Leonesmoneymonitormonthly's Blog

January 20,2019

By Edward Leone Jr. DMD MBA CFP RFC

Contact information: edleonedds@gmail.com

Since the second week of October 2018, equity markets have seen a correction which has  been expected for some time. The S&P 500 which is a major equity market index has produced an average annualized return of 10% over the past 90 years. For 2018 the total return was -4.38%. For 2019 year to date the total return is 5.01%.  The 2019 equity market is looking more favorable. Issues such as interest rate increases, global trade conflict potential, consumer activity, corporate economic health and political dynamics have recently caused much emotion among investors and their investment activity. It is likely that much of this head wind will reverse and lead to an improved equity market environment for 2019.

Current equity valuations are at their average of 16 and are not in excess territory. Corporate growth estimates remain positive for the long-term. Federal Reserve Bank actions seem to have moderated. Unemployment rates and inflation rates seem positive for economic growth. It appears that trade disputes with China are moderating. Consumer and business confidence seems to be improving. Much of these comments come from recent studies done by Yardeni Research and Moody’s.

Given the time of the year, we are all engaged in tax strategies. For those age 70 1/2 or older the opportunity to make charitable donations from an IRA that satisfies the RMD (required minimum distribution) is a tax-free event. For others, bunching charitable donations may elevate deductions above the standard deduction level of $12,000 for single filers and $24,000 for married filers when other such deductions as property tax, mortgage interest and medical expense deductions are also considered. Retirement plan contributions are also a tax saving factor to consider.

It is stated by Investopedia, that $30 trillion will be passed down to spouses and children in future years by the baby boom generation. It is very important that proper financial planning and estate planning strategies are employed to be sure that these assets are placed as desired to beneficiaries and in an efficient pattern. Financial planners, accountants and attorneys need to be a part of your planing team. Long term investing must be a life time strategy. Ten to fifteen percent of annual income should be dedicated to retirement investing after a six month emergency cash fund is established. Investment vehicles need to be chosen that reflect risk tolerance but also offer adequate return on investment needs over the long-term. Diversification of investments is a key planning strategy. Management and transaction cost are also important planning factors which are many times over looked.

I wish all readers a happy, safe and prosperous New Year!!

For The Record:

DJIA                 24,307.66

NASDAQ          7,008.34

S&P 500           2,625.48

Suggested Reading:   “The Death Of Money” by James Rickards

By Edward Leone Jr. CFP RFP RIA MBA DMD

303-478-6793

edleonedds@gmail.com

As you should now be aware, I moved this blog to a quarterly publication. I promoted my e-book published at Amazon Kindle as the 2nd quarter blog publication. If you have not read it just yet, “Family Financial Health and Family Financial Wealth” on Amazon Kindle for the cost of $2.99 is available,an informative read. Please enjoy.

There are so many factors both economic, social and political which are a part of the current mix in the elements of life and business. According to the FPA Journal published for September 2018:

The average minutes per day engaged in texting by individuals is 26.

A personal physical appearance and hand shake are important measures of character to 72% of people.

Nine out of 10 people prefer small meetings as a communication method. This may be important to you business strategies.

31% of married couples have disputes over finance issues.

There 205.6 bilion e-mails sent globally each day.

The average individual remembers only 25% of what was heard.

Customer and client experience are important factors in business loyalty relations.

Many factors being reported as progress in the growth of the US economy are positive as compared to our experience since 2008. Many of the reported datas need to be examined a little closer. Inflation is being reported at about 2%; however, over the past twelve months, energy costs are up over 11%, hospital costs are up around 5%, oil costs are up 25% per barrel and gasoline prices are up over 20%. Our Government changed the way it calculates and reports inflation in the 1980s. Our current inflation reports of 2% would be 6% if calculated as it was during that period. According to Bureau of Labor statistics, the unemployment rate is at 3.9% and average hourly earnings were up 2.9% from a year earlier. You can see based on the above information that life style expenses are accelerating above the inflation rate. It is likely that many do not have much discretionary income to save or spend.  We are not being made aware that the Q 6 unemployment rate (includes those who could be working but not seeking employment currently) is at 7.4% for the month of August. It is clear that we are heading in a positive economic direction, but that we have a long way to the aspect of economic growth to get where we need to be to see further consumption and saving while reducing debt.

US debt is at 105% of GDP ($19.5 Trillion debt). Global debt is at 325% of GDP ($217 trillion debt). When the FED was in function in 1917, if you had $850 today that purchasing power is at $10. These numbers represent long term historic trends engaged by governments and the banking systems to promote the economy through war, depression and accelerated growth periods. We need to insist on the reduction of debt governmentally and personally along with economic developement and growth over a long period to overcome the dummy stuff we have experienced over the last many years in this country and over the world. It appears to me that discretionary spending by many of us is currently supported with borrowed money (your credit card).

Commodity prices are increasing as a result of global economic growth. This is a good trend if it can be continued without increasing government debt. China, Europe, Japan along with other Asian economies and other developing economies are challenged meeting debt obligations. The dollar is a strong currency in international markets. This makes our exports more expensive to purchase by international entities and burdens debt payments that are usually made in dollars by foreign governments. If the dollar was a weaker international currency, the above issues would be modified, but the flow of foreign investment into the US economy would be reduced since returns would not be as attractive as they are in current US markets. You see there is no easy balance to these dynamics.

It is very important that those who are engaged in building assets for education costs, housing costs, retirement costs and emergency needs must reduce immediate consumption and dedicate with discipline asset building to meet these goals.

I am optomistic that we are on a tract that over an extended period of time along with more typical economic cycles will bring us where we need to be regarding well being and international positive status.

By: Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:  edleonedds@gmail.com

I have changed the sequence of this blog from monthly to quarterly. It appears that the most significant information to share in this first quarter of 2018 is what information we have on the income tax structure with the new legislation passed by the Congress in December of 2017.

Tax Rates:

Brackets

Individual Filing                   Joint Filing

10%        $0 to $9,525              $0 to $19,050

12%        $9,525 to $38,700      $19,050 to $77,400

22%        $38,700 to $82,500    $77,400 to $165,000

24%        $82,500 to $157,500  $165,000 to $315,000

32%        $157,500 to $200,000 $315,000 to $400,000

35%        $200,000 to $500,000 $400,000 to $600,000

37%       $500,000 and above    $600,000 and above

Standard Deduction

Singles    $12,000      Married      $24,000         Head of Household      $18,000

Personal Exemption

Suspended until December 2025

State and Local Tax Deduction

Capped at $10,000

Capital Gains Tax

0%        Individuals up to $38,600     Join filers up to $77,200     Head of household  $51,700

15%     Individuals up to $425,800   Joint filers up to $479,000 Head of household $452,400

20%     Individuals above $425,800 Joint filers above $479,200 Head of household above $452,400

The 3.8% NII tax is maintained for incomes above $250,000 while collectables are taxed at 28%.

The ROTH IRA conversion return to a traditional IRA has been repealed.

Medical expenses above 10% of AGI will be deductible as of January 2019.

Child tax credit is now up to $2,000.

Estate tax exclusion is up to  $11.2 million per spouse.

As of January 2019 alimony is not deductible by the payor and is not claimed as income by the receiver.

The home mortgage deduction is capped at a $750,000 ceiling.

The Social Security Tax is levied on incomes up to $128,700.

It is very important for business owners to engage the services of a CPA to handle business expense deductions since some of the rules have changed.

This is really simple!!

For qualified retirement saving plans, the following are the tax-deductible contribution limitations:

IRA      $5,500

401K   $18,500

SEP     $55,000 or 25% of income

Keogh Palns  $55,000 or 25% of income

Individuals above a threshold age of 50 can make additional contributions to further build their accounts: IRA $6,500, 401K $$24,500.

The phase out levels for many listed deductions are also a bit complicated and need your attention.

We are currently experiencing an equity market correction. I have no crystal ball which tells me how long this will last, but history tells us to stay the course and engage the future turn around.

By:  Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:  303-478-6793   leonedds@gmail.com

We are all siting at the edge of our chairs waiting to see exactly what tax reform legislation passed by the US Congress and signed by the President will contain. The process is on going with no definite conclusions to report. Regarding individual income tax rates there may be as few as 3 marginal tax rates or 4  or 7. It appears that the standard tax deduction will increase to $24,000 and that the child care tax credit may increase to $1600 or $1650. Tax deductions for electronic vehicles and education tax breaks other than the 529 program will end along with AMT (Alternative Minimum Tax— not ATM where you can get your money on deposit at the bank HA HA). Estate tax is in dispute under the House Bill version as opposed to the Senate Bill version, but it appears that the gift tax issue will be maintained. Such other tax deductions eliminations such as state and local income tax, sales tax, property tax, mortgage interest caping and medical expenses are proposed, but not in firm agreement. Charitable contribution deductions are likely to remain, but personal casualty loses, gambling losses, tax prep fees, business moving expenses, alimony payments and employee business expenses may be out the window! Retirement savings programs are likely to be retained as they exist now, but tax exempt organizations are likely to see some changes. Taxations changes for business will be adjusted in many ways regarding tax levels and expensing for business asset and equipment investments. The nature of these changes is also unsure at this time. So how should you engage your tax planning strategies for the conclusion of 2017? For now project strategies under what are exiting tax laws, but maintain the flexibility to make adjustments if a tax bill is passed prior to the year-end and is effective as of January 2017— a very tough task to accomplish without knowledge of firm tax law and profession help!!

We will have a new Federal reserve Bank Chairman in the near future named Jerome Powell. What will this mean? In the past, each new chair person has elevated interest rates early in their term. It will be interesting to see if this occurs and how it will affect equity markets while giving the FED addition ammo to deal with a future economic down turn.

There is no doubt that an equity market correction will occur at some time in the future. None of us know exactly when! It is important for retirement investors to maintain an asset allocation balance which deals with risk concerns and income flow needs from invested assets. Unfortunately, due to very low-interest rate levels at this time, bond and cash equivalent investments are yielding very low returns. This means that based on the asset allocation strategy engaged, total investment yields are likely to be lower than they have been in many past years. It is still important to engage such asset allocation strategies to survive the likely future equity market corrections. Seek qualified advise on these issues given your status and concerns.

Be thankful for who we are and where we exist given the up coming Thanksgiving Holiday. I have been moved by the major recognition given to our military veterans on Veterans Day. I will be visiting my Dad’s grave site at Fort Logan ( a WW II veteran) and was gratefully for the recognition and gratitude I received on Veterans Day at my church for my military service!

For The Record:

DJIA                   23,422.21

S&P 500               2,582.30

NASDAQ              6,750.94

Suggested Reading:  ” How To Day Trade For A Living ” by Andrew Aziz

By: Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:  303-478-6793  edleonedds@gmail.com

Emotion and concern appears to be growing over the potential direction of equity markets. Such factors as interest rate levels, tax reform legislation, international economic activity and the potential for growth in the US economy are all at play. None of us have the power to foresee or predict the future. We will do best to engage investments in a diversified portfolio asset allocation which can take advantage of growth potential but mitigate to some extent negative forces if they occur. A factor which is going to be in high-profile at the beginning of 2018 has to do with the composition of leadership at the Federal Reserve Bank. Will there be adjustments to monetary policy initiatives? Will they wind down the $4.5 trillion in assets held? Will there be some consideration for return to a gold standard or another Bretton Woods type effort to stabilize the relationship of currencies internationally? It is  clear that the current status of the Federal Reserve has saved the banking industry and the economy in some ways; however, this body is not in any position to combat another recession in the near future.

All individuals saving for retirement must be concerned about protecting investment asset principal, the effects of inflation on the purchasing power of assets in the portfolio and the opportunity to generate income when that becomes necessary. These last ten years have presented challenges to these concerns. Interest rates are low, employee benefit structures are changing, government tax burdens are high and economic activity is increasing at a very slow pace. Savers are losing money after the effects of taxes and inflation. Social Security and Medicare are in poor financial condition. It may be necessary in the near future to reduce some of the benefits in these programs. It is projected that a retired married couple at age 65 will likely spend up to $270,000 in medical expenses above Medicare benefits through remaining living years. Strive to make your IRA or 401K the most valuable asset you possess. Plan to save 12% to 15% of annual income or more if possible for the purpose of retirement each year and plan a longer working career. Take advantage of such vehicles as HSAs to supplement health care costs. Employ tax advantaged strategies when possible.

It is my sincerest hope that our Federal and State legislative branches along with the executive entities which compose our government at these levels will cooperate and engage in long-term efforts to address many of the concerns expressed above!

For The Record:

DJIA                   22,860.63

S&P 500              2552.12

NASDAQ             6600.41

Suggested Reading:      “Business Relationships That Last” By Ed Wallace

By Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:     303-478-6793   edleonedds@gmail.com

Going without health insurance will cost you more at the time you file your taxes. For 2017, under the Obama Care law, your penalty will be $695 or 2.5% of you income, which ever is greater. Quite a hit! Be aware also that the Social Security wage base for 2018 is rising to $130,500, an increase of $3,300 from the current level.

The lower than expected jobs report for August along with a slight increase in the unemployment rate along with the reporting of still very modest inflation, will give the Federal Reserve Bank and excuse not to raise interest rates in my opinion. It is clear that the Federal Government will have to borrow more money to address the disasters which have occurred in Texas and Florida. If Government can do this at a low-interest rate, this will be favorable to servicing debt.

More to know about your Required Minimum Distribution, if you are 70 1/2 or older and have a tax deferred retirement account such as an IRA or 401K. If you miss the timing on this RMD, the amount not withdrawn is taxed at 50%. This penalty may be waived if there is a demonstration of reasonable error in the lack of timely distribution. The individual subject to such a penalty must file form 5329 and demonstrate that an attempt to remedy the shortfall is in progress.

Another consumer issue which is quoted in the media from time to time is the need to know and improve your FICO score. The perfect score is 850 and held by only 1.4% of the population while the average score is 700. The most advantageous territory is a score of 800 or above since this score is used in determining qualification for loans and the interest level to be paid.

There is movement on the initiative of the Department of Labor and the Security Exchange Commision to further protect investors safety of asset management by financial advisors with expansion of the Fiduciary Rule. A Fiduciary under ERISA is an individual who exercises discretion over management plan assets or IRA assets, renders investment advice for compensation or has discretionary authority over the management or administration of an investment plan.  The Fiduciary has a duty of prudence and a duty of loyalty to the investor and must avoid self dealing, dual representation with a party dealing with the investors plan, acceptance of third-party payments and must act always in the best interest of the client. Keep these qualities in mind when dealing with a financial advisor, an insurance agent or a stock broker.

Keep in mind the plight of those exposed to the severe storms occuring in Texas and Florida!!

For The Record:

NASDAQ         5,918.75

DJIA                 21,819

S&P 500           2,462.50

Suggested Reading: ” Quantitative Momentum ”  By Gray and Vogel

By: Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:  edleonedds@gmail.com     303-478-6793

We are all very much aware of the rhetoric coming out of Washington DC regarding tax reform. It will be interesting to see at what level the corporate tax rate is set. 15% would be very competitive globally and allow many business owners who have set up a corporate structure which allows business income pass-throughs (partnerships, LLCs, S corps etc.) a benefit since this would create a tax advantage to those who could take the income pass-through at this lower rate instead of a salary taxed at their higher marginal tax rate. The level of marginal tax rates along with the selected elimination of some tax deductions will be another very important ingredient in the effects of tax reform legislation. Another element in tax reform legislation which relates to the treatment of PSAs and HSAs will have impact on potential health care reform legislation. Let the show go on!

US and global equity market returns are still positive due to slowly improving economic conditions and reports on positive earnings in some key industries (e-commerce and technology for example). The expectation of tax reform and reductions in regulation burdens is still a driver in the US equity markets in my opinion. Dividend payments along with stock price increases have mitigated in some fashion the burden for income generation with existing low-interest rates on fixed income investments, but there may be additional future investment risk in the short-term.

According to a study done by Willis Towers Watson, there has been an over all reduction in employer contributions to retirement benefits of about 25% to employees over the last 15 years. This is due to the conversion from defined benefit pension plans to defined contribution plans such as the 401K. The defined contribution plans must be built more on employee savings habits and discipline than on employer contributions in most instances. There also seems to be a trend of decline in retiree health care benefits.

Alicia Munnell who is director of the Center for Retirement Research at Boston College, shares information that the average US citizen would like to see Social Security benefits be retained at current levels. There is a cash flow shortage in this program which will become very evident in the year 2034 as projected. Measures to adjust the incoming assets to the program are viewed as politically unpopular and are being delayed into the future. The longer we wait to institute measures such as increase in full retirement age, adjustment in payroll tax levels and disability and surviving family member benefits, the more painful and dramatic these changes will be. The government management of the “Social Security Trust Fund” must also be addressed. Author and financial advisor Ric Edelman has proposed a method to privatize the Social Security Program which appears to be significantly beneficial to participants due to increased earning patterns for assets invested over many years instead of the government strategy now being employed. It is likely that government will not want to give up control of this program. What and when??

The summer season will end in several weeks on Labor Day– a day off to celebrate working!!

For The Record:

DJIA          21,830.31

S&P 500     2,472.10

NASDAQ    6,374.68

Suggested Reading      “Back Stage Wall Street”  by Brown

By Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information: edleonedds@gmail.com   303-478-6793

The news media is quite entertaining depending on the sources we consume. We are not being exposed in an adequate way to the examples globally which demonstrate that capitalism (as we have seen it in the history of the US) leads to economic and social progress while central planning as in socialism (Venezuela as an example) leads to struggle, starvation and social and economic failure.

We are also not yet, seeing evidence of significant improvement of what has been a very slow-growing US economy. Our Congress is struggling with the elements of tax reform, regulation reform and other potential economic stimulus policies. Let us all hope that there can be a coming together over social needs and economic growth. It is very important that the global economy can generate demand for goods and services which both US and foreign companies can provide. We may be seeing the elements of such a trend since the S&P 500 has gained 9.28% for the first 6 months of this year and the All Country World Index has gained 18.11% for the first 6 months of this year. Can these trends be maintained over a long-term?

So many of us focus mostly on the accumulation of assets to support retirement. This is very important; however, an individual’s personal needs as projected must also be included in a retirement plan. Health, social contacts, family relations, physical activity, recreation and community involvement are essential to happiness and longevity in the years of retirement.

There is much discussion about conversions from a traditional IRA to a Roth IRA. This is a troubling time to consider this action since we are not sure what future income tax rates will be. Most of those considering this move should perhaps wait until the new tax rates are known. It is an option to do these conversions incrementally instead of all at one time. It is also important to have a plan to meet the immediate tax burden associated with the conversions.

A financial planning tool which is often used to reduce estate tax burdens and to identify beneficiaries outside of a will document is a trust. The selection of a trustee to administer the trust should be carefully considered:

1. The trustee should have the knowledge and skills to perform the duties assigned.
2. The trustee must perform as a fiduciary.
3. The trustee must be understanding and familiar with the estate and family history and desires.

It is important to engage a qualified attorney to formulate such a tool.

This summer season appears to be stimulating a lot of pleasurable travel. Enjoy your summer activities with family and friends!

For The Record:

DJIA               21,532.14

S&P 500           2,443.25

NASDAQ         6,261.17

Suggested Reading:            “Trading In The Zone”  by Mark Douglass

By Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:  edleonedds@gmail.com   303-478-6793

There has been significant speculation on the trend for interest rate increases as this year of 2017 continues to unfold. The economy is improving, but slowly and the unemployment rate which is reported (instead of the labor participation rate) is coming down. Inflation is another measure used by the Federal Reserve to judge economic vitality. It has been running below 2% (the Federal Reserve target for interest rate increases) since 2012. The inflation rate gives an indication of demand increasing to excess which is an urge to tighten the money supply. It is also important to consider that inflation is a hidden taxation. It burdens savers and consumers and rewards debtors including the US Government since debt over time is paid back in dollars worth less. It is very likely, considering the debt service required of the US Government (assuming that inflation rate reporting is accurate) will be a moderator to Federal Reserve aggressive interest rate increases. The world economy now has $215 trillion in debt. This may also be a factor in interest rate trends for global central banks including the Federal Reserve. How will bond investors looking for positive returns react to such dynamics. Perhaps holding cash is temporarily attractive!

On the positive side, almost all of the S&P 500 index companies have reported their 1st quarter earnings. It seems that these three months have been the strongest in the last six years. We know that earnings are a key ingredient in stock price increases.Will this trend continue and will the equity bull market sustain? International economic growth has also been positive.

It is still much of a challenge to have any firm information on the outcomes of tax reform and health care reform. The deliberation processes being engaged by the Congress, lead me to believe that it will be much later in this year before we have some solid ideas on legislative content regarding these two issues. I have been made aware, by my reading in Forbes Magazine, of legislation being proposed in both the US House of Representatives and in the US Senate to establish USAs. This is a savings program which is similar in structure to and IRA. It is open to all citizens and is funded with before tax dollars. There are no taxes on distributions or withdrawals and no restrictions on when or how much can be taken. The motivation seems to be for expanding consumption, education and retirement savings along with the creation of capital for economic growth. With the potential for establishment of Universal Savings Accounts (USAs), it may be helpful to be reminded of potential investing mistakes that are made from time to time by many of us since more and more people may be inclined to use USAs as a source for investing:

1. Reacting to short-term returns
2. Selling when the investment price drops below your basis or in a falling market
3. Ignoring fees and other costs of investing
4. Not engaging in diversification of investments
5. Not rebalancing the portfolio from time to time
6. Tax considerations
7. Not considering the benefits of compounding returns over the long-term.

I wish all readers the best of results with their investing efforts!!

For The Record:

DJIA                 21,069

NASDAQ           5,795.50

S&P 500            2,414.75

Suggested Reading:        “The Charles Schwab Guide to Finances” By Carie Schwab-Pomerantz

By: Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:  303-478-6793  edleonedds@gmail.com

I must express a bit of concern over available information on 2 major legislation efforts in the US Congress. The Replacement for the Affordable Care Act is 1990 pages long. Who has time, including legislators, to read and understand the content? I am not happy with reports and information shared by AARP on this legislation.  The Tax Reform legislation passed by the House of Representative this week is not being shared adequately in the media. I have not been able to identify the income levels associated with the new tax margin structure (10,25,35%) to determine after the removal of all tax deductions except mortgage interest and charitable contributions, whether or not it represents a tax deduction or a tax increase depending on earned income. This is an important element of information if anyone desires to make input on this legislative effort. I must also express concern over the tax exempt treatment of assets accumulated in qualified retirement plans such as 401Ks and IRAs. These plans hold about $15 trillion in assets according to the Investment Company Institute. The government gets taxation on distributions after some 30 to 40 years of tax exempt savings, but Congress looks at budget projections over a 10 year horizon. Given the potential tax revenue left on the table as a result of current defined contribution retirement plan structures and the building federal deficits, will Congress change the rules??

Everyone engaged in retirement savings efforts, is faced with 2 large areas of concern- longevity and health care costs. Planning for these difficult to quantify challenges presents significant problems for many. It may very well be that most of us will be engaged in employment past what has been considered normal retirement age. Positives are as the following:

a larger nest egg,

perhaps greater Social Security benefits,

a boost in financial security,

personal satisfaction in contribution to personal and social well-being.

Another area of concern for many is the global effects of inflation on the currencies we use to conduct business and consume products and services since the termination of gold  standard based currency values. If you have saved any pre 1965 US coins which have a silver content, be aware that your quarters are worth $2.97 and your dimes are worth $1.19 based on the content of silver in these coins and the current value of silver bullion. A $1,000 stash of either of these coins in 1965 is now worth $23,790 52 years later. HUM, WHERE ARE WE GOING REGARDING THE PURCHASING POWER OF OUR MONEY?

Be sure to use mosquito repellent, but watch the SWAMP closely!!

For The Record:

DJIA        $21006.94

S&P 500  $ 2399.29

NASDAQ $ 6100.76

Suggested Reading;    “The End of Alchemy”  By Mervyn King