1918 was the year of the Spanish Flu that resulted in the death of an estimated 30 million people or 1.7% of the world’s population at the time. The Spanish Flu’s mortality rate is estimated to have been 20%, as opposed to less than 1% for a “normal” flu year. All continents on the globe were affected.

Covid-19

Now we have a panic about the “Coronavirus”, formally named Covid-19. It is still somewhat in the early stages, but the Covid-19 mortality rate in China, where it is most acute, seems to be about 2%. As of this writing, about 2,700 people have died so far from Covid-19. It is spreading to other areas, with Italy seemingly now a focus, but there are only a few cases here in the US thus far. Clearly Covid-19 is not nearly on the same scale (yet) as the Spanish Flu, and so we are not seeing 1918 all over again.

Global Economy

What is different now is that the global economy is much more interconnected. China is Ground Zero for Covid-19 and much of the world’s manufacturing occurs in China. So, the concern is that companies that manufacture or assemble in China will have difficulty with their supply chains, which could cause massive product or component shortages and disruption in the world economy. The stock market sell-off we are seeing this week is over fear in these supply-chain disruptions. Companies are worth a multiple of the earnings they generate, and if they are “exposed” to the Chinese supply chain, then their earnings can get “sick” without anyone actually contracting Covid-19. The other issue is China itself as a massive consumer. The Chinese economy has been driving worldwide economic growth for many years. Now with Covid-19, we have photos of Chinese city streets with nobody on them – no cars, no pedestrians. If China goes into a cocoon in an effort to stem Covid-19, its overall economic growth will be stunted, if not sent into a recession.

IMO

What Covid-19 presents is tremendous uncertainty about the future global economy. It is not so much that we will have pandemic deaths, but that Covid-19 will cause the economy and the engines of economic growth to become sick. If you are a short-term trader, then Covid-19 will dominate the news and will present headline risk for the near-term future. However, if you are a long-term buy-and-hold investor, especially one who owns a diversified portfolio of stocks, funds, and other asset classes, then think about the best case of later this year or next, when we are no longer concerned with Covid-19, and China and everyone else can get on with life. If so, then look at this Covid-19 correction as an opportunity to add to your positions. You may have to endure some bumps but eventually, current medicine will address Covid-19 and we will be on to the next crisis soon enough.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019 and it made significant changes to laws related to retirement accounts such as IRAs and 401k’s. Hopefully, you have one or more of these types of retirement accounts and so the SECURE Act will affect you or your heirs.

Three Main Provisions

The three most significant provisions of the SECURE Act are as follows:

• Creation of Multiple Employer Plans (MEPs), which allows multiple employers (probably small businesses) to band together to offer 401k plans to its employees.
• Required Minimum Distributions (RMDs) are changed from age 70.5 to age 72.
• “Stretch” retirement plan distributions are eliminated in most cases. When a child inherits their parent’s retirement account, the child must take distributions over a 10 year period instead of over the remaining life expectancy of the heir.

MEPs

MEPs are good because they should incent employers to offer retirement account benefits to their employees in a cost-efficient manner. Rather than doing all of the paperwork themselves, by joining a MEP, the employer can save on back-office paperwork as well as potentially on the cost by joining a group that is offering a MEP. It’s not like the employer needs to reach out to other employers and take the initiative to start the MEP. Instead, it is likely that the impetus to start the MEP will come from the custodian or investment manager, meaning that the employer who throws in with the MEP may not know who the other employers in the MEP are. The benefit is to the employees, including potentially the small business owner itself, because one can save a lot more for retirement each year in a 401k than they can in an IRA, plus there is the potential for employer contributions in addition to the employee’s savings. With the demise of traditional defined-benefit pension plans in the private sector workforce, the Government is attempting to incent workers to save for retirement on their own, and that is a good thing for everyone.

RMDs

If you are already subject to RMD under the old law (age 70.5), then you will continue to be subject to that law’s RMD. But if you don’t turn 70.5 until this year or thereafter, you will be subject to the new law which requires minimum distributions of retirement accounts starting at age 72. The objective is to ensure that the government gets its money while at the same time helping to ensure that people have enough money when they live to be really, really old.

Death of the Stretch

Other financial planners are calling it the “death of the stretch”. If you are a “Designated Beneficiary”, which means just what it says (the beneficiary so designated in the decedent’s retirement plan documentation), you must take a full distribution of the decedent’s retirement plan within 10 years. The exception is if you are an “Eligible Designated Beneficiary”, including the following: Spouse, Disabled Person, Chronically Ill, A Beneficiary not more than 10 years younger, or a minor child. Eligible DB’s will still have the ability (but not the obligation) to stretch their inherited retirement account over their own life expectancy.

The rationale behind the “death of the stretch” is that the government wants the money that it considers it’s own. This all has to do with Traditional IRA and 401k accounts. Remember, if you have a Traditional retirement account, you made your contributions to that account pre-tax, and when you withdraw money from that account when you are old enough to do so, your withdrawal is taxed at ordinary income rates. By shortening the time period by which an heir can withdraw from their inherited accounts, it also shortens the time by which the government gets its tax money. 10 years is still a long time over which one can withdraw inherited retirement money.

IMO

The MEP provision will be particularly helpful to small businesses that don’t already have a 401k plan, and it could also be helpful to investment managers (such as yours truly) who want to set up MEP plans in an effort to grow their assets under management. If all of this piques your interest, please contact me so that I might help you out.

There is a new category of criminal that is emerging that merits the “Special Place In Hell” award for the most heinous offenders. Today, if you have a phone, old-fashioned dial-up landline or modern smartphone, you will get robocalls likely every day. If you are younger (meaning pre-Social Security- eligible), you probably know enough not to fall for the scam and hang up or not to answer the phone in the first place. However, think about older people with cognitive impairment, or just a little impaired judgment. You likely know someone close to you who is impaired to some degree. How well do you think that person can differentiate between a scam caller and someone who really needs their help? And, how vulnerable do you think that person is to losing their money and/or their identity to a scam caller?

Elder Abuse

There are many forms of Elder Abuse but elders getting sucked into a scam counts as one of the worst, soulless crimes that I can think of. Google “robocalls elder abuse” and read what comes up:

• 48 Billion Robocalls made in 2018 (Coast News)
• Retirees Afraid To Answer Their Phones (Washington Post)
• $488 Million Lost in 2018 (Washington Post)
• Oncology nurse loses $340,000 through a scam (Wall Street Journal)

It goes on and on. A popular scam is “Tech Support”, which really preys on elders because they aren’t necessarily as tech-savvy as are younger people. For me personally, every once in a while I get many calls right in a row from “Apple Tech Support”. Their persistence makes it sound real, but it is not. Imagine the same “Apple Tech Support” scam calling an elder over and over again until they give in to the scam? Like I said, A Special Place In Hell.

United States of America

Pundits say that the politics of the USA are hopelessly divided. I disagree because almost everyone agrees that robocalls are an evil nuisance. The good news is that politicians agree and are trying to do something. In late 2019, both houses of Congress passed the TRACED Act (Telephone Robocall Abuse Criminal Enforcement and Deterrence). It gives law enforcement a longer statute of limitations to enforce robocall fraud cases in an effort to prod the telephone carriers to self-police. The bad news is that it is unlikely to be fully effective. The Do Not Call Registry has helped some, and this new TRACED Act may help more, but don’t expect robocall scams to end any time soon, and especially don’t expect elder abuse through robocalls to end because elders are the lowest-hanging fruit for scammers.

IMO

If one of the current candidates for President ran on a platform of ending robocalls and prosecuting elder abuse claims, they would win in a landslide. Unfortunately, it would be an empty campaign promise because the law allows parties to make calls and it is difficult to prove a scam before it happens. Also, the scammers protect themselves and are difficult to nab. If you don’t already detest scam robocallers enough, the next time you receive such a call, think about what would happen if this same caller contacted an elder that you know and are close to, perhaps your own parent or grandparent, and attempted to scam them. What would you be tempted to do to that robocaller? Robocaller scams are elder abuse and are a very significant financial planning issue as well as an elder care and law enforcement issue.

Interest rates remain low, and the yield curve remains flat. As I write this, the 10 Year US Treasury yield is about 1.56% and the 2 Year is 1.37%. While they are not inverted, there is speculation that the rates might invert soon. Sluggish worldwide economic growth and particularly uncertain economic growth in China due to Coronavirus are cited as reasons for continued low rates.

Borrower or Lender?

Low rates are great if you are a borrower. If you are looking to buy or refinance a house or condo, mortgage rates are very favorable. If you are in the market for a new vehicle, Toyota, for one, is offering 0% interest rate loans. However, if you are a lender, meaning you are looking to purchase bonds from the US Government or from any other lender or bond issuer, low rates mean that you won’t get a whopping return for the money you lend. 1.56% for locking up your money for 10 years doesn’t sound great, but at least it is a positive return and the money is safe.

Alternatives

Because the yield curve is flat, rates at the short end are almost as high as the long end, so why lock in your money for the long term? My recommendation is to keep your money in a Money Market account, which can pay up to 2% depending on the institution. You may have to be proactive to make sure your money at your bank is earning money market interest or to make sure excess cash in your brokerage account is swept into a money market fund, but the extra earnings are worth the trouble.

Corporate Bonds

Corporate bonds are a higher-paying but somewhat riskier alternative to US Treasuries. To mitigate the risk, I strongly recommend a corporate bond ETF such as the Vanguard Intermediate-Term Corporate Bond Index ETF, ticker symbol VCIT, which currently yields over 3%. There are several alternatives to VCIT but stay with a strong name and something you can easily buy and sell.

Preferred Stock

Lower in priority than bonds but higher than common stock, preferred stock is another alternative to bonds for current yield. Again, I recommend a fund rather than an individual company’s preferred shares. The SPDR Wells Fargo Preferred Stock ETF (PSK) for instance is currently paying over 5%.

Dividend Stocks

Dividend stock funds pay somewhat less than preferred stock funds in part because qualified common stock dividends are taxed at a lower rate than preferred dividends, which are taxed at ordinary income rates.

Covered Calls

I love writing covered calls, especially during choppy markets such as we currently have. When markets are setting all-time highs, I like writing calls at strike prices above these all-time highs in order to generate more current income. I like that I can participate in some upside but get paid currently for giving up a part of the upside that is already above an all-time high.

Alternative Assets

The most prominent asset class that generates current income is real estate. You can either buy a rental property or a few, or you can buy shares in a REIT or a REIT fund. REIT dividends are not “qualified” for preferential tax treatment, so look for a REIT fund that pays somewhat higher than a stock dividend ETF. Unless you feel you can add value by being a landlord (such as you are handy and enjoy dealing with household maintenance and repair), then a REIT is a better way to own real estate. As to other income-producing alternative assets, annuities remain popular for some, particularly for those desirous of very stable income. Unless you truly cannot deal with any variation in your monthly income, then I recommend you avoid annuities.

IMO

All of the alternatives to US Treasuries (or bank-insured CD’s and the like) involve taking on additional risk with your investment. Please be sure you understand the additional risks you are taking on and think about buying funds in order to mitigate these additional risks. Please contact me if you want help in understanding these additional risks.

A recent Gallup poll showed that people in the US visit a library almost twice as much as they go to the movie theater. This might be counterintuitive during this age of Google, e-readers, and books that can be delivered to your mailbox or doorstep. Yet the library remains a favorite destination. I really enjoy going to my local library. I am fortunate that I live in a city that has a beautiful, modern library, so that is a plus, but most cities and towns take pride in their library and so they seek outside money when their government funding is insufficient and they try to make the library a pleasant place.

Different Ways To Use The Library

The Obvious way is what you think: go to the library, check out a book, read it, and bring it back when it is due. However, there are many other ways to take advantage of the library. A prerequisite is to get a library card, which is even easier to do than you may think. You can always get a library card in the town where you live, but if a neighboring town has a nicer library, you can probably get a library card from there if you go in and ask for one. Most libraries are part of a regional or statewide library system that allows you greater access to books and services – ask about it at your local library or on your library’s website.

Once you have your library card, here are some ways you can use it:

• Go To The Library’s Website: Google the name of your library and explore the website. It is probably a .org. Explore it for yourself. It’s a great community resource. Set up an account with your email address.
• Place a Hold: Place a hold on a book that you want and the library will send you an email when it is available. My library will keep a book on the hold shelf for up to 7 days, which makes it very convenient for me.
• Electronic Database: My library’s home page has an “eBranch” tab. From there, it is a goldmine of information that I can access. For instance, through my library’s eBranch, ValueLine, Morningstar, and Standard & Poor are available – all extremely valuable investment research tools that I can access for free.
• EBooks and Audiobooks: I really enjoy audiobooks but they are expensive to purchase, so I check them out through my library. My phone app to do this is Libby, and most likely your library has access to Libby or something like it. You might have to wait a while for newly-released books, but after a while, they are usually easily had. If you have a Kindle and you want to read a library book on it, the download process is not as easy as it could be – you need to download the book to your phone and then transfer it to Kindle using your Amazon account – but it’s easy once you get used to it and it saves you a lot of money.
• Recording: Do you want to experiment with your own recording, perhaps even recording your own podcast? Perhaps your library – or one close to you or within your own library’s system – has recording equipment that you can use, maybe even for free. You won’t be able to bring the rest of your band in there and record loud music, but an interview would be pretty easy, as would perhaps some quiet music. If you don’t know if this service is available, just ask the library.
• Shared Workspace: Are you an entrepreneur and you are intrigued about renting some space in a WeWork or other shared office arrangement? Before you do, try going to the library and working there for a couple of days. Most libraries have free WiFi and a variety of seating arrangements, so that isn’t much different than WeWork. There is no piped-in music, but the library is quiet, which is probably a benefit over WeWork. If you want music, bring in your headphones – you would not be alone in doing so. If you need to make or take a call, just step out when you do so, though you should be careful of your possessions while not at your desk. Working at a library desk for a day isn’t much different in many respects than working at a WeWork, and the price is right for those looking to save money.

IMO

As you might discern, I am a big proponent of libraries. There is no reason you shouldn’t go and get a library card that will offer you entry into a tremendous amount of information as well as a number of forms of entertainment, all for free or close to it. Particularly if you enjoy doing research on investments, your local library can really help you be a successful investor.

Do I have enough money to retire? It’s a common question people ask their financial advisors or planners. However, it isn’t quite the correct question to ask, in my opinion. The correct question should be, “Will I have enough income in retirement?” It’s a subtle but significantly different question.

Sources

There are four primary sources of income once you retire. Not everyone will have access to every source. The trick is to maximize the income you have from all of these sources while minimizing the income taxes you pay.

• Social Security: Most people who have worked will be eligible to draw on Social Security once they “retire”, which means in Social Security parlance that they submit to draw their Social Security. Most people know the drill: You can draw at age 62 but at a lesser amount until you reach Full Retirement Age (FRA), which is a sliding scale upward based on the year you were born. My FRA is 67. If you were born prior to 1960, Google it if you don’t already know your FRA. I recommend you wait until FRA to file unless there are extenuating circumstances such as poor health.
• Retirement Savings: IRA, 401k, 403b and the like. If yours are Traditional retirement accounts, remember that the money you draw will be taxable at ordinary income levels when you draw them, because you contributed to these accounts from your pre-tax money and any growth in these accounts will have been tax-deferred. You don’t need this money and you certainly don’t want to pay taxes on it and you want to pass it on to your heirs? Sorry, you can’t do that because of the Required Minimum Distribution rules that kick in at age 70.5. You can, however, meet your RMD requirement by donating to charity, which is the subject of a future blog. Instead of Traditional retirement accounts, you have Roth accounts, then you were already taxed on the money you contributed so they aren’t ordinary income when you draw on them.
• Pension: Perhaps if you have worked for the government or at a school, or at an older, probably large corporation, you have vested in your employer’s defined benefit pension plan. These are highly regulated by the IRS and the Pension Benefit Guaranty Corporation and so you will be well-informed as to how much you will be entitled to and how and when to file for it. Many people keep working solely to maximize their pension benefit, which is a good thing because it keeps people working in their most productive years in terms of salary. However, in the new economy, these types of plans are not prevalent because of the “defined benefit” nature of them. Defined Contribution plans such as a 401k are more the norm now.
• Additional Non-Retirement Savings: This is income that you generate from the assets you own, including your home. The trick is to transform your portfolio into income-generating assets. Own a diversified portfolio of stocks that pay dividends. Government bonds don’t pay a lot these days, but take a look at corporate bonds or corporate bond funds. Real Estate Investment Trusts generate tax-advantaged income. Own rental property, and outsource the property management if you don’t want to be a landlord during retirement. Save money by downsizing your home – there are tax breaks available to do so. Your ability to optimize income from your assets could be the make-or-break for you for your retirement comfort.

IMO

Planning for retirement income should be an important objective for everyone. I strongly recommend you work with a Financial Planner such as me because a professional, competent third party should be better able to optimize your retirement income and transform your retirement into something to look forward to instead of something you dread because you don’t think you will have enough money to retire comfortably.

On Friday, February 2, 2018, I was staying in a hotel out of town watching CNBC as the stock market sold off in a big way. During January 2018, prior to that Friday, the stock market had “melted up”, closing higher each day with little volatility. However, on 2/2/18, the S&P 500 index closed down 60 points, which was over 2% in that one day. After the weekend, which was Super Bowl weekend (the Eagles beat the Patriots, remember?), the market selloff continued and accelerated. On Monday, 2/5/18, the S&P 500 was down another 4%. A major correction, caused by a fear of rising interest rates, was on. Though markets stabilized later that week, higher volatility became the new normal and 2018 turned out to be a tough year for the stock market.

Repeat Performance?

On Friday, January 31, 2020, which was last Friday, I was once again staying in a hotel out of town watching CNBC as the stock market once again sold off in a big way. Once again, it was the Friday before the Super Bowl. Once again, the stock market seemed to have “melted up” with minimal volatility during January 2020. However, on 1/31/20, the S&P 500 was down by about 1.8%. The concern this time was not interest rates but Coronavirus in China. For me, the situation and the timing were uncannily similar to what had happened exactly two years prior on the same trading day.

Maybe Not

Well, so far this week, the Friday sell-off has not portended to continued selling the following week. On the contrary, the Friday sell-off seems to have presented a buying opportunity, as stocks have erased the 1.8% Friday loss and then some. News regarding the Coronavirus has not looked so bleak, and with interest rates remaining low and falling lower last week, stock investors are buying. One could argue with their reasoning but February 2020 does not seem to be a repeat of February 2018, at least so far.

IMO

What to make of this? Just because something happened once before doesn’t mean it is going to happen again. Every stock market situation has a unique set of circumstances. Be very careful before you extrapolate one set and make financial decisions just because you think there might be a repeat performance. Instead, take a step back and review the entirety of the market and your own situation. Your decision might have a better chance of being correct.

I’m not a fan of Big Government but there are a number of good websites that some government agencies produce. These are especially good sources of data and statistics and are useful when you are researching something related to what each of these agencies does. Here are four “dot gov” websites that I find particularly useful:

• FederalReserve.gov: The website for the Federal Reserve Bank. You can learn a lot by reading through the many articles and statistics linked to on this website. Did you miss a recent speech that a Fed Governor gave? Go to this website and read what the governor said. Are you doing research about the economic performance of a particular part of the country? Perhaps it would help if you go to the Beige Book section linked to through the federalreserve.gov website. Learn all about the regulatory and supervisory role the Fed plays within the US banking system. This website is great for students and anyone else doing research, as well as for anyone interested in learning more about the current state of Fed policy. Why rely on secondary sources such as the media when you can go directly to The Source to find out what the Fed is up to?
• Home.Treasury.Gov: The website for the US Treasury goes hand in hand with the Federal Reserve website. Though there are more political opinions expressed on the Treasury website, there are straight facts. My favorite part is the link to Daily US Treasury rates. Here, you can go back in time to see what rates were by maturity (1 month through 30 years) for any particular day. This is very interesting for finance nerds.
• BLS.Gov: The website for the Bureau of Labor Statistics. Do you want to know anything about the unemployment rate, payroll statistics, or inflation? The BLS is The Source for all of this information. Perhaps you need to be particularly nerdy to enjoy reading this website, but since a lot of US economic and political policy is based on the statistics found on this website, it is very important.
• IRS.Gov: The website for our friends at the Internal Revenue Service. Need I say more? For individual investors, a lot of decisions we make must involve the tax ramifications of what we invest in. Of the four websites that I recommend in this posting, the IRS website contains the densest information. Nevertheless, there is a lot that is readable for the common folk.

IMO

Whether you want to find out something specific or you want to gain more general knowledge about the role that any of these government agencies plays, I recommend you go to the source on any of these websites rather than to rely on media interpretations of data that is out there. In the case of the IRS website, perhaps you will learn enough to be dangerous and you will need to confirm what you learn with a CPA or other tax professional before acting on your own behalf.

Or, if you want a very high-level overview of the US Government, go to usa.gov: