Big News From TD Ameritrade

Hi everyone,

**In this week’s blog below, we highlighted the fact that TD Ameritrade is cutting its trade costs from $6.95 to $0.00 on all exchange-traded funds (ETFs). We stated that trade costs would still apply for individual stocks. That is incorrect. Trade costs are going to zero dollars for individual stocks as well, which is great news.**

Click below to watch this week’s blog. Enjoy.

(video created in Camtasia)
(charts created in stockcharts.com)

Have a great week!

Brian E Betz, CFP®
Principal

Digging Into A Very Muddy Bond Market

Hi everyone,

Here is the rundown of this week’s blog…

  • Read Josh’s latest blog highlighting the 8 ways to put cash to work (0:20)

  • Unemployment holds at 3.6%, lowest in 50 years (0:48)

  • Largest weekly percentage gain for stocks this year (2:08)

  • What now for stocks? (3:30)

  • What bond yield curve “inversion” means and why it matters (5:05)

  • Portfolio activity (10:47)

(sources: Stockcharts.com, FRED) (Video created using Camtasia)

Have a great week!

Brian E Betz, CFP®
Principal

Unemployment Falls To A 50-Year Low

Hi everyone,

U.S. stocks climbed to fresh highs last week, but that was soon overshadowed by President Trump’s announcement on Sunday that tariffs on certain Chinese imports would be increased from 10% to 25% due to prolonged trade negotiations. The stock market fell sharply Sunday night and has opened the week in the red.

As you know, these types of events do not influence our investment decisions. It is foolish to react emotionally because you think that a current event will cause the market to behave a certain way. The fact that prices moved sharply is significant and it will influence our buying and selling decisions should current price trends shift, but it is too early to make that call.

Lowest unemployment in 50 years: The unemployment rate fell to 3.6% in April, which is the best/lowest rate since Dec. 1969. No commentary or opinion on this one. Here is a look at the unemployment trend dating back 70 years…

(source: U.S. Bureau of Labor Statistics)

No interest rate increase: The Federal Reserve left its benchmark lending rate (the “Federal Funds Rate”) unchanged at 2.5%. This is the rate that big banks use when they lend cash to one another. After raising interest rates four times in 2018, there have been no increases to the Fed Funds Rate in 2019. Rate hikes are likely to occur at some point in the future to prevent the economy from overheating, but the Fed has indicated it won’t budge interest rates anytime soon.

In The Market...

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

(price data via stockcharts.com)

As mentioned, the S&P index extended its record highs thanks to a small weekly gain. The S&P rose +4.1% in April, staying a perfect 4-for-4 in terms of its monthly winning streak to begin the year.

Despite the losses to start this new week, our stock market outlook remains neutral-to-positive. However, we are coming up on the Summer months, which tend to be flatter than the October thru March timeframe of the stock market year.

We shuffled some funds around, selling a S&P 500 index fund (SPLG) for a nice gain. We then took a partial position in a more Tech-heavy index fund (SPYG), which we aim to add to in the near future. On the bond side we reduced our Corporate bond fund position (SPLB) and still hold both High-Yield bonds (SHYG) and Treasury bonds (SPTL) for accounts that own bonds.

In Our Portfolios...


What's New With Us?

I am pleased to announce that Josh Baird has been promoted to Investment Adviser Representative! He will assume his new role starting in June and will be tasked with building his client base within our firm. If you happen to communicate with Josh in the coming days make sure to congratulate him on a position well earned.

Have a great week!

Brian E Betz, CFP®
Principal

A Massive Jobs Miss (In More Ways Than One)

Hi everyone,

Before I get to the flop that was the February unemployment numbers, here is a video we made recently that explains how we go about managing investment portfolios for clients. You likely know much of this already, but if not, hopefully it sheds light on our process.

Jobs numbers thud: Something funny happened on Friday. I was sifting through news on my way into the office and saw the headline showing that the economy had added 200,000 jobs in February. Not thinking much of it, I continued on with my morning.

A couple hours later I was grabbing coffee and noticed that this particular jobs report was getting more buzz than normal. So I looked at it again. Economists expected 180,000 jobs to be added and the actual number was +200,000 jobs.

Great, so it beat expectations. Still though, I didn’t understand the reaction.

Then I realized it…

It wasn’t 200,000 new jobs. It was 20,000 jobs.

A BIG difference… Except after a few minutes went by I noticed my reaction was the same as when I thought the number was just 20,000.

This sums up how economic data points influence our day-to-day work. The market and the economy are two different things. The market leads the economy, not the other way around. Even if that was not the case - let’s say the stock market did react to such data points - it would be impossible to base an investment process off of economic readings.

The irony is, the unemployment rate actually fell from 4.0% to 3.8%, as the number of people considered “not in the labor force” increased. When that number rises, those who are excluded from the labor force are removed from the unemployment calculation altogether. This helps lower the unemployment rate. If they were instead looking for work they would be considered unemployed.

In The Market...

The S&P 500 fell -2.1% last week. Let's look under the hood:

(price data via stockcharts.com)

Last week was the worst since mid-December and just the second down week of 2019. If you read my thoughts the past couple weeks this was not a total surprise, as there were multiple reasons to think that stock prices would stall. Here is essentially the same chart of the S&P 500 index from last week, highlighting three things:

  1. The aforementioned -2% weekly price decline.

  2. The falling trend in Relative Strength (RSI), reflecting possible weakening momentum.

  3. The falling percentage of stocks that are above their respective 200-day moving averages (54%), which also reflects possible weakening momentum.

(chart created via stockcharts.com)

Not shown in the above chart, the S&P 500 fell below its 200-day moving average as a collective whole. Normally that would be cause for concern, and to some degree it is. However, I think the odds favor a bounce from here rather than a continuation of losses in the weeks ahead. Without getting more technical, I believe that the market has digested much of this “corrective” behavior and is closer to starting a new rally than it is to deeper losses. I could be wrong there, and the picture is anything but clear, but that is my judgment.

We made a few moves last week, most notably shuffling our bond positions out of Long-term Treasury Bonds (SPTL) and over to Long-term Corporate Bonds (SPLB) for certain accounts. We also made some buys and sells among the individual stocks we own, for those accounts that own individual stocks. As always, feel free to ask if you have any questions.

In Our Portfolios...


What's New With Us?

Happy birthday to us! Our firm turned 7 years old as a Registered Investment Adviser (RIA) firm. It has been a great experience and want to thank you for trusting us to advise you and manage investments for you. Here is to many more great years ahead!

Have a great week!

Brian E Betz, CFP®
Principal

The First Company To Reach $1 Trillion In Value Is...

There were so many interesting stories and reports that popped up this past week that I am going to quickly share them all.

Apple hits $1 trillion. Following its quarterly earnings release, Apple became the first company to reach a $1 trillion valuation. This is based on its market capitalization, which is the share price multiplied by the number of shares outstanding. Amazon is the next-largest company, but still sits roughly $100 billion behind Apple, followed by Google ($850 billion) and Microsoft ($830b).

Man rigs McDonalds Monopoly game. An absolutely crazy story about a guy who rigged the McDonalds Monopoly contest back in the 1990s. It is a long article, but if you have 30 minutes it is worth reading. Not soon after this came out, Ben Affleck and Matt Damon announced they will turn it into a movie.

Another solid month for housing. Homes rose by +6.5% on average across the country in May. Seattle maintained its lead on the rest of the country, with prices rising +2.2% during the month and +13.6% in the past year. Las Vegas (up +12.6%) and San Francisco (up +10.9%) held on to the second and third spots. Here is a complete city-by-city look:

What the heck is "blockchain"? Have you been wondering what "blockchain" means and is all about? Here is a good explanation, in basic language.

Capital gains tax change? The Treasury Department is weighing a change to capital gains taxes that would radically alter how investors calculate long-term capital gains. The proposal involves allowing investors to increase their cost-basis by adjusting it for inflation.

Here is roughly how it would work. So let's suppose you invest in something today for $100,000 and sell it in 6 years for $250,000. The capital gain would be:

($250,000 - $100,000) = $150,000 capital gain

Under the proposed change, the "cost-basis" (essentially the purchase price) is adjusted higher for inflation. Let's say inflation is 3% per-year. Your cost basis would increase from $100,000 to roughly $120,000. This reduces your capital gain by $20,000. So, instead of owing taxes on $150,000, you would owe taxes on $130,000.

More bad news for Wells Fargo. Following up on what I wrote a couple weeks ago, more and more details are coming out about the bad business practices that have occurred at Wells in the past decade.

Federal Reserve says "no change". The Fed decided to hold its target lending rate, the Federal Funds Rate, at 1.75% following its most recent committee meeting. It is likely the Fed will raise rates once more before the end of the year, pending stock market behavior.

The Fed Funds rate is the benchmark that banks use to lend more to one another and it is ultimately the rate that trickles down to consumer banks that you and I use when investing into short-term CDs or money market funds.

Unemployment back below 4.0%. The unemployment rate improved to 3.9% in July as +157,000 hires were made during the month. Unemployment remains right near the previous lows from 2000. Take a look...

In The Market...

The S&P 500 gained +0.8% this past week. Let's look under the hood:

(price data via stockcharts.com)

The S&P index rose for the 5th-straight week, while most sectors finished in the green. Real Estate made a big move, rising more than +3.0%, while Energy was the main loser, down -1.8%. Both of our sector positions performed nicely, with Health Care (XLV) rising another +2.1% and Technology (XLK) rebounding +1.2%.

July gains: The S&P climbed +3.7% in July, marking the 4th-straight monthly gain. Health Care (XLV) was the biggest winner, up +6.6%, while Tech (XLK) gained a little more than +2%. Including the early-August gains, the S&P 500 is still -1.0% below the previous high.

No-cost funds? Fidelity announced it will be rolling out some no-cost index exchange-traded funds (ETFs) in the near future. Fund creators are steadily lowering their fees as there is more and more competition. This move by Fidelity to a zero-fee fund is indicative of that.

ETFs are quickly replacing more traditional mutual funds, due to their reduced costs and greater tax efficiency. Mutual fund providers historically charged anywhere between 1% and 3% to investors for the ability to invest in their funds. Those costs have been driven down as ETF competition has provided largely the same level of performance at a fraction of the cost. Eventually, mutual funds will be very niche and few in number.

For context, we use ETFs that are either very low-cost to own, or, relatively low cost but carry no costs to buy and sell. I am happy to share more if you are interested.

In Our Portfolios...


What's New With Us?

I spent much of the weekend trying to locate and destroy a yellow jacket nest that is forming near the ground next to our house. I have learned more about bees in the past 72 hours than I ever cared to know. If anyone has a tip, I'm all ears. So far I have won a couple battles, but the bees are ultimately winning this war.

Have a great week,

Brian E. Betz, CFP®
Principal

The Real Estate Reign Continues In Seattle

First, it was the renewed fear of a trade war with China. Then there was fear that Italy would leave the European Union (EU) following political instability. Then there was fear of a different trade war following tariffs placed on Canada, Mexico and the EU.

All three of these major developments happened this past week, and yet, U.S. stocks moved higher. Another reminder that there are news events and then there is how investors act. The two behave independent of one another and this was another example of that.

Despite the weekly gain stocks didn't exactly hit the cover off the ball. Overall the market is still moving mostly sideways, but it is optimistic how resiliently most equity sectors have held up lately. More on this below.

Two solid economic reports were buried in the news. Unemployment improved even further in May, falling from 3.9% to 3.8%. I won't spend time discussing this, but will refer you to what I wrote last month about unemployment dropping to a 50-year low if you want to see some historical perspective.

The other encouraging report, especially for us West Coasters, was the latest Case-Shiller housing numbers. Home values gained nearly +1.0% nationwide in March, rising in all 20 of the major cities tracked. Homes have appreciated by an average of +6.5% over the past year.

Seattle housing lapped most of the field yet again. Seattle real estate gained +3% in March and +13% over the past year. Las Vegas, where prices have risen +12.4% annually, may be primed to knock Seattle off its perch in the coming months based on the momentum building there. San Francisco is still in the picture as well, where homes are up +11.3% year-over-year.

Here is a city-by-city look at the latest housing numbers:

There is a two-month lag to these Case-Shiller numbers, so I will be interested to see if housing remains as hot into the Summer. I sense they will level off a bit more, as interest rates have risen and made financing more expensive. Speaking based on the areas I observe around Seattle, there appear to be fewer homes for sale than in years past. While reduced inventory is nothing new, I have noticed that homes have not been selling as fast compared to previous Spring seasons. Perhaps that is limited to my neighborhood or perhaps I'm mistaken, but that is my sense.

In The Market...

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

(price data via stockcharts.com)

At the sector level you will notice that returns were fairly split. Energy prices bounced back following a horrible prior week. Technology surged and continues to be the most attractive stock sector on all time-frames we analyze. The trade war and European tensions may have taken a toll on Financials, which were the worst-performing sector as interest rates dropped. 

The S&P 500 gained +2.4% in May but remains -5.0% below its all-time high. So there is still work to be done. I have been saying for the past few months that I felt a Tech rally would be needed in order to spark an entire U.S. stock market rally. If this past week is any indication we might see that very soon.

For now though the broad market is stuck in neutral. I had speculated that stocks would move sideways for a while coming off the big drop in February and unfortunately they have. We continue to own the two sectors that appear superior to the rest -- Tech and Consumer Discretionary.

In Our Portfolios...


What's New With Us?

Joshua Baird officially joins the team on Monday. I am excited for his arrival and the many contributions that he will bring to our firm in the future.

Have a great weekend,

Brian E. Betz, CFP®
Principal

Unemployment Falls To A 50-Year Low (Almost)

The unemployment rate fell to 3.9% in April, which is the lowest/best rate since exactly 18 years ago when it was 3.8% back in April 2000.

If that sounds impressive, consider this: If unemployment improves below 3.8% in the coming months it will be the lowest rate in nearly 50 years, dating back to 1969. Take a look:

This is a great trend. Employers are steadily hiring. A potentially better job market indicator than the standard unemployment calculation is another that the Dept of Labor calls the U-6 unemployment rate, which measures:

(Traditional unemployment rate) + (Those working part-time due to economic reasons) + (Those unemployed who have looked for a job sometime in the past 12 months but are not actively looking right now)

This under-employment rate is, by nature, historically higher because it includes more of the people who the DOL considers to have "dropped out of the labor force" under the traditional unemployment calculation. It currently sits at 7.8%. It is typically around 2x higher than the normal unemployment rate, which coincidentally is exactly what it is today. Take a look at the trend in this U-6 rate:

One thing that may jump out to you about the under-employment rate is that it is trending closer to the level where the previous two recessions occurred in 2002 and 2008. On both occasions it took some time for the stock market to tank from the point at which this U-6 rate fell to the mid-7% range, but it is still worth noting.

All of this is positive, although it is still unclear (at least to me) how much it matters that more and more people are leaving the labor force altogether. These people are not counted in any of the data. Another 400,000 people left the labor force in April, bringing the total number of working-age citizens not working to nearly 96 million. This is not a surprise given what a high percentage of our population is comprised of Baby Boomers, but it is still foggy whether the increase in non-workers is tolerable over the long run.

In The Market...

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

(price data via stockcharts.com)

While unemployment falls the stock market is not budging. The S&P 500 remains flat on a year-to-date basis and last week did little to suggest that a big move is coming in either direction. The S&P index continues to flirt dangerously with its 200-day moving average price, even falling below it on Thursday before staging a rally to end the week. Not to beat a dead horse, but a sustained drop below the 200-day average would likely spell problems for the overall market in the weeks that follow.

Sector-wise, most areas of the market were negative this past week. The lone runaway winner, Technology, was up +2.6%. This was nice to see given that Technology is the only stock sector we are invested in right now. Tech is the healthiest looking sector, with Energy just behind. We actually sold our Energy position (XLE), which might seem odd considering that just last week I mentioned looking to buy Energy for more accounts. This was a short-term decision to sell. I would like to repurchase Energy in the future, but some things need to sort out first.

To this end, we are sitting on cash balance right now. The exact cash allocation ranges from 20% to 50% of the account total, depending on the aggressiveness and size of the portfolio. This is a rarity given that I am continually scouring for investable options, but I do not feel comfortable pulling the trigger right now. Both the stock and bond markets have been stuck in neutral. We could overweight our position in Technology, but I am reluctant to do so given the risk associated with concentrating too heavily in one sector of the market.

Right now the name of the game is patience. Until market conditions improve and new rising trends emerge, we will continue to hold a cash position.

In Our Portfolios...


What's New With Us?

I have been in the process of interviewing candidates for our Executive Administrative Assistant role and will hopefully fill that position soon.

Have a great weekend,

Brian E. Betz, CFP®
Principal

Unemployment Hits An All-Century Low

In The News...

Employment and earnings both got a boost.

Jobs report: Unemployment fell to 4.1% in October, which is the lowest jobless rate since Dec. 2000. The monthly survey shows that +261,000 jobs were added in October, which may be skewed because the previous month's jobs data was artificially low due to Hurricane Harvey and Irma. It may be more appropriate to consider the average of the two months as a more representative hiring trend. Rather than +18,000 new hires on September and +261,000 in October, a blended gain of +140,000 in each month is more reasonable.

Here is a 30-year historical look at unemployment, which you can see has steadily declined since late-2010:

Earnings season ends: Ninety percent of companies in the S&P 500 have reported financial results for the 3rd quarter. Both sales and profits were better than expected, per the data provider FactSet, as revenues rose +5.8% (vs. +4.9% expected) and profits rose +6.1% (vs. +3.1%). The Energy sector was the runaway winner in both respects, while Materials and Technology were the next-best sectors. Utilities was the worst-performing sector and the only one that saw both sales and earnings decline during the quarter.

In The Market...

The S&P 500 dipped -0.14% this past week. Let's look under the hood:

(price data via stockcharts.com)

The weekly winning streak was finally snapped. The S&P 500 had risen in eight-straight weeks, which came to an end with the slight loss. Early on it looked like the streak would be extended to nine, but just as the S&P neared 2,600 it quickly reversed course on Thursday and Friday. I mentioned a few weeks back that 2,600 might become a point of resistance that prevents stocks from broadly rising much further in the near term. So far that is the case.

Digging beneath the surface, it was a strange week. Some of the growth-oriented sectors (Industrials, Materials) were down while the more defensive sectors (Consumer Staples, Utilities) gained. Normally this type of defensive investor behavior would set up well for bonds to rise too but that was not the case. Investment-grade bonds had an unusually bad week (down -1%) and high-yield bonds declined the most in 3 months.

When high-yield bonds start to fall that can often be a sign that stocks will soon follow suit. For now it does not look to be any more than a speed bump. In fact, I believe recent high-yield bond losses presents a buying opportunity, based on past price trends shown in the following chart for the fund, ANGL:

(chart created in stockcharts.com)

This is what is called a "fallen angel" high-yield bond fund. We purchased this for a number of client accounts. Rather than being comprised of companies with consistently sub-investment-grade debt status, this fund contains corporate debt issued by companies whose debt ratings were recently downgraded from investment-grade to high-yield (or "junk") status. In theory these companies are experiencing short-term financial issues and will soon again be upgraded to investment-grade status. That theoretical bet would mean greater demand for those bonds in the future, which plays in the favor of owning this fund over a more traditional high-yield bond fund that owns debt of companies that are perpetually junk status.

But purely looking at the historical price trends in the chart above, you will see how today's price (a) seems to follow a pattern of past instances (b, c, d). If such is the case, I would expect ANGL to rebound soon. If not, we will measure that risk and adjust accordingly.

In Our Opinion...

I have had discussions with a number of people recently about the tax benefits of donating before year-end. Assuming you itemize your taxes, the tax amount you stand to avoid by making a cash donation would be equal to:

(Donation amount) x (Tax rate the donation would have otherwise been assessed)

So, if you donate $1,000 and that money would have otherwise been taxed 25%, you avoided $250 in taxes.

I feel this is important because as much as many people want to be charitable, they overstate what they consider to be "savings". In the above example, instead of paying $250 in tax dollars to Uncle Sam, you would be donating $1,000 and avoiding $250 in taxes, which nets out to be $750 out-of-pocket. This is more than if you just paid $250 in taxes, but for whatever reason when it comes to the out-of-pocket amount (charity aside) the concept is misunderstood.

I get asked whether it would be smart to donate. That is really difficult to answer because we all have different motivations and requirements for donating. For me, I like to have personal involvement with an organization if I am going to make a significant donation. I also like to have some idea of how the money will be used. I donate out of goodwill rather than financial incentive. If there is tax incentive, great. If not, oh well. Again, to each their own.

I know some people who will write a check and are unconcerned with how the money is used. I find this most common among Baby Boomers. I know others who are more compelled to donate if they know precisely how the money will be used and receive updates on the cause. I find this more common among the under-30 crowd. Then there are those who fall somewhere in the middle, myself included, who want to have some personal involvement but do not need status updates or reassurance. These perceived generational differences were first highlighted to me by someone I know on the King County Advisory Board for the Salvation Army. Since he mentioned it I have since observed these same tendencies. Just some food for thought.

Charitable donations are timely right now because they must be made prior to Dec. 31 in order to qualify for 2017. The amount you can deduct will be limited, based on the type of organization you donate to and the type of asset you donate (e.g. cash vs. other property). Donations to public charities are capped at 50% of your adjusted gross income (AGI). Let me or Gale know if you would like more information, including help calculating the tax benefits.

In Our Portfolios...

Q&A/Financial Planning...

In last week's blog I overlooked one of the proposed benefits within the Republican tax plan. It involves 529 college savings plans. The proposed tax reform would improve 529 plans in two distinct ways:

  1. 529 savings could be used tax-free to pay for up to $10,000 in qualified expenses for either high school or elementary school. This is a valuable change considering the number of kids who attend private high schools.
  2. 529 accounts can be established when the baby is in the womb. Currently, 529 plans cannot be set up until the baby is born. This means up to an additional 8 months (or so) of extra time to save toward future education expenses. Time is your best friend when it comes to building wealth.

These are small wins, but wins nonetheless. As a refresher, the biggest benefit of setting up a 529 college savings plan is that the earnings grow tax-free if eventually used to pay for education expenses (i.e. tuition, room/board, supplies). This provides the best available vehicle for parents and grandparents to save for their kids and grandchildren. If you would like more information, including the pros/cons of the 529 plan relative to other savings options, let us know.

What's New With Us?

A quick reminder to provide us any address changes if you move. It is important that we maintain updated contact information for you on your account(s). If you started using a different email more than the one that this blog is delivered to, please update me in that regard as well.

Happy Veterans Day to those of you who served our country.

Have a great weekend!

Betz Signature 250px.png
 

Brian E Betz, CFP®
Principal

Hiring Falls But Employment Rises... Wait, What?!

In The News...

The number of U.S. jobs fell for the first time in 7 years. And it may not be a big deal.

First, the facts...

  • A total of -33,000 jobs were lost in September. This followed the prior three months where an average of +180,000 jobs per-month were added.
  • Despite this jobs decline, the unemployment rate fell from 4.4% to 4.2%.
  • The participation rate improved to 63.1%. This measures the number of those either working or looking for work as compared to the total working-age population.

How can this be? How could unemployment improve as jobs are being lost? Two reasons: Hurricanes Harvey and Irma. Those natural disasters threw off the census that measures the number of jobs added or lost for the month, called the Establishment Survey. In this poll, anyone unpaid for whatever week the 12th falls on is considered unemployed. While the Department of Labor claims the hurricanes skewed the -33,000 job-loss figure, the DOL does not believe it affected the unemployment figure of 4.2% or the participation rate, both of which are computed by the other employment census -- the Household Survey.

Household Survey: This census considers anyone with a job as employed for the month, even if they miss work the week the 12th falls on. I mention this because "Employment falls for the first time in 7 years!" will likely lead news headlines. Ironically, President Trump has long-called the Dept of Labor jobs numbers "false" or "phony", but this time the unemployment numbers may actually be misleading given the unique impact of two massive hurricanes striking within weeks of each other.

The eye of the beholder: It certainly does not help that we have dozens of different ways to interpret employment data. Depending on your bias you could find any nugget you want and use that data point to argue whether the jobs market is doing well or poorly. In my opinion, the participation rate matters as much as anything because it gives a complete view of employment relative to the total working-age population. Participation had been on the decline since early-2000, until making a positive turnaround roughly two years ago. This will be key as more Baby Boomers retire and younger Millennials and Generation Z'ers step into the workforce.

In The Market...

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

(price data via stockcharts.com)

STOCKS: The S&P 500 index climbed for the 4th-straight week and 6th time in the past seven weeks. So much for the volatile summer, huh? Since the blip in early-August the S&P has rallied +5.5% over the past seven weeks. Again everyone, this is bullish behavior. Eight of 10 sectors were higher last week, led by those we want to see leading amid a bull market -- Materials and Consumer Discretionary.

We sold our Financials sector fund (XLF) this past week for a nice gain of roughly 5%. Not all accounts owned this -- larger accounts and smaller, more aggressive accounts did. I still like Financials long-term but based on my analysis looking out over the next few weeks it made sense to take the gain and evaluate other options. One sector I am eyeing is Industrials (XLI).

BONDS: A down week for bonds, but not as bad as I would have expected given the S&P was up more than 1%. Of course, stocks and bonds are not negatively correlated anyway, even if they show tendencies from time to time. I don't read too much into this past week. For now I still favor the odds that bonds will rally in the coming weeks.

In Our Opinion...

It happened again.

As I sat down for lunch with someone I know through volunteer work, the first question I got was... "So when do you think the big correction will happen?"

I have written at-length about how I believe pessimism has fueled the stock market higher, though there are no data points to confirm/disprove that. Major market declines -- I am talking more than the -5% or -10% drops we see every year -- do not typically come until investors have become euphoric, or at the very least, complacent.

Looking at the data, stocks are technically "overbought" right now if you look at the Relative Strength Index (RSI). This measurement actually plays a central role in our analysis because it helps substantiate whether I believe a certain trend will continue or a new one is forming. RSI gauges price momentum by comparing the size of gains versus losses over a period of time. This is typically 14 periods, which could be 14 days, 14 weeks, 14 months, etc.

A RSI reading above 70.0 is considered "overbought". The S&P 500 is currently at a daily RSI reading of 78.0, a weekly RSI of 76.0 and a monthly RSI of 83.0. Sooooo, using the S&P as our barometer, the stock market is technically overbought on all three primary timeframes we use in our analysis. This would indicate that the market is overheated and due for a loss.

But it just isn't that straightforward. A stock can stay overbought for a very long time before ever realizing the sell-off that is expected. RSI is almost counter-intuitive in that way. Momentum breeds momentum until it doesn't, if that makes sense. Even when RSI falls back below 70.0 it often leads to greater demand among investors who want to buy the price dip, which in turn sends RSI higher as momentum picks back up.

To illustrate this, look at how the S&P 500 behave back in 2013 and then again during this current bull market rally. Notice that in 2013 the S&P ripped off another +30% gain after RSI crossed above 70.0 and was technically "overbought":

(chart created via stockcharts.com)

The opposite holds true too. When RSI for a particular investment falls below 30.0 it is considered "oversold" and due to rally. Similarly speaking, when this happens you have to be careful because the investment in-question can fall further and further and RSI can remain below 30.0 much longer than anticipated. This often occurs when investors unwittingly see that a stock has precipitously fallen in value and they buy it thinking they are getting a discount. More often than not that investment falls even further, resulting in unexpected losses for the investor who thought they were going to make some quick money.

The bottom line is that there is usually a reason an investment's value is rising or falling. If it is rising you should embrace the trend. If it is falling you do not want to be on the wrong side of that, hoping for a rebound. This is where trend-analysis matters, but I won't revisit that concept here.

In Our Portfolios...

Q&A/Financial Planning...

Will your income be lower than normal this year?
Are you 10 years or more away from retirement?
Are you retired and have enough savings to avoid dipping into your 401k or IRA?

If "yes" to any of these, you might want to consider converting a portion of your 401k or IRA account into a Roth IRA.

Why do a Roth IRA conversion? To lower your tax bill. Right now the money sitting in your 401k or IRA are pre-tax (unless you opted for the Roth 401k option), meaning you have deferred paying income taxes on those contributions and the earnings that stem from them until you retire. Eventually you will have to pay taxes as you withdraw money down the road. But if you convert now you will pay taxes today in exchange for never paying them again, no matter how large your account grows.

That last part is key, because I think we would agree that your account will be larger in the future than it is today (if you are still working). That means a much greater tax burden down the road. If you think your household income will be abnormally low this year, it might make sense to do a Roth IRA conversion so the funds can be subject to a lower tax bracket than they would be if you converted them next year.

But Brian, why not just wait until I am retired and withdraw money then? At that point I won't be working and my tax rate should be much lower anyway.

Fair point, but there are a few holes in that argument. First, remember what I just said about your savings being much greater by that point than they are today. Even if you are in a lower tax bracket in retirement, the gross amount of taxes you pay will cumulatively be greater than taking your tax medicine now on a smaller nest egg.

Also, by converting to a Roth IRA you avoid the Required Minimum Distribution (RMD) rules that kick in at age 70. The RMD rules mandate that you take out a certain amount from your tax-deferred 401k or IRA accounts each year until you die. This is the IRS' way of ensuring you eventually pay your taxes, rather than continuing to stockpile savings and deferring taxes even longer.

Though the RMD rules seem like a first-world problem to have, they can be annoying by forcing you to pay taxes. They can also make other parts of your life expensive. For instance, your Medicare Part B premiums increase as your income exceeds certain thresholds. RMD withdrawals will send your income higher and higher, particularly when you add in other sources like Social Security or pensions.

If you are nearing retirement, consider mapping out whether it makes sense to convert some portion of your tax-deferred savings. You can convert as little or as much as you want. For example, you could take a $50,000 IRA and convert $10,000 of it every year for 5 years, thus spreading out the tax burden across five tax returns. This may pose an administrative headache over time, but it is still an option.

One last thing: I want to make sure I distinguish a Roth IRA conversion from a Roth contribution. A Roth conversion is taking pre-tax ("tax-deferred") IRA funds already in existence and turning them into Roth IRA funds. A Roth contribution is making a deposit of cash into your Roth IRA. The maximum you can contribute is $5,500 if under age 50 and $6,500 if older, provided your household income is within IRS limitations.

Deadlines: The deadline to do a Roth IRA conversion for 2017 is Dec. 31st, so you have some time. The deadline for making a 2017 contribution is tax day of next year. Let us know if you are interested in either and we can help determine if it makes sense to do so.

What's New With Us?

I will be traveling for work down to San Jose and San Francisco later next week, but will be available as always.

Have a great weekend,

Betz Signature 250px.png
 

Brian E Betz, CFP®
Principal

Real Estate Remains The Hot Topic Heading Into August

In The News...

Another month of solid housing numbers...

Home prices rose by an average +1.0% in May, per the latest S&P/Case-Shiller index. Year-over-year, prices have gained +5.6%. Here are the 5 cities boasting the greatest annual price appreciation:

  1. Seattle (+13.3%)
  2. Portland (+8.9%)
  3. Denver (+7.9%)
  4. Dalllas (+7.8%)
  5. Detroit (+7.6%)

Here is a detailed, city-by-city look:

Seattle real estate not only led the nation again, but extended its lead. I won't rehash my previous thoughts on Seattle housing, but instead want to share some interesting facts from this latest report:

  • Since housing bottomed in Feb. 2012, San Francisco has seen the largest, cumulative rise in home prices.
  • The average U.S. city population has risen +4.6% since 2010.
  • Seattle population growth has more than tripled the national average in that same time, up +15.7%.
  • Portland and San Francisco populations rank #2 and #3 in growth, up +9.6% and +8.2%, respectively.
  • 64% of homes are occupied by their owners (rather than, say, rented out). San Francisco (36%), Seattle (46%) and Portland (52%) are well under that, reflecting higher levels of real estate investment in these areas.

In The Market...

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

(price data via Yahoo Finance)

Stocks: Financials and Utilities were the runaway winners this week, as returns were pretty split at the sector level. Energy was the biggest loser (down -1.2%), yet I actually like the outlook for Energy to rebound in the weeks ahead. Energy is down more than -11% year-to-date, but that may turn around soon.

Last week we purchased a Financials sector fund (XLF) for many client accounts. As mentioned, Financials were the top-performing sector this past week. More importantly though, the long-term view looks positive for Financial companies. This daily price chart shows why:

(chart created via stockcharts.com)

Price looks poised to move higher now that it has crossed above previous record highs. Also, Relative Strength (the chart above the main chart) is nicely above 60.0 and rising. Relative Strength, or "RSI", is a measure of price momentum. It measures the size of up-days versus the size of down-days for any investment in question. If the positive days are simply larger -- as has been the case with Financials -- the RSI number rises.

The concept of RSI might seem like common sense -- if price goes up so too does RSI, and visa-versa. But, what it really tells us is whether the price of an investment has risen or fallen too quickly. If that occurs it often means the price will reverse direction. We certainly don't want to be on the wrong end of that by buying an investment that has risen too quickly and is due to fall (a RSI reading above 70.0 is considered "overbought" and could fall).

Ultimately, RSI is central to our analysis because it helps validate price movements by helping us determine if a) there is a trend, and b) if the current trend will continue or change.

Bonds: A fairly good week for bonds, as Treasuries were up +1%. Both high-yields and investment-grade bonds were essentially flat.

In Our Opinion...

A quick public service announcement regarding the latest jobs numbers...

The unemployment rate fell to 4.3% in July. You will hear a lot about how that is a 16-year low, which is true if we ignore the fact that it was 4.3% just two months ago. I wrote about the implications of current employment levels back then, which you can read here.

The important thing to remember is that unemployment is a lagging indicator. I cannot stress that enough. The last two times unemployment fell into the low-4% range (1999, 2007) the market precipitously fell within 1 year or so. But even as I say that, 1 year or so, notice how vague that sounds.

  1. One year is a broad timeframe, much too long to fit within our investment decision-making process. Because...
  2. It could take longer than 1 year for a big market decline to materialize. We aren't going to sit on our hands waiting for something to occur. Also...
  3. Just because the markets receded when unemployment hit similar levels in the past does not guarantee it will happen again.

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...

Is Amazon coming for financial advisers?

I read an article in InvestmentNews about the prospect that Amazon might consider dipping its toes into the financial advisory world. I have considered this for some time now, as one mantra I believe is that technology is coming for your job, if it hasn't already.

The first generation of do-it-yourself technologies, dubbed "robo advisers", already exists. Robo advisers appeal to a certain market, typically investors under-30 who want the lowest-cost investment platform possible. I have partially written and scrapped many blog drafts on this topic because, while I have spent a lot of time researching robos, I have not done enough due diligence to fully judge.

Here is what I would say about robo advisers:

  • Like other do-it-yourself financial technologies, such as Turbo Tax or Rocket Mortgage, robos are rife with flaws (which I'm happy to share).
  • Over time though, they will improve like other first-generation technologies.
  • Robos serve a different purpose and type of client than we do. Are we more expensive? Yup, we are. But we also provide exponentially more value than they do, too.
  • The funny thing about the article is that it highlighted the threat Amazon could pose to financial advisers like us if Amazon chooses to venture into this space. Amazon actually poses much greater threat to current robo advisers than they do to firms like ours. At least for the next 20 years or so... 

What's New With Us?

Our trademark was approved to register/protect our company name, "Percension", with the U.S. Patent & Trademark Office! I want to thank my friend/attorney, Garrett Parks, of Polsinelli LLP for helping execute this effort for us over the past year. It feels good to safeguard our company name as it develops into a true brand over time.

Have a great weekend,

 

Brian E Betz, CFP®
Principal

Does The Lowest Unemployment Rate In 16 Years Make For A Healthy Stock Market?

In The News...

The last time the unemployment rate was this low I was still a month away from graduating high school...

Unemployment fell to 4.3% in May, the best since May 2001. Here is how rare that is looking back 40 years:

(chart created via stockcharts.com)

Good news, right? Sure. Now take a look at the same exact chart, but with stock market movement plotted on top of it (S&P 500 index, green line):

(chart created via stockcharts.com)

Notice that stocks plunged roughly 1 year from when unemployment fell to levels similar as we see today (the shaded timeframes). As with most charts I share, I created this one. There is also a reason I did.

I am not sure I believe it.

It is not that I do not think the market could fall, it is that I do not believe a potential market drop would be because of unemployment. Correlation does not equal causation. In fact, I could shift those shaded regions forward in time just a bit and argue that the market's declines in late-2000 and late-2007 were what caused the unemployment rate to go up.

The latter is what I actually believe.

I bring this up because I read/hear a lot about how the economy is going to send the market lower. I believe it is the other way around, if it were to happen. This is how I believe it works:

  1. Shareholders aggressively sell a company's stock (for whatever reason)
  2. A lower share price means the company is worth less
  3. Companies whose values fall are forced to cut costs
  4. The biggest expense for most companies is personnel, which means layoffs
  5. Repeat steps 1-4 across enough companies and, eventually, economic production falls and unemployment rises
  6. If GDP - the total output of goods and services in society - is negative for two-straight quarters, it is deemed an economic recession

That is how it works, or at least I think so. Do stock prices fall after companies announce layoffs? Absolutely. But most often those company stock prices have already been in decline. Two recent examples of this are Macy's and GoPro. You think their share prices plunged after a particular layoff announcement? Go look at their stock prices before then. Not good.

What to make of low unemployment: I would be lying if I said I was not paying attention. But it does not influence our investment decisions. When unemployment reached similar lows back in 2000 and 2007 stocks continued to rise for the better part of a year before any major decline. Today, stocks continue to rise to new highs, which is bullish.

They did it again: A bit to my surprise, the Federal Reserve raised interest rates for the second time in three months. I did not think this one would come so soon, but the Fed has done a good job of telegraphing its moves so it isn't a shock based on their previous clues.

This is significant in that it reflects the Fed's view of a more stable economy, namely with regards to hiring and inflation. This was the fourth time the Fed has increased its benchmark federal funds rate since it began doing so a year and a half ago. Here is a brief history of those rate hikes:

  • Dec 2015: Up from 0.00% to 0.25%
  • Dec 2016: Up from 0.25% to 0.50%
  • March 2017: Up from 0.50% to 0.75%
  • June 2017: Up from 0.75% to 1.00%

Despite its critics, the Fed has done what it said it would do, which is to gradually raise short-term interest rates as hiring improves and inflation steadies. I highly doubt there will be a third rate hike this year, but we shall see.

In The Market...

The S&P 500 rose +0.3% this past week. Let's look under the hood...

(price data from Yahoo Finance)

Stocks: Two weeks ago I referenced how I felt the Health Care sector might be on the verge of breaking out. Two weeks later, it looks like we might be getting just that. Health Care was the runaway winner this past week, up +3.6%. Take a look:

(chart created via stockcharts.com)

We purchased this Health Care fund (XLV) for most accounts early this past week. It is nice to see its price move higher and our analysis prove accurate. I normally refrain from citing such short-term periods, because typically a few days is not indicative of what is to come. In this case though it might be telling considering our prior analysis. Health Care appears to be roughly where the overall market was back in November -- just about to rally following over a year of stagnation. If this is the case, Health Care has room to run. No guarantees.

Bonds: Treasury bonds continued their ascent and long-term interest rates fell closer to pre-election lows. Investment-grade bonds similarly gained for the second-straight week while high-yield bonds were essentially flat. I remain bullish on the bond market, as I have for the past month or so.

In Our Opinion...

A client told me this week that they sold their shares of Tesla (TSLA). From here there are three possible future outcomes:

  1. Tesla stock goes up
  2. Tesla stock goes down
  3. Tesla stock goes flat

It is natural to second-guess a decision as time passes. I cannot tell you how many times I have heard someone say, "I wish I had not sold my Amazon stock!" or whatever stock that they sold for a gain but did so prematurely, in hindsight, because the share price went on to make new highs.

We have a tendency to look back on decisions like this to attain validation. If the share price falls after selling we feel validated, almost empowered. If it rises post-sale we feel regret. This behavior is instinctual. It is the same reason we check Zillow or Redfin to see what our house is worth. We want to get the best deal and make the right decisions.

Social media has magnified this too. It has fostered a culture where you can easily see the decisions others make and benchmark yours to theirs. But why? Worrying about the past does little good. If you learn something tangible from it that you can apply in the future, great. Otherwise, it is toxic. When it comes to investments, a few key tenets to remember:

  1. You cannot change the past. Learn if you can and move on.
  2. You can always repurchase the stock or fund you sold.
  3. There is an ocean of investment opportunity out there. Whether you make 10% off shares of Tesla or 10% off shares of Proctor & Gamble, what difference does it make? Unless you work for the company and benefit in other ways, the stocks or funds you own are just names on a statement.
  4. Just because someone else bought or sold something does not mean you should too.

In my years of doing this, I remove as much emotion from our investment process as possible. I try to stick to that process, no matter what, though I do try to refine it and improve it over time. In the same way I do not dwell on what might be perceived as mistakes made, I do not celebrate the wins, either.

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...

An annuity provider sent me an article last week entitled: "Have Indexed Annuities Become Too Complicated?"

I believe this is old news, which is easy for me to say being so entrenched in the financial services industry. So I can see how this might be news. In short, yes they have.

Annuities are a source of income for those who need a specific amount of money for a specific period of time in retirement. It is like creating a pension for yourself, except with your own money. The two main types of annuities are immediate and deferred.

Immediate annuity: You put up a chunk of money today in exchange for a stream of income that starts now. That stream of income could last your entire life, the collective lives of you and your spouse, a set number of years, etc. The longer your timeline, the smaller the annual payments.

Deferred annuity: You put up a chunk of money today, but your income stream does not begin until a point in the future (often 5 years, 7 years or 10 years later). While your money is committed, it ideally grows based on some investment strategy. The growth could be fixed (e.g. guaranteed 4% per-year) or it could vary (e.g. tied to the stock market). This is where it gets complicated, as investors seek for ways to grow their savings in the years just preceding retirement.

Once upon a time, certain annuities had appeal, particularly a hybrid known as "indexed" annuities. These became popular in the wake of the 2008 recession. Indexed annuities provide the ability to earn up to a certain amount, or "capped" return, which is tied to the performance of a particular index (typically the S&P 500). In exchange for having a cap on the potential gain each year, you are guaranteed against loss. The latter having big appeal following the financial crisis.

Indexed annuities were en vogue as investors wanted to invest but could not stomach any risk of loss. Because these annuities are not technically invested in the market - rather, credited interest based on market performance - they have been deemed insurance products. As popularity grew, more and more insurance companies created their own flavor of indexed annuity in an attempt to provide one more feature than the next. And because there are far more insurance reps than there are professional money managers, these annuities have had great distribution.

Today, most indexed annuities I see are over-engineered. Their multi-page brochures are chock-full of confusing terms, a multitude of hypothetical scenarios explaining how the annuity might perform and a ton of fine print that often buries key restrictions. It would take me an hour to fully understand the product and another two hours to properly explain it to you. That may be a bit overstated, but the point is, if I cannot easily understand an investment how could I expect you to?

Annuities, by and large, have a place for certain retirees who want to live off a known, fixed income. But they also face many headwinds. Just a few of them...

  • They can carry heavy commissions that are often concealed and go unknown until after you get the annuity, when it is too late
  • The market has a natural bias to rise over time. So while indexed annuities might look great coming off 2002 (tech bubble burst) or 2008 (financial crisis), what about all those non-recessionary years?
  • A lot of insurance reps (and annuity providers!) do not understand the annuities they sell. This often leads to clients making bad financial decisions, whether the insurance rep was intentionally misleading or just naive/uneducated.
  • If you change your mind, you will pay a sizable "surrender charge" to reclaim your money. This makes buyer's remorse costly. (In fairness, the surrender charge on a deferred annuity does typically go down over time.)
  • Most annuity owners do not need an annuity, they need proper financial planning that determines how they will generate retirement income and avoid running out of money. Oftentimes annuities provide an adequate solution for this, but not the best solution.

Whether an annuity is immediate, deferred, fixed, variable or indexed, it can have its place for the right type of client. But you must cut through the confusion to fully understand how it functions, the restrictions involved and how it ultimately fits you better than the next-best alternative.

What's New With Us?

I will be traveling to Ohio to visit family all of next week. It will be business as usual, working remotely, but my response time may not be as quick while I am away. I return on Monday, July 3rd. I hope your summer is starting out well!

Have a great weekend,

 

Brian E Betz, CFP®
Principal

Understanding The Jobs Numbers Is a Job In Itself

In The News...

I want to briefly touch on something I didn't have a chance to discuss last week: Jobs.

The latest report for April showed unemployment fell to 4.4%. That is the lowest in 10 years, since March 2007. What does it mean and is it significant?

It depends. The problem is that you can use a variety of jobs-related statistics to prove your argument, depending whether you think the job market is strong or weak. It is complicated because while the notion of having a job is straightforward (a lower unemployment rate seems obviously better), the context around the entire job market is not. Point being, it is not as simple as saying things are rosy because the official unemployment rate is the lowest in a decade.

A negative take: One big difference between today and 2007 lies in the participation rate. This is the ratio of working-age Americans either employed or actively-looking-for-work compared to the total working-age population. The following chart shows that while unemployment (BLUE line, right axis) is back at lows seen 10 and 20 years ago, labor participation (RED line, left axis) has fallen some -4% since 2007 and is currently at 63%. Take a look...

A -4% decline in participation may not sound like a lot, but when you consider there are 254 million working-age citizens in the U.S., 4% in either direction is significant.

A positive take: A stat that gets thrown around a lot is the number of people not in the labor force, currently 94 million. No doubt that number is high, but context is needed because it stems from the total pool of working-age Americans, which includes retirees. Baby Boomers (those born between 1946 and 1964) comprise nearly one-third of the U.S. population and are gradually retiring with each passing year. Those retirees are counted in the denominator of that 63% participation ratio. There are other caveats that may help explain the 94 million who "aren't working", but that is a big one.

The numbers that matter: Just as important to the growth in jobs is the growth in pay, shown below. Average hourly pay (BLUE line) is up +2.5% year-over-year, which is just a shade above the 2.2% inflation rate (RED line) that reflects the average cost increase of the things we buy every day.

Most telling from above is how wages have only inched higher despite the stark rise in the cost of goods and services. Look no further than the housing market to feel this impact. In a hot real estate market such as Seattle, it is difficult for many prospective homebuyers to keep pace with housing prices without wage increases. (I don't mean to oversimplify what it takes to buy a home or the savings process required. I am merely using a situational example to illustrate my theoretical point that wage growth and inflation are just as important as the number of people hired.)

All in all, the April jobs report was positive. But before praising or refuting the conditions of the labor market, realize that a lot of stats matter aside from the 4.4% headline figure that you see.

In The Market...

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

(data source: Yahoo Finance)

Stocks: Seven of the 10 equity sectors were down on the week. Technology led the way, as the exchange-traded fund "XLK" is at all-time highs, eclipsing the previous mark set in March 2000 (more on this below). On the flip side, Financials, Real Estate and Materials were each down more than -1.0%. For those who own the Real Estate fund (VNQ), I feel we are nearing a point where Real Estate could rebound in the near future, coming off of consecutive weekly declines.

Bonds: A bounce-back week for the bond market, which may be getting close to breaking out. Investment-grade bonds were the best of the bunch, which we own in most accounts. If stocks were to slide further, or if the S&P 500 has trouble getting over 2,400, that could mean good news for bonds.

In Our Opinion...

I mentioned that technology is breaking out to all-time highs. Here is a look at where the price of XLK stands in relation to the past 20 years:

(chart via stockcharts.com)

Back in February, when tech was some 6% below its current price, I was concerned about the rally stalling out near that previous record high from March 2000. Now that it has pushed above it, this investment looks promising.

One concern I do have is that the relative strength reading (RSI) is sitting up around 80.0 on this monthly chart. That is well above the "overbought" level of 70.0 that investors use as a predictor that a sell-off is near. There is no tried-and-true approach when comparing price with RSI, but we do so because RSI helps measure buying and selling momentum, which can help provide clues to potential trend changes.

I tend to think that a RSI reading above 70.0 is actually bullish, particularly if similar, past instances turned out well in the weeks that followed. Will this be the case here? I tend to think the rally has some legs in it. As a result, I have my eye on tech again as a potential buy.

In Our Portfolios...

Stocks: No changes this week.

Bonds: No changes this week.

Q&A / Financial Planning...

What is the difference between stock options and restricted stock?

Many of you benefit from owning stock options or restricted stock (or both), as your employer grants you company shares as an employee incentive. It is easy to overlook the details that differentiate options from restricted shares, so here is a high-level comparison of the two:


STOCK OPTIONS:

  • The right to buy shares at a predetermined price ("exercise price"). Not an obligation to buy.
  • Your reward is if the share price exceeds the exercise price on-or-after the vesting date. If so, your stock options are profitable.
  • Your risk is if the share price is lower than the exercise price on the vesting date. In this case, you earn nothing but lose nothing.
  • If you leave your employer and own vested shares that you have not purchased, you typically have 90 days to buy them post-departure.
  • Taxes vary depending on whether the shares are incentive (ISO) or non-incentive (non-ISO) stock options.
 

RESTRICTED STOCK:

  • Shares are simply given to you by your employer (no option to buy).
  • You must wait for the vesting date to actually own the shares (if you leave your employer prior to vesting, bye-bye shares!).
  • The value of the shares are taxed as ordinary income for the year in which the shares vest.
  • (Number of shares that vest) x (Share price on the vesting date) = Initial amount you are taxed on
  • If you hold the shares past the vesting date, the difference between the eventual sale price and the price on the vesting date is taxed as either a long-term or short-term capital gain (unless you elected 83b tax treatment).

    What's New With Us...

    If you have not received the account transfer request to move your account(s) from Scottrade to TD Ameritrade, you will over the weekend. Please be on the lookout for that form, which we would appreciate if you could e-sign once you get it. Call me if you have any questions.

    Have a great weekend!

     

    Brian E Betz, CFP®
    Principal