are taking on a shorter-term loan). You want to be responsible with the newfound "savings". Consider using that extra money to do one of the following:

  1. Make an additional, lump-sum mortgage payment each year
  2. Pay off other debts - either non-productive debts (e.g. credit cards) or those with higher interest rates compared to your mortgage
  3. Invest the extra cash to help save toward retirement, which also enables you to make a greater lump-sum mortgage payment in the future
  4. Sock it away as cash to build up a cushion for emergencies

Let me know if you have questions. Our friends at North Pacific Mortgage can help if you are interested in refinancing. I always advocate considering what options are available to you, but it is equally important to understand the ramifications before doing so.

What's New With Us?

We have begun setting up accounts at TD Ameritrade. Once most accounts are established, I will send you a second round of Docusign forms to e-sign. This will include the account transfer request, as well as a form for making contributions or distributions (if applicable). Let me know if you have any questions about this process. My goal is to have most accounts transferred by the end of May.

Have a great week!


Brian E Betz, CFP®