Tax Deduction Rules When Claiming Retirement Plan Contributions

Hi everyone,

With tax season on deck, here is a summary of the tax deductions you can claim relating to different types of retirement account contributions:

If you want to make Traditional IRA or Roth IRA contributions for 2018, you have until April 15th to do so. Contact us if you have questions. Also, the above video is available on the FAQ page of our site, under the drop-down Taxes.

In The Market...

The S&P 500 fell -0.3% last week. Let's look under the hood:

(price data via

The loss snaps the four-week winning streak stocks had been on. Six of the 10 stock sectors declined on the week. Real Estate and Technology led the way, while Energy, Consumer Staples and Health Care were each down more than -1.0%.

Stocks were resilient despite the weekly decline. Prices started the holiday shortened week lower, before rallying the rest of the way. Last week was constructive, yet there is still a ton of price resistance to contend with for the January gains to hold. So far they have, which often isn’t the case when stocks rally off of a big downward move. The best-case scenario right now is that stock prices move sideways for a couple weeks, before continuing their ascent.

Our bond positions performed well last week. We continue to own Treasury bonds and Corporate bonds in most accounts.

On the stock side, we were more active compared to prior weeks. We added a S&P 500 growth fund to many accounts, which is heavily weighted in companies in the Technology and Consumer Discretionary sectors. We also added to the cloud-computing Tech fund that most accounts already owned. The Tech sector has been leading this recent rally, specifically the Software and Semiconductor industries.

In Our Portfolios...

What's New With Us?

I painted the guest room in our house on Sunday, which was my highlight. That now makes roughly 75% of the interior of our house I have painted.

Have a great week!

Brian E Betz, CFP®

The Tax Planning Dates And Forms To Know

Hi everyone,

Your tax forms will be ready to view soon. Here are the dates when TD Ameritrade will release Form 1099s:

This week: Initial draft of your Form 1099 will be ready to view. We are happy to securely email you a copy of your 1099 when they come available. You should expect a 1099 if any of the following apply:

  • You own a taxable brokerage account

  • You made contributions into an IRA account

  • You took withdrawals from an IRA account

If you own an IRA but did not make any contributions or withdrawals, you will not have anything to report for tax purposes.

Feb. 7: A revised draft of your Form 1099 will be available. Revisions occur if there are tweaks, such as reclassifying dividends. The differences between the initial draft and revised draft are usually minimal, however I recommend waiting to file your taxes until you have the FINAL version of your 1099.

Feb. 13: A second revised version is available, if needed. Note that many 1099s will not need any revision. As such, this date and the Feb. 7th date may not apply.

You should receive notification by email when your tax forms are available to view. We are happy to email you your forms as well, so just ask. To learn more about which specific tax forms you should expect to receive, watch our brief video here:

In The Market...

The S&P 500 gained +2.9% last week. Let's look under the hood:

(price data via

 Stocks rallied for a 4th-straight week. The difference last week is that it came without much volatility. This is encouraging, no doubt. Every stock sector was positive except for Utilities, showing that investors preferred growth over safety last week. Further evidence of this was reflected in the long-term Treasury bond market, where bond values fell and rates rose.

Last week I highlighted a ton of potential price resistance that could keep stock prices from ascending. Those headwinds still exist, but a near-3% positive week was constructive toward more potential gains in the weeks ahead. It is still wise to be cautious though. It is common to see these types of rallies following a serious decline. It is rare to see prices rally in a straight line higher coming off the type of declines we saw in December, without choppiness along the way. Point being, I still expect more chop.

We added to our stock positions last week. Meanwhile, we are using stop-loss orders to try and protect against another sharp decline, should that occur. A stop-loss is an order to sell an investment if its price falls to a certain point. Our stop-loss orders have not triggered because prices have risen over the past few weeks. In response, we have raised the price of those stop-loss orders to capture recent gains.

We bought a Cloud-Computing fund (SKYY) that focuses on the software niche within the Technology sector. Some of the bigger components of this fund include Netflix, VMWare, Salesforce, Google, Cisco and Microsoft. The fund owns many of the names that are frequently showing up on our buy list. The software space looks as appetizing as any segment of the U.S. stock market right now, but of course software companies face the same macro risks that non-tech firms face.

In Our Portfolios...

What's New With Us?

A pretty typical weekend for me, consisting of soccer for my daughter, Home Depot and football. The market was closed today (MLK Day).

Have a great week!

Brian E Betz, CFP®

401k And IRA Contribution Limits Go Up For 2019

Hi everyone,

For the first time since 2013, the amount you can contribute into an IRA is increasing, from $5,500 to $6,000 ($7,000 if age 50 or older). The 401k contribution limit is increasing as well. The amount of pay you can defer into your 401k plan goes up from $18,500 to $19,000 ($25,000 if 50 or older). This chart Josh put together does a nice job detailing the 2019 contribution limits for various accounts, as well as the gift and estate tax exclusions. Take a look:

 A couple things to stress regarding IRA contributions:

  • Your ability to deduct your IRA contribution may be limited/restricted if you already contribute into a 401k plan. Check with us or your CPA before doing so.

  • The $6,000 limit covers all IRA plans you own. For instance, if you intend on making both Traditional IRA and Roth IRA contributions, you can split the $6,000 between accounts but your cumulative contribution cannot exceed $6,000. Meaning, you could not deposit $6,000 into one IRA and another $6,000 into a second IRA. But you could do $5,000 into one IRA and $1,000 into another IRA, or $3,000 into one and $3,000 into another, etc.

  • If you plan on making a Roth IRA contribution, we advise waiting until the calendar year is over to do so, rather than make recurring monthly contributions. This ensures that your income does not exceed the IRS limit that prevents you from making Roth contributions. You have until April 15th of the following year to make IRA contributions for the prior year, so there is plenty of time. You don’t want to risk funding a Roth IRA throughout the year, only to learn that your income was too high and have to scramble to get the funds out of the Roth to avoid paying a penalty.

  • The above IRA limits apply to 2019, not 2018. I emphasize this because if you plan on making IRA contributions for 2018 (which you have until April 15, 2019 to do), the contribution limit of $5,500 applies ($6,500 if age 50).

If you have questions on any of the above, just ask!

In The Market...

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

(price data via

 A 3rd-straight weekly gain for the S&P 500, which saw every major stock sector finish in the green. Is this the beginning of a much larger rally? Maybe, but I would not bet on it for one major reason.

Looking back over the previous market “corrections” that have occurred since the start of 2018, the S&P 500 found what is called price “support” each time it fell to 2,600 (the dashed line in the chart below). This means that stock prices rebounded when the S&P fell to this price on three separate occasions. These points in time are circled in the chart below.

(chart created in

The fourth time this occurred in December (last circle on the right), the price support at 2,600 did not hold and the S&P sharply fell another -10% below it in a matter of days. Since then, S&P index stocks have methodically worked their way back up toward 2,600, finishing last week just below that mark.

Now what?

Technically speaking, we might anticipate that 2,600 will become a “resistance” level that prevents stock prices from building on this current rally. It is common for a price-point to turn from support to resistance after the support is broken. This potential outcome is plain as day when looking at the above chart.

If this alone were the only headwind that existed I may be more optimistic, but the fact that many of the other statistical measures we care about are damaged fuels the stock market risk I believe is present heading into next week.

With that being said, the picture is better than it was last week, which was better than the week before that, which was better than the week before that… So there has been improvement. However, the market does not go up or down in a straight line, so it is most likely that further declines come before the S&P 500 eventually mounts a sustainable rally.

If we are right, then patience pays. If we are wrong, we will adjust accordingly by potentially adding to our stock positions.

We added a couple bond positions last week — a Corporate Bond fund (SPLB) and a Municipal Bond fund (PZA). The Muni bond fund was only added to taxable/brokerage accounts, as the tax-exempt nature of the bond interest paid by Muni bonds is of no benefit to IRA accounts. I believe the bond market has potential over the coming weeks and could potentially provide a hedge in the event that stock prices do fall lower from here. We shall see.

In Our Portfolios...

What's New With Us?

On my commute home from the office Friday I drove along the Highway-99 Viaduct one last time before it closed down for its pending demolition. As excited as I am for the new underground tunnel and a Seattle waterfront that may rival San Francisco’s Embarcadero, I’m going to miss the Viaduct. On a clear day, the view driving along it through downtown Seattle is been tough to beat.

On that note, our office hours will be more varied over the next few weeks until the new tunnel opens. Josh and I may potentially be working from home a bit more due to the massive increase in traffic that the Seattle Dept of Transportation anticipates. I am all about efficiency and sitting in a long, unnecessary commute is inefficient. Our business hours will remain the same, as will our effort and focus, so I expect no impactful change on our day-to-day operations. But I do want to give you the head’s up.

Have a great week!

Brian E Betz, CFP®

Deadlines To Make Retirement Plan Contributions

Hi everyone,

Quite a bit to cover this week. Let’s start with a change we are making next year, which will affect some of you.

We are going to conduct all client reviews during the first quarter, between January 1st and March 30th. If you already meet with us during this time period for our review then nothing has changed. However, if we typically meet outside of those months, expect that we will want to move up our review date in 2019. The exception would be if we met very recently then it does not make sense to meet so soon again. But contact us and we can discuss whether a review is necessary.

We are doing this for a couple reasons. First, it allows us to meet with you during tax season, which is a time when most of you are already thinking about your finances. Second, it helps us streamline our annual review process.

We have received numerous questions about retirement plan contribution deadlines. Here is a brief video we created explaining the different deadlines for various IRAs, as well as 401k plans.

There were a few interesting headlines to come out of last week. In no particular order:

  • Johnson & Johnson executives reportedly knew that the company’s baby powder contained asbestos for decades but failed to report it. J&J executives refuted the reporting done by Reuters, however J&J shares still dropped -10% Friday.

  • Apple (AAPL) plans to build a $1 billion plant in Austin, TX.

  • Amazon workers in New York are threatening to unionize due to what they say are poor labor conditions.

  • The European Central Bank (ECB), which is to Europe as the Federal Reserve is to the US., plans to end its years of bond-buying programs that have been used to boost the European economy. This is specifically known as “quantitative easing” (QE).

  • Meanwhile, the U.S. market fell to a 9-month low.

In The Market...

The S&P 500 fell -1.2% last week. Let's look under the hood:

(price data via

Another rough week for stocks. The S&P 500 finished at its lowest weekly close since March 2018. The S&P index is down -2.8% year-to-date with 2 weeks left.

As I write this the S&P is down roughly -6.5% in December. How rare is it that the S&P would be negative in December, let alone down -6%? In the past 30 years, the S&P has only been down 5 times in December. Very rare, indeed.

Entering this week the S&P faces three stiff challenges, as illustrated in the chart below. The first is that the price of the index has fallen back down to its previous low from February/March. The hallmark of a healthy market is seeing higher price-highs. Conversely, an unhealthy market is characterized by lower price-lows. In this case, if the S&P falls below that dashed line (#1) it is anything but healthy.

Take a look at this on the chart and then I’ll explain the other two problems.

(chart created via

Similarly, the other dashed line (#2) represents the long-term rising trend line that the S&P 500 has previously used to buoy itself and propel it higher. If that occurs again here, great! But if it doesn’t and the price falls below, look out.

Finally, and possibly most concerning, is that Relative Strength (RSI) is fading lower and lower (#3 above). We use this statistic to supplement our price analysis. It helps indicate whether there is strong or weak momentum behind the price moves that occur. Right now RSI is struggling, which is a problem amid falling stock prices. In fact, notice how RSI is lower today than it was back in Feb./March, a time when the S&P was roughly around the same price as it is today. Back then RSI was holding around 50, whereas today it is holding around 40. In short, we want RSI to be higher, not lower.

We made no major changes to client portfolios last week and continue to sit on a moderate cash balance.  In a rare move, we bought and sold a position within the same week. That position was Merck (MRK), which we bought/sold for accounts that own individual stocks.

It is never our intent to buy and sell this quickly, but given how flimsy the market is right now we put a stop-loss on the position, which triggered the sale when MRK fell to the specified price. Simply put, we took a stab and it didn’t work out. Nonetheless, we were out of the position at no gain or loss, so I am content.

In Our Portfolios...

What's New With Us?

On Saturday we took our daughter to a kids soccer class and then on Sunday we went out to Snoqualmie to ride a Christmas train. Both were fun. What wasn’t fun was watching the Seahawks lose a frustrating game against the 49ers.

Have a great week!

Brian E Betz, CFP®

Market Outlook Coming Off Its Worst Week In 7 Months

Hi everyone,

I have quite a bit to say about the rough week we just saw in the market. Before I do, take a look at our video explaining how a 401(k) rollover works…

In The Market...

The S&P 500 fell -4.1% last week. Let's look under the hood:

(price data via

The above table tells the story. Last week was the worst for stocks in seven months. Just when it looked like a new rally was underway — with the S&P index having risen nicely above its previous record high — investors had the rug pulled out from under them. The S&P is down roughly -6% from that peak, which begs the obvious question:

Now what?

Let’s start by revisiting the chart of the S&P 500 that I shared last week. My inclination seven days ago was that stocks were positioned to bounce coming off the prior week’s decline (see my notes in blue). This does not happen, as evidenced here:

(chart created via

The losses were quick and significant (see pink arrow). To the point that the S&P 500 fell to its 200-day moving average, which is that reddish shaded area. The 200-day moving average is a critical level for a lot of investors, including us. It is arguably the best reflection of the long-term price trend of any investment. In this case the S&P 500 index, which we believe most accurately represents the entire U.S. stock market.

It is no coincidence that the S&P finished the week right on top of its 200-day average because of how influential it is to so many investors. It often serves as a battleground statistical price-point between buyers and sellers, resulting in a supply/demand tug-of-war.

When the market is healthy, stock prices often bounce higher after falling to the 200-day moving average. When the market is unhealthy, stock prices can struggle to hold above the 200-day average, often falling considerably below it.

So right now, we want to see stock prices hold that 200-day moving average line. Additional losses could steepen fast if there isn’t a quick rally higher. Here are some of my thoughts, which hopefully provides insight into our process with the market entering this week at such a crucial level…

Near-term market outlook:

  • Best-case scenario right now is that we see stock prices rally back a few percentage points before getting hit with another wave of selling. This is how I thought the market would respond back in February after the S&P fell more than -10%. In that instance the market did exactly that — it rallied back, fell again, and ultimately took 3 months to regain its footing.

  • Worst-case scenario is that the losses are only beginning and that any rally attempts are quickly halted by more investors looking to sell.

Portfolio activity:

  • We selectively sold a couple investment positions last week, in effort to play a little defense. If stocks fall further in the next few weeks, playing defense will hopefully curb those losses. If stocks rally from here then we still have our other current holdings that should benefit from market appreciation.

  • If stocks prove that this past week was just a blip and quickly rally back to new highs, we will reinvest the cash from our recent sales and go back to being fully invested. I doubt this will be the case, but if it is, we will have zero regrets about having played some defense.

Bond market:

  • Normally we would look to the bond market as a potential hedge against stock market weakness. The problem right now is that the bond market is weak. Both short-term and long-term interest rates have been rising, which means bond values are falling. The lone bright spot (relatively speaking) has been high-yield bonds, which we continue to own.

  • In theory it is great to see higher interest rates, but not at the expense of a falling stock market. Rising rates and falling stock prices is a bad combination that we do not want to see because it means investors are pulling their money from both the stock and bond markets.

  • So, for now, rather than pivot and buy bonds, it is more likely we will sit tight in cash until either the stock and/or bond markets improve.

Additional thoughts:

  • We are unlikely to make wholesale portfolio changes. Part of the reason we mostly keep our investment sizes from 10% to 25% of the total portfolio is to give some flexibility when the market looks iffy as it does right now.

  • Most investors think of gains in terms of percentages earned and losses in terms of dollars lost. The larger your account the worse any short-term losses will feel, but stay calm. Focus on the longer-term view beyond the stretch of a few days.

  • I am sure that the media buzz will build in the coming days. What is written or said in the media has no bearing on how we manage money. You should not let it sway you, either.

  • Sometime soon there will be a nice buying opportunity. It could take a bit of time, but eventually it will come.

We are continuously assessing the long-term and short-term health of the market. We will stick to our process and make buying/selling decisions using our best judgment based on the data we employ.

If you have any questions, feel free to ask. Hopefully the above addresses some of the things you might be curious to know at this time.

In Our Portfolios...

Have a great week!

Brian E Betz, CFP®

Stock Market Finds It Tough To Stay On Top

We went from an uneventful week to one of the more memorable weeks of 2018.

The broad stock market has played out pretty much as I thought it might. The S&P 500 continued its ascent back up to its previous record high from late-January, only to reverse course and go backward Thursday and Friday. The area highlighted in the below chart shows how the S&P 500 got stuffed as it ran back up to that previous high:

(chart created via

It took six months but the S&P finally made it back to the peak. I figured it would have trouble staying on top if/when the S&P 500 flirted with that previous high and so far that has been the case. My reasoning was pretty simple: If investors were looking to sell the last time stock prices reached this point then they are likely to do so again. The question now becomes whether more losses are to come before the index potentially rallies to fresh highs. I suspect that stocks will be choppy in the next few weeks. It is too early to say how the market resolves itself from there.

We are in the midst of what has historically been the worst market stretch of the year. In fact, dating back to 1970, August is the only month in which the S&P 500 has registered a negative average return (down an average -0.6%). Even if you remove the particularly awful years of 2002 and 2008, where the S&P was down -11% and 9%, August still has a negative average return dating back those 50 years.

So we will see what happens as we roll into August. More on the market below.

In The Market...

The S&P 500 gained +0.6% this past week. Let's look under the hood:

(price data via

It sure does not feel like the broad market moved higher last week, considering how things ended. But it was a good week in the sense that the S&P index finished in the green. It was a tough week in that Technology -- which is one of our holdings and has been leading the market higher over the past two years -- was down -1.0%. Seven of the 10 stock sectors finished positive, despite the broad market losses to end the week.

We sold our Materials sector fund (XLB). That sector did not materialize as we thought when we bought it nearly two months ago. The price has been below its 200-day moving average, which is bad, among other price factors we do not like to see. We ultimately took a small loss on that position. The cash proceeds from that sale may be invested into the aforementioned Tech fund (XLK) for those accounts that do not already own it.

You will notice below that we purchased shares of Facebook (FB) for accounts that own individual stock. You may be aware that the Facebook share price fell roughly -20% following its quarterly earnings release. We bought Facebook after it announced earnings. Facebook had been on our radar for some time. The price drop is no doubt concerning for the long run, but in the near term it seems like an exaggerated loss. We will see if our opinion pays off.

In Our Portfolios...

What's New With Us?

I would encourage you to visit our Video Q&A web page. We will be posting short (2-3 minute) videos that answer many of the questions we routinely get. Here is one we recently put up about whether it makes sense to rollover your 401k to an IRA.

Have a great week,

Brian E. Betz, CFP®

Seattle Mayor's Future Idea Seems Light Years Behind

Seattle Mayor Jenny Durkan might be putting the cart before the horse when it comes to her new traffic proposal.

In an effort to reduce traffic congestion and car gas emissions that pollute the air, Durkan proposed tolling drivers who use Seattle city streets. The tolls would be implemented sometime before her term ends in 2021, with the intent of promoting carpooling and public transportation. To my knowledge this would be the first U.S. city to impose such a toll.

If it were to happen I suspect it would anger people for a short time before drivers reluctantly accept the change, much like the toll that was installed on the 520 bridge connecting Seattle to Bellevue and the greater Eastside. Speaking for myself, I don't like the 520 toll and try to avoid it, but if I need to take the bridge and pay the toll so be it.

My issue with Durkan's proposal is twofold: It seems premature and it masks the bigger problem that public transportation and infrastructure in-and-around Seattle cannot keep up with the population growth. The light rail that runs north-south currently only connects from the University of Washington to SeaTac airport, spanning a whopping 16 miles. Plans are in place to extend it to Lynnwood by 2024 (adding 12 miles) and to Everett by 2036. By the time either of those projects are realized, innovation and transportation needs will have evolved. That assumes these projects actually finish on time, unlike the Highway 99-Viaduct tunnel that was supposed to open in Dec. 2015 but will be lucky if completed this year.

Forbes recently ranked Seattle as the 2nd-fastest growing city in the U.S., which is nothing new given the tech boom we have seen over the past 10 years. The population will continue to expand and I'm afraid adding tolls to the existing list of projects is not going to fix traffic congestion without other, major transportation ideas.

If you do not live near Seattle or have a need to drive into Seattle then this is irrelevant to you. It just happened to be one piece of local news that caught my attention, mostly because the proposal was not accompanied by new infrastructure ideas to expand roadways. I am all for protecting the environment but with this toll proposal it sure seems like the city is not seeing the forest through the trees.

In The Market...

The S&P 500 fell -1.4% this past week. Let's look under the hood:

(price data via

Stocks have fallen in three of the past four weeks, continuing to flirt with danger. Just when it looked like stocks might spark a rally on Thursday the market broadly reversed course Friday to finish negative on the week. Every stock sector finished in the red. Bonds rallied late in the week but mostly finished negative too.

Two things continue to concern me. First, the S&P 500 is still in danger of falling below its 200-day moving average. This could set off mass selling the longer this lingers. On Monday the S&P index did close below its 200-day average, which had not happened in nearly two years. By week's end stock prices recovered somewhat, but remain hovered just above that critical level.

The second thing that concerns me when looking at a longer weekly timeline is how the rising trend has been broken. This is illustrated by the pink line in the following chart of the S&P 500:

(created in

Notice how stock prices bounced the previous three times they approached or hit that trend line. This is more reason I suspect that it will be a bumpy ride in the weeks ahead. We like to see trends, positive or negative, because it increases the confidence in the direction of the market. We would obviously prefer a positive trend, but at least if it is a negative one then we can pivot and act more defensively.

How we are investing right now: In light of how choppy and potentially bearish the market has been, I believe we are properly balanced relative to your risk tolerance and our process. On Thursday we added long-term Treasury bonds to a number of portfolios, mostly more conservative ones. That contradicts my long-term prognosis that interest rates will rise and bond values will fall, but in the short-term I feel it is the best hedge right now to offset additional stock market losses should they occur.

For more aggressive accounts it is likely we will hedge by holding a cash position, though we may sell Preferred Stock in order to purchase Treasury Bonds. I would like to use our existing cash position to buy a Technology sector fund (XLK), but due to the broader market concerns cited above we have held off.

All in all, patience is key right now given that I suspect more day-to-day volatility in the coming weeks. I am happy to explain which approach we are taking for your account(s). Let me know.

In Our Portfolios...

In Financial Planning...

If you want to make an IRA contribution for 2017, you have 1 week left to do so. The contribution must be made before tax day (April 17th) or else it will be considered a 2018 contribution. The maximum you can contribute is $5,500 (or $6,500 if age 50 or older). That can all go toward one IRA or it can be split between multiple IRAs, but the cumulative total cannot exceed that limit.

A few things to consider:

  • You may be prevented from making IRA contributions if your income was too high in 2017. There are multiple scenarios that could apply depending on your income, the type of contribution you want to make (tax-deferred vs. Roth) and whether you or your spouse already participate in a retirement plan through your employer. Contact me if you want the exact income limits to figure out whether you can contribute.
  • If you plan to make contributions in the future, do not make them monthly. I realize the desire to have a recurring savings behavior, but if your income ends up prohibiting you from contributing for 2018 (or future years) then you inevitably have to remove those contributions from your IRA. It is not worth the headache. Wait until year-end, see where your income winds up for the prior year and then make a lump-sum contribution if possible.
  • If you have the option of participating in your employer's plan, that is usually preferred over making IRA contributions because the contribution limits are much higher for 401k plans and Simple IRA plans (the most likely employer-provided options). You can invest up to $18,500 into a 401k plan and $12,500 into a Simple IRA plan.

What's New With Us?

It is a broken record by now, but if you received another welcome letter in the mail from TD Ameritrade or a letter referencing your account profile, just disregard. It's a long story but anything you receive from TD in that vein can be ignored. If you are unsure though, please ask.

If the weather holds up for a few days in a row I'm hoping to wash/clean our deck. If it's nice enough we might go down to Pike Place Market and (finally) ride the ferris wheel, which we have talked about doing for a while.

Enjoy your weekend,

Brian E Betz, CFP®

Are Trade War Fears A Ticking Time Bomb For The Market?

Last week was anything but boring.

U.S. stocks fell nearly -6% as trade war fears swelled and the Federal Reserve ushered in a new chairman. The sell-off started following the decision by the Fed to raise short-term interest rates.

Interest rates rising: The Fed increased the Federal Funds rate from 1.50% to 1.75%. This is the target lending rate that banks use to borrow money from one another in short stints (emphasis on short-term). It is the sixth rate hike since the Fed started increasing them back in Dec. 2015.

This was the first Fed committee meeting led by new Chair Jerome Powell, who recently replaced Janet Yellen. I liked his communication style regarding Fed policy, as he was more direct and less academic than Yellen or her predecessor, Ben Bernanke. But it remains to be seen whether the Fed's current aggressive approach to raising rates is the wisest path. Powell indicated there will be three more interest rate hikes in 2018, which sounds unrealistic to me if the stock market remains volatile.

Trade war looming? Meanwhile, President Trump placed tariffs on certain Chinese imports as retaliation for what has been deemed intellectual property theft. This comes two weeks after he issued tariffs on steel and aluminum imports from certain countries. This has led to fears of a global trade war - particularly between the U.S. and China - the two largest economies by a wide margin. Here are the five biggest economies based on gross domestic product (per the International Monetary Fund):

  1. United States: $19.4 trillion GDP
  2. China - $11.9 trillion GDP
  3. Japan - $4.9 trillion GDP
  4. Germany - $3.7 trillion GDP
  5. France - $2.6 trillion GDP

(GDP = value of all goods and services produced annually)

Actual tariffs or smoke and mirrors? There is one detail worth pointing out... the tariffs on steel and aluminum won't actually go into effect on the countries that matter until May 1st. Also, the Chinese tariffs effectively have a two-week grace period while the Trump administration announces which Chinese exports will be affected. So a lot can, and likely will, change. Until the tariffs actually go into effect, I can't view this as much more than a power-play for trade negotiations or political purposes.

When Fed Chair Powell was asked about the impact of tariffs and a potential trade war, he seemed relatively unconcerned. Powell said that it would not impact current conditions but that some Fed members voiced concern about the future impact. Huh? That makes no sense, but then again, maybe he knows something we don't. Perhaps he does not expect the tariffs to happen. Nonetheless, the prospect of tariffs and trade wars would have widespread implications should they take hold.

In The Market...

The S&P 500 fell -5.9% this past week. Let's look under the hood:


There is not much to say about last week's sector performance, other than it was bad. As we would expect, growth sectors like Technology and Financials got hit much harder than the likes of Utilities. Last week looked very similar to the stretch in early February when U.S. stocks fell -10% in the matter of a 10 days. The overall market finds itself in a familiar spot, with the S&P 500 finishing at almost an identical low and sitting right above its 200-day moving average. Take a look:

(created in

Notice how similar the two points in time are. The 200-day moving average is a pivotal threshold today as it was in February. We want the S&P index to hold above that pink line. We figured it would be a bumpy ride, but if the S&P breaks below the 200-day moving average it would likely set off a wave of additional selling among investors.

Reasons for optimism: Stocks have fallen -7% in the past two weeks, but two weeks does not make a trend. Until that February price-low is broken, which coincidentally means falling below the 200-day moving average as well, benefit of the doubt goes to the bull market.

Reasons for concern: Some of the momentum indicators we use in tandem with price movements are weakening. Relative Strength, which is the smaller chart above the price chart above, has fallen back to 30.0 level that presents serious risk. Also, only half of the stock prices that comprise the S&P 500 index are above their respective 200-day moving average prices. It is the lowest ratio of companies trading above their 200-day averages since March 2016. As mentioned already, if that worsens much more the bottom could fall out pretty quickly.

In Our Portfolios...

In Financial Planning...

This may be a good time to remind everyone that situations like this present an opportunity to invest during a market dip, provided you have a long-term time horizon in mind. If you are of the mindset like I am, which is that the market will rise in the long run, then these situations offer a chance to do things such as:

  • Increase your 401k contribution
  • Invest excess savings
  • Make a lump-sum contribution into a 529 college savings plan
  • Max-out your IRA contribution for the year (if eligible)

You might have to sit through an uncomfortable period should the market decline further, but eventually it will pay off if 100+ years of market history provides any proof.

What's New With Us?

In light of the past few days, I spent much of the weekend digging into the market and prepping for the week ahead. That is, when I wasn't recovering from the food poisoning I got at an event we attended on Saturday. All better now though!

Have a great week,

Brian E Betz, CFP®

The Truth About The Stock Market Decline And 7 Ways You Can Take Advantage Of It

Top Of Mind...

I have so much to say about the past two weeks that I really do not know where to begin. Let's start here: Which of the following statements sounds better to you?

"The U.S. stock market has plunged -7% in the past six days."


"Through the first six weeks of the year, the U.S. stock market is down -2%."

The second one, right? Both are factual, yet, your perception of the market will be largely framed by which facts you hear and how those facts about the market are editorialized to you. Context gets totally lost in an era where media outlets are competing for eyeballs and clicks. That does not mean that the past two weeks have been rosy. Far from it. But it also does not mean that financial armageddon is upon us, either.

Want to keep score? Stop counting points: On Monday when the major indexes fell roughly -4% apiece, here was a major headline...

The words "biggest one-day drop in history" is not only misleading, but it is factually incorrect. It was the worst day since August, 2011 when you look at the percentage change, which is the only calculation that matters. The number of points a particular index rises or falls is irrelevant because the stock market has gradually risen over its entire 100+ year history. This means that each additional point the Dow or S&P 500 rises or falls becomes less significant to whatever period you are measuring -- that day, that week, that month, etc.

The math is pretty simple. If the S&P 500 loses 100 points from a starting value of 1,500 then it has fallen -6.7%. Down the road if the S&P loses that same 100 points from a starting value of 2,500 then it has only fallen -4.0%, nearly 3% less severe of a loss. But of course you should not let facts and basic math get in the way of a good headline...

Yes, the past two weeks have been bad. But context is rarely given because, frankly, much of the financial media is lazy. My advice here would be to focus on percentages. Points are pointless.

What We Are Doing: I want to address how we are reacting to the recent market decline before sharing some options for you to consider.

Most client accounts carry a cash balance somewhere between 20% and 40%. These are funds we obviously want to reinvest, but given current conditions we are being patient. I said last week that the long-term stock market uptrend was not broken based on one week of activity. That uptrend is in more jeopardy now that the S&P encored with a -5% loss this past week.

We would like to invest the cash available into bonds, but the bond market has been in decline too (which is something I warned about a few weeks ago). The scenario that most concerned me after last week was one in which stocks continued to fall and interest rates spiked, meaning bond values fall too. Because that is exactly what has happened, patience is more important than rushing to try and pick when we think bond prices will bottom. Ideally it would be great if bond values were rising right now, as they often do when stocks fall. But they aren't. So cash is king for the moment.

What You Can Do: Here are 7 ways you can take the lemons the market has given you and make lemonade...

  1. If you have been sitting on cash because you wanted the market to dip before investing, is this what you have been waiting for? If not, how much further would it have to fall before you put new money to work? Whatever you do, do not freeze. If this sounds like you, be ready to act. You wanted the ball. You got the ball. You are wide open. Will you shoot?
  2. Along those lines, I read a terrific idea from industry adviser/pundit Josh Brown, who proposed something on his "Reformed Broker" blog. When market losses like this occur, pick a handful of blue-chip stocks that you think are great long-term investments to own. Pick a price that is well below whatever each one is currently at. Then, in your brokerage account (or IRA), set a limit order to buy them at those bargain prices you've identified. The bad news if those prices are eventually reached is that it likely means the overall market has tumbled even further from where it sits today. But the good news is that it means you likely acquired those shares at what could end up being massive discounts in the long run. Call it a potential hedge in the grand scheme of things.
  3. If your financial situation has improved and/or you are willing to take on more investment risk, call me. We can look at using the cash currently sitting in your account to purchase stock funds rather than bond funds when the time comes to reinvest. The idea being that stocks rally stronger than bonds do when both asset classes eventually rebound. Additionally, if you want to do my #2 suggestion above but do not have the desire to set up a brokerage account on your own, we can help you with this process of investing new funds. After all, it is what we do.
  4. Increase your 401k contributions. This year you can contribute up to $18,500 if you are under age 50 and $24,500 if age 50 or older. If the percentage you are deferring comes up short of those limits, consider increasing it.
  5. Make a lump-sum IRA contribution. You can contribute up to $5,500 for 2017 ($6,500 if age 50 or older), if done by April 17th. You can contribute the same amounts again for 2018. Just make sure you meet the requirements. I can easily help you figure out whether you qualify for a 2017 contribution.
  6. If you invest in a 529 college savings plan consider making a lump-sum contribution, particularly if your child or grandchild is not close to going to college.
  7. If none of these six ideas appeal to you despite having the cash or budget to do them, okay, fine... Increase your mortgage payment or other debt payments. Get those paid down quicker, especially if the interest rate associated with the loan is variable and subject to increase in the future. If what I have been saying about long-term interest rates continues to materialize, your loan could become more expensive to finance in the future.

If you have questions on any of the above, call me. More on the state of the market below.

In The Market...

The S&P 500 fell -5.0% this past week. Here is how the individual sectors performed:

(price data via

Another week of red across the board. Every sector was negative, and as mentioned above, the S&P index is now slightly negative year-to-date (down -2.0%). The bond market continued its slide lower as well, as long-term interest rates climbed higher and remain at highs not seen since late-2013. 

The S&P 500 did something it had not done since Oct. 2016, which is fall below its 200-day moving average price. The 200-day moving average is one of the pillars of our investment process. It is the best reflection of the long-term trend of the market.

We look for two things in regards to the 200-day moving average. 1) We want the price of any given investment to be above its 200-day average price; and 2) We would like the slope of the 200-day moving average itself to be rising over time. When both of these conditions are met, that is most ideal. Take a look at the current price of the S&P relative to its 200-day moving average (the pink line):

(created in

Also shown on here is a trend line that I believe is relevant (the blue, dashed line). The price of the S&P index closed this past week just above both this trend line and its 200-day moving average. That is crucial if the bleeding is going to stop.

If we take the same chart but blow up the timeframe from an 18-month view to a 3-year view, you will notice how the slope of the 200-day moving average (pink line) started rising back in June 2016. It is no coincidence that it was right around that time when I became bullish on the stock market again. You will also notice that by that time, the price of the S&P 500 had already been above the 200-day moving average for nearly three months. Here it is:

(created in

The positive view: Once both those conditions were met (the price climbed above a rising 200-day moving average) it was lift-off for the U.S. market. I would contend that the S&P 500 now having fallen to its 200-day moving average could set off a new rally as well. It is one of the primary points that we consider to be "price support", where the price can get buoyed and then begin to rise from there. So far that has been the case, as the S&P touched down to the 200-day moving average on Friday before bouncing higher to end the week.

The negative view: If the S&P 500 falls below its 200-day moving average, market conditions will become more problematic. Conditions are likely to be choppy for the foreseeable future anyway, but the risk-of-loss increases significantly if stock prices collectively break below their long-term moving average. Why? Because it would reflect that the collection of 500 companies that comprise the S&P, thus comprising the broad market. are moving lower in unison. And, because the 200-day moving average is a popular metric among professional investors, it would likely trigger more selling activity if the price does in fact break below it.

The bottom line: The rising price trend remains in tact, although it is hanging on by a thread heading into next week. I still look at this as a buying opportunity, but that could change very soon.

In Our Portfolios...

In Financial Planning...

I got this reminder the other day from the Social Security Administration (SSA). At first I quickly deleted it, before restoring it from my trash folder. You would not have received this notice unless you established an account on the Social Security site, which you can do here.

If you do not have an account on the SSA site, create one (it's free). I then encourage you to check your reported wage information for accuracy. It is NOT unusual for wage information to be incorrect. Since this wage data directly impacts the amount of future Social Security benefits you will receive (if still working), it is a good idea to keep records of your income each year and crosscheck it against what the SSA has on file.

What's New With Us?

I had a great meeting with our rep at State Street, one of the primary exchange-traded fund (ETF) providers we use. State Street is one of the largest ETF providers and the creator of the first-ever exchange-traded fund, its S&P 500 index fund "SPY" that it created back in 1993. If you want more info on the funds we use, why we use them and how we select them, let me know.

I will spend most of the weekend prepping for next week and working on our house. Fun times.

Have a great weekend,

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®

Home Prices Keep Rising. Homeownership Keeps Falling. Huh?

In The News...

How valuable is real estate exactly?

Like anything else, real estate is only as valuable as what someone else will pay for it. I mention this because I am helping a client of ours value their business, and in doing so, discussed the value of real estate in 5 to 10 years time (when they plan to sell their business). These business owners rent their building space, which they think could prevent them from getting top-dollar upon sale.

Hold on, I said. That may not be a bad thing. If they owned the property they would struggle to find a buyer to pay 100 cents on the dollar for it, as it is commercial space and the purchasing company would likely integrate them into their existing operations, conducted elsewhere. That was my initial reaction. My second reaction relates to this:

(image via YahooFinance)

Yes, that is a vending machine mounted into what used to be a department store entrance inside of a shopping mall. More and more retail spaces are vacating as consumers purchase online (Amazon, etc.). Our client does not operate within a mall, nor do they own a retail store. But that may not matter. Property owners will feel the impact as online expansion has a trickle-down effect. If you have heard the phrase "a rising tide lifts all ships", this is the opposite. Commercial real estate growth will slow as brick and mortar businesses shrink their collective footprint.

As a result, owning the property might present greater challenges to our client in the event of a sale, particularly if they have debt attached to it. So not only would they struggle to get full value for the property, but their equity at-sale would be further reduced by any residual mortgage debt (if present).

Seattle real estate leads the nation (again): Residential real estate holds steady. The latest Case-Shiller housing report shows home prices were up nearly +6% year-over-year, as of January-end. Seattle was tops among major U.S. cities, up an impressive +11.3% annually, which nearly doubled the national average. Take a look at the price breakdown by major market:

Where have all the homeowners gone? Despite the nice rebound in housing prices since the 2011 bottom, homeownership has not recovered with it. This next chart is confounding, as it shows the decline in homeowners, which started over a decade ago:

Only 64% of Americans own homes, down -6% since 2005 and rivaling lows not seen since the 1960s. I discuss why this might be in the Opinion section below.

In The Market...

The S&P 500 fell -0.2% last week. Let's look under the hood:

(data source: Yahoo Finance)

Since I didn't send out a weekly recap last week, I didn't get a chance to talk about quarter-end. The previous Friday was both March-end and the end of Q1. The first quarter was strong for stocks. Here are some highlights/takeaways from the first three months of 2017:

  • S&P 500 climbed nearly +6.0% in the first three months of 2017 (including dividends)
  • Nine of the 10 major stock sectors were positive in Q1 (Energy was negative)
  • Technology was the best-performing sector, up +10.7% (XLK)
  • Tech-heavy Nasdaq-100 index rose +12.0%, outperforming the S&P index
  • 79% of S&P 500 stocks were above their 200-day average price at quarter-end, which is bullish
  • Bonds were positive across the board, led by high-yield bonds and preferred stock
  • S&P was essentially flat in March, meaning all of the quarterly gains occurred in Jan/Feb.

That last point is important. A few weeks back I mentioned that the overall market might flatten out for a period of time and that is exactly what we have seen. Take a look at this chart of the S&P index and notice that since touching a value of 2,400 back on March 1st, the S&P 500 has not returned there since.

(chart via

More importantly, Relative Strength (RSI, the upper chart) has been falling. This is often a good leading indicator of future price. In this case, if RSI falls much further below 50.0 we likely will see stocks slide further in the near future. The long-term picture still looks bullish though, when looking out weeks and months. That is important because I believe it means investors are in "buy the dip" mode rather than "sell the rally" mode.

At the end of the quarter our primary stock holding is a Consumer Discretionary fund (XLY). We had previously held a Materials sector fund (XLB) up until two weeks ago. As a result, we hold a cash position across most accounts that we will look to reinvest in the near future.

In Our Opinion...

Continuing my earlier thoughts on real estate, how is it that home prices are rising but homeownership is not? Here a few reasons to consider:

  • We are evolving into a society of "renters" as much as "owners", whether by choice or by force. For example, 31% of people lease cars rather than buy them. This is up from 25% a few years prior.
  • The average worker changes jobs more frequently than ever, an average of 10 to 15 times in their career. This makes buying a home less appealing if the job change requires a geographical move.
  • Real estate prices have outpaced wage growth, making it more difficult to keep pace with home prices.
  • However, many prospective buyers simply have not saved enough to accommodate a 20% down payment, or an amount close to that.
  • Some people are still reluctant to buy due to fear that another housing crisis looms.
  • The average person gets married in their late-20s, as compared to Baby Boomers who wed in their early 20s. Marriage is the most common life event that precedes buying a home, which means there is a large pool of working 20-somethings who have yet to buy.

I'd be curious to know what you all think explains the rise in home prices and subsequent decline in ownership.

In Our Portfolios...

Stocks: We sold our Materials fund (XLB), which was owned within most client accounts. We will use the proceeds to most likely buy a Utilities fund (XLU) or a Nasdaq-100 index fund (QQQ).

Bonds: We sold a high-yield bond fund (ANGL) within accounts that owned it. We still own another high-yield bond fund (HYG) across certain accounts.

Q&A / Financial Planning...

This is your last week to make IRA contributions for 2016. If you wait past tax day you will lose the ability to contribute for last year, which matters if you want to deposit more than the following annual limits:

Under age 50: $5,500
Age 50 or older: $6,500

The annual limit applies across all IRAs you own, so while a 40-year-old could contribute $2,000 to one IRA and $3,500 to another, their combined contributions cannot exceed $5,500. However, if you already participate in a retirement plan through work beware of the tax deduction restrictions if you earn above a certain level. Contact Gale or myself if you have questions.

What's New With Us?

We will begin migrating accounts from Scottrade to TD Ameritrade this week. We will be in touch regarding the forms required. My hope is to make this a quick, seamless process. Again, I view this as a positive move for both you as clients and our firm as a whole.

Have a great week,


Brian E Betz, CFP®

A Trade War We Can Get Behind

In The News...

The dominoes fell nicely last week.

First it was Fidelity. Then Charles Schwab quickly followed suit. A day later TD Ameritrade did the same. One after another, the major investment custodians lowered their trading fees on stocks and exchange-traded funds (ETFs) last week, in the name of competition. Here are the changes:

Fidelity: Reduced from $8.00 to $5.00
Schwab: Reduced from $7.00 to $5.00
TD Ameritrade: Reduced from $10.00 to $7.00
Scottrade: No change, held at $7.00

Executing buy & sell orders for stocks has become more commoditized as technology evolves. This drives down costs, which is good news for investors. You may wonder why our custodian, Scottrade, did not move. It likely has to do with the pending sale to TD Ameritrade, which is set to close in September. That, and the fact that Scottrade is already competitive at $7.00 per-trade.

This is pretty good timing. As mentioned a few months back, I have been diligent, but patient, in evaluating which new custodian to use given the pending TDA-Scottrade deal. We have decided to go with TD Ameritrade and will begin that transition very soon. TDA was a top choice before news of this acquisition. I will contact each of you in the coming days to discuss what should be a seamless and secure account transition from Scottrade to TDA. There is no cost or tax implication related to this move. Paperwork should be minimal, with the option to be completed 100% electronically. I have vetted this process thoroughly and am very excited about the move.

Among the positives of choosing TD Ameritrade:

  • TDA offers a menu of commission-free ETFs, which means it costs nothing to buy or sell those funds. This is a nice perk considering we invest in some of the funds on that menu.
  • TDA is a growing firm, while already being one of the biggest players in the space.
  • Improved banking features, which will help those of you looking for a savings account-like solution. Banking that is smoothly integrated with your investment accounts.
  • An improved online platform (could be a personal preference).
  • At $7.00 per-trade, that cost is not the lowest in the industry but we can live with that for two reasons. First, on smaller accounts we do not excessively trade. Second, effective March 1st, we pay for all trading costs for clients who invest over $100,000. So the impact of an additional couple dollars per-trade is minimized on smaller accounts and is a non-issue altogether for larger ones.

Scottrade has been a fine home for us these past few years, but this is the right time to move. I will be in touch, but if you have any questions in the meantime, just call.

In The Market...

The S&P 500 index gained +0.7% last week. Let's look under the hood:

It marked the 6th-straight weekly gain for the S&P index. Turns out we did not see the follow-through across defensive sectors (i.e. Utilities) and bonds that I anticipated may happen. Not yet, anyway. Growth-oriented sectors regained the lead, while both dividend-heavy sectors and bonds fell. Overall, no major messages to take away from last week. I sense there will be more jockeying within sectors and a potential pause coming at the S&P 500 level, but overall the longer-term view looks good.

We currently hold Materials and Consumer Discretionary sectors across most client accounts. We remain invested in high-yield bonds and preferred stock as well. Those asset classes have been steady despite lagging last week, thanks in part to their nice dividend yields.

In Our Opinion...

I sold my car this past weekend. My Nissan and I had been together for 11 years. It is not practical with a baby on the way, so the break-up was inevitable. Our next car is to be determined, but I can say one thing for sure, as my advice:

Lease, don't buy.

I am not a "car person" so cars are not a big deal to me. I am a finance person and I believe the merits of leasing outweigh those of owning. The idea of owning a car outright may seem like the better financial decision. But I disagree.

In terms of overall wealth, few assets depreciate quicker than a car. The only way buying trumps leasing is if you own the car for a really long time or you'll exceed the annual mileage restrictions tied to the lease. If you are able to get 15-20 years and 150,000+ miles from a car, then owning may win out. But the depreciation that occurs over time is money you don't get back when you eventually sell, which is likely equivalent to what a lease payment would alternatively be. Lease terms typically cover major repairs or malfunctions, so you reduce your financial risk, and if you end up loving the car so much you wish to own it there is usually an option to buy when the lease ends.

What tips the scales for me is that I believe cars will become more obsolete in the years ahead. On-demand cab services and ride-sharing services will expand. In densely populated areas like Seattle, where the population is expanding but the infrastructure isn't, something has to give. If families merely cut back from three cars to two, or two cars to one, that will hurt auto demand. This means an even lower price for your used car when you eventually want to sell.

If you are in the market for a car, consider leasing. You can negotiate the terms just like you're buying. You can relieve yourself of the financial risk associated with major repairs. And, if you save money by leasing you can use those savings in other ways -- retirement, other debt payments, vacations, etc.

In Our Portfolios...

Stocks: We purchased a Consumer Discretionary fund (XLY) for accounts that did not already own it. We also purchased a Real Estate sector fund (VNQ) for certain accounts.

Bonds: No changes last week.

Q&A / Financial Planning...

Many of us grumble this time of year about how to reduce our tax bill. There is not much that can be done to affect 2016, so use this fuel to start planning for 2017. A few tax-deferral or tax-reduction options to consider:

  • Max-out your 401k contributions. Up to $18,000 if under age 50 or $24,000 if age 50 or older. I know many of you only contribute the percent your employer matches. Lets reevaluate.
  • Max-out your IRA. Up to $5,500 if under age 50 or $6,500 if age 50 or older. Lets first make sure you qualify, as you likely will be restricted from making tax-deductible IRA contributions if you also participate in your company 401k plan.
  • Exercise your stock options. If you have vested options that are in-the-money, meaning the current share price is greater than the strike price to buy them. Exercising starts the 1-year clock on capital gains, which could mean significant tax savings if you wait to sell one year (or more) from when you exercise.
  • Change your paycheck withholding. Reduce the number of exemptions you claim on your W-4. Fewer exemptions means more federal income taxes withheld, which increases your odds of owing less come tax season. (The lowest number you can claim is zero.)
  • Convert a portion of your IRA to a Roth IRA. Wait, what? I know, I know... Converting your IRA to a Roth means paying taxes on the amount/balance you convert, but this is a long-term play if the shoe fits. If your income will be lower in 2017 than most years, convert your IRA now while you can take advantage of a lower tax rate. That way your new Roth grows tax-free moving forward in perpetuity. Second, the Required Minimum Distribution (RMD) rules mandate that you withdraw a certain amount every year starting at age 70 1/2. This might force you to withdraw more than you need or want, increasing your tax bill against your will. RMD rules do not apply to Roth IRAs so you do not have to take anything out if you do not want (not to mention Roth withdrawals are tax-free if you do). Third, if you simply think your tax bracket will be the same (or higher) in retirement, consider a Roth conversion.

What's New With Us...

I covered the biggest news in the first part of this weekly blog. Again, if you have any questions regarding our choice of TD Ameritrade please call me. This is a positive move, following months of patience and due diligence on my end.

Have a great week,


Brian E Betz, CFP®