Monthly Archives: July 2016

Inflation was not yet a pressing concern on Main Street



“A problem is a chance for you to do your best.”

– Duke Ellington


Over time, putting an extra $100 a month toward retirement could make a real difference in your savings effort. So think about saying goodbye to premium cable channels, seldom-used memberships, and pricey coffee and meals, and using that savings in retirement planning.

I weigh nothing, but you can see me. Put me in a bowl, and I’ll make it lighter. What am I?

Last month’s riddle:
It is always less than a day away, but it never arrives. What is it?

Last month’s answer:
July 2016
In June, an overseas referendum affected American stocks more than any domestic event. The United Kingdom unexpectedly voted to leave the European Union, and news of the Brexit rocked financial markets worldwide. Even so, the S&P 500 began to recover quickly – it actually gained 0.09% for the month. Fresh economic reports made the U.S. look like the proverbial best house in a bad neighborhood – even if the economy was underperforming compared to past decades, America was at least faring better than some other nations and regions. While the latest jobs report was mystifying, personal spending, retail sales, and consumer confidence were bright spots.1

Stateside, most of the key economic indicators pointed up rather than down. You could even say that about the most retrospective of all of them: the quarterly growth estimate from the Bureau of Economic Analysis. In June, the BEA upgraded Q1 GDP from its second estimate of 0.8% to a final mark of 1.1% (its initial appraisal was just 0.5%).2

According to the Department of Commerce, consumer spending rose another 0.4% in May, with household incomes rising 0.2%. Households were also buying plenty of goods and services in May: retail sales were up 0.5% in that month; core retail purchases, 0.4%.3,4

How about consumer confidence? The most respected of all the monthly polls, that of the Conference Board, showed major improvement in June. The CB’s consumer confidence index jumped from a May mark of 92.4 to 98.0 (admittedly, the CB’s surveys were compiled before news of the Brexit). The other important consumer barometer, the University of Michigan’s consumer sentiment index, declined 1.2 points in June to 93.5.3

Inflation was not yet a pressing concern on Main Street, but the Federal Reserve and economists were keeping their eyes on it. Consumer prices advanced 0.2% in May. The core Consumer Price Index also rose 0.2%, taking its 12-month gain to 2.2%.4

On the factory front, the Institute for Supply Management’s manufacturing purchasing manager index showed another month of mild industry growth in May with a reading of 50.7, improved from 50.5. ISM’s services PMI showed a mark of 52.9, a concerning falloff from the prior 55.7 reading. Still, both sectors had expanded. Hard goods orders were down 2.2% in May, 0.7% minus transportation orders; U.S. industrial output was down 0.4%.4

The May jobs report was one of the strangest in the past few years, and also one of the weakest. Joblessness fell to 4.7%, the lowest level since November 2007 – but that happened largely because of a dip in the labor force participation rate. The U-6 rate, which measures both underemployment and unemployment, held at 9.7%. Just 38,000 net new jobs appeared in May; economists surveyed by Dow Jones Newswires had forecast a gain of 155,000. Either productivity had improved to the point where fewer new workers were needed, or certain industries were less healthy than believed.5

Did the Brexit vote wipe out any chance of the Federal Reserve raising interest rates this year? From Wall Street’s point of view, yes. By late June, traders were putting the chances of a 2016 rate hike at 8%. In fact, they saw a 10% chance of a rate cut in July, and more than a 20% chance of a cut by early 2017.6

The Brexit took investors worldwide by surprise, especially since polls of the U.K. electorate indicated it would not happen just a day before it did. Benchmarks were thrown for a loop: June 23 saw Japan’s Nikkei 225 drop 7.9%; France’s CAC 40 fall 8.0%; and Germany’s DAX drop 6.8%. While the FTSE 100 only gave back 3.1% in London, the pound touched a 31-year low. The S&P 500 lost 3.6%. Both Fitch and Standard & Poor’s downgraded the U.K.’s credit rating after the vote.7,8

Just how abruptly will the United Kingdom leave the European Union? Entering July, this was the big question institutional investors wanted answered. No ready answer exists.

A Brexit could take as little as two years if the U.K. invokes Article 50 of the Treaty on European Union. Once the U.K. does that, the Brexit proceeds and cannot be undone. The Brexit vote is not legally binding, however; if the U.K. never invokes Article 50, there will be no Brexit (admittedly, this is improbable). Once Article 50 is brought into play, the E.U. and U.K. must hammer out a deal within two years to let the U.K. sustain trade preferences and other benefits it gained from E.U. membership. Otherwise, there is the risk of the E.U. simply cutting the U.K. loose with little mercy. Some analysts wonder if Scotland or Northern Ireland might try to block the Brexit, or if a second, “do-over” referendum might be arranged for U.K. voters awakening to the possibility of a recession and years of economic uncertainty.9

As June ended, fallout from the Brexit in the Asia Pacific region was aiding the yen, but hurting emerging market currencies, and casting doubts about China’s ability to negotiate free trade with the E.U. Would it dent growth? As BBC News commented, that seemed unlikely. Economic expansion of around 5% in 2016 was still projected for many Asia Pacific nations.8

How large were the losses suffered by European indices in June? Well, very large: the CAC 40 slipped 5.95%; the DAX, 5.68%; the Euro Stoxx 50, 6.54%; the IBEX 35, 9.64%; and the FTSE MIB, 10.14%. Bucking the trend, the United Kingdom’s FTSE 100 index rose 4.39%, while Russia’s RTSI advanced 2.92%.1

Elsewhere, Canada’s TSX Composite was even flatter than the S&P 500 was for June (-0.01%). Mexico’s IPC All-Share rose 1.12%; Brazil’s Bovespa, an impressive 6.30%. India’s Sensex pulled off a 1.24% June gain, and Taiwan’s TAIEX improved 1.53%; Indonesia’s IDX Composite jumped 4.58%. Other Asia Pacific benchmarks were hit with losses. The Nikkei 225 dropped 9.63%; the S&P/ASX 200, 2.70%; the KOSPI, 0.66%; the Hang Seng, 0.10%; and the Dow Jones Shanghai, 0.09%. June also brought retreats of 1.28% for the MSCI World index and 3.30% for the MSCI Emerging Markets index.1,10

Natural gas was the standout energy commodity in June, soaring 28.28% on the NYMEX. WTI crude settled at $48.44 on June 30, losing 0.76% in June even with inventories shrinking for the summer travel season. Unleaded gas futures lost 6.07% for the month, but heating oil futures gained 0.19%.11

Metals had a very good June; in part, thanks to the news of the impending Brexit. Gold closed at 1,325.30 on the COMEX June 30, rising 8.98% on the month – but that paled next to silver’s 17.80% climb to $18.83. Platinum rose 4.33% for June; copper, 5.36%. The U.S. Dollar Index ended June little changed from the end of May, rising but 0.02 points to 95.82.11,12

Coffee and sugar ruled the ag sector in June. Coffee futures rose 17.65%; sugar futures, 19.04%. Soybeans did well, gaining 9.09%. Corn futures slid 11.11%; wheat futures, 7.51%. In between those extremes, cotton futures advanced 3.57%; cocoa futures, 0.26%.11

Existing home sales improved by another 1.8% in May. The National Association of Realtors estimated the annualized sales pace at 5.53 million. NAR’s pending home sales index, however, slipped 3.7% in May, giving back nearly all of its 3.9% April advance. New home buying tailed off 6.0% in the fifth month of the year, the Census Bureau reported.3,4

As for the key housing indicators that didn’t involve sales, the April edition of the S&P/Case-Shiller 20-city composite home price index showed a 5.4% overall gain (as opposed to 5.5% in March). Census Bureau data showed a 0.7% May rise for building permits but 0.3% less groundbreaking.3,4

June ended with mortgage rates even lower than they had been near the end of May. The reduction was dramatic. In Freddie Mac’s June 30 Primary Mortgage Market Survey, average interest rates stood as follows: 30-year FRM, 3.48%; 15-year FRM, 2.78%; 5/1-year ARM, 2.70%. Compare that with data from the May 26 edition of the PMMS: 30-year FRM, 3.64%; 15-year FRM, 2.89%; 5/1-year ARM, 2.87%.13

Wall Street took the news of the Brexit hard, but then rallied. At the close on June 30, the Dow was at 17,929.99 (+0.80% for the month), and the S&P 500, at 2,098.86 (+0.09% on the month). The Nasdaq had a negative June, going -2.13% for the month to 4,842.67. Small caps lost a little ground – the Russell 2000 ended the month 0.19% lower at 1,152.43. Concluding June at 15.63, the CBOE VIX gained 10.15% for the month.1

DJIA +2.90 +0.97 +8.89 +6.08
NASDAQ -3.29 -3.40 +14.92 +12.29
S&P 500 +2.69 +1.03 +11.79 +6.52
10 YR TIPS 0.09% 0.48% 0.75% 2.54%

Sources:,, – 6/30/161,14,15,16
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

Wall Street has made many comebacks through the years from market disruptions. June witnessed another. While stocks plummeted on June 24 after the referendum, the month ended with the S&P 500 gaining nearly 100 points in three trading sessions. On June 30, the index settled only 14.46 points below where it had closed on June 23. July will certainly not be absent of turbulence, but this is an illustration of why investors want to remain in the market, despite the occasional jolts. Bank of England governor Mark Carney’s June 30 comment that the central bank will probably soon opt for a new round of quantitative easing provides investors with a little encouragement as July starts, and few economists see the Fed tinkering with rates until 2017 (who knows, a cut may even be in store if conditions demand one). These are volatile times and this is not shaping up to be a great year for the market – but just as stocks surged at the end of the month and quarter, they could also rally past expectations in the second half of the year.17

UPCOMING ECONOMIC RELEASES: Across the rest of July, the important stateside indicators roll out in this order: the June ISM service sector PMI (7/6), the June ADP employment change and Challenger job-cut reports (7/7), the Department of Labor’s June employment report (7/8), the latest Federal Reserve Beige Book (7/13), the June PPI (7/14), the preliminary July University of Michigan consumer sentiment index, June retail sales and industrial production and the June CPI (7/15), June groundbreaking and building permits (7/19), June existing home sales (7/21), June new home sales, the May S&P/Case-Shiller home price index and July’s Conference Board consumer confidence index (7/26), the next FOMC rate decision, June hard goods orders and June pending home sales (7/27), and, finally, the University of Michigan’s final July consumer sentiment index and the federal government’s initial estimate of Q2 growth (7/29). June’s PCE inflation gauge and June consumer spending figures will be released on August 2.

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GREG OLIVER //// Citations.
1 – [6/30/16]
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Oliver 097[797[97[097[097[097[0970978098

A Roth IRA’s Many Benefits

A Roth IRA’s Many Benefits
Why do so many people choose them over traditional IRAs?


The IRA that changed the whole retirement savings perspective. Since the Roth IRA was introduced, it has become a fixture in many retirement planning strategies.

The key argument for going Roth can be summed up in a sentence: Paying taxes on your retirement contributions today is better than paying taxes on your retirement savings tomorrow.

Here is a closer look at the trade-off you make when you open and contribute to a Roth IRA – a trade-off many savers are happy to make.

You contribute after-tax dollars. You have already paid federal income tax on the dollars going into the account. But in exchange for paying taxes on your retirement savings contributions today, you could potentially realize great benefits tomorrow.1

You position the money for tax-deferred growth. Roth IRA earnings aren’t taxed as they grow and compound. If, say, your account grows 6% a year, that growth will be even greater when you factor in compounding. The earlier in life that you open a Roth IRA, the greater compounding potential you have.1

You can arrange tax-free retirement income. Roth IRA earnings can be withdrawn tax-free as long as you are age 59½ or older and have owned the IRA for at least 5 years. (That 5-year clock starts on January 1 of the tax year in which you make your initial Roth IRA contribution.)2

The IRS calls such tax-free withdrawals qualified distributions. They may be made to you, to your estate after you are deceased, and/or to a beneficiary. (If you die before the Roth IRA meets the 5-year rule, your IRA beneficiary will see the IRA earnings taxed until it is met.)3

If you withdraw money from a Roth IRA before you reach age 59½, it is called a nonqualified distribution. If you do this, you can still withdraw an amount equivalent to your total IRA contributions to that point tax-free and penalty-free. If you withdraw more than that amount, though, the rest of the withdrawal may be fully taxable and subject to a 10% IRS penalty as well.1

Withdrawals don’t affect taxation of Social Security benefits. If your total taxable income exceeds a certain threshold – $25,000 for single filers, $32,000 for joint filers – then your Social Security benefits may be taxed. An RMD from a traditional IRA represents taxable income, and may push retirees over the threshold – but a qualified distribution from a Roth IRA isn’t taxable income, and doesn’t count toward it.4

You can direct Roth IRA assets into many different kinds of investments. Invest them as aggressively or as conservatively as you wish – but remember to practice diversification. The range of investment choices is often broader than that offered in a typical workplace retirement plan.1

Inheriting a Roth IRA means you don’t pay taxes on distributions. While you will need to take distributions within 5 years of the original owner’s passing, you won’t pay taxes on the distributions you take from the Inherited Roth IRA.5

You have 16 months to make a Roth IRA contribution for a given tax year. For example, IRA contributions for the tax year that has passed may be made up until April 15 of the succeeding year. While April 15 is the annual deadline, many IRA owners who make lump sum contributions for a given tax year make them as soon as that year begins, not in the following year. Making your Roth IRA contributions earlier gives the funds in the account more time to grow and compound with tax deferral.1

How much can you contribute to a Roth IRA annually? The 2015 contribution limit is $5,500, with an additional $1,000 “catch-up” contribution allowed for those 50 and older. (The annual contribution limit is adjusted periodically for inflation.)6

You can keep making annual Roth IRA contributions all your life. You can’t make annual contributions to a traditional IRA once you reach age 70½.6

Does a Roth IRA have any drawbacks? Actually, yes. One, you will generally be hit with a 10% penalty by the IRS if you withdraw Roth IRA funds before age 59½ or you haven’t owned the IRA for at least five years. (This is in addition to the regular income tax you will pay on funds withdrawn prior to age 59 1/2, of course.) Two, you can’t deduct Roth IRA contributions on your 1040 form as you can do with contributions to a traditional IRA or the typical workplace retirement plan. Three, you might not be able to contribute to a Roth IRA as a consequence of your filing status and income; if you earn a great deal of money, you may be able to make only a partial contribution or none at all.1,3,6

Rollovers are permitted. Since 2010, any individual, regardless of marital status and income level, can roll eligible IRA assets into a Roth IRA. Previously, rollovers were dependent upon the account holder’s income. If you are required to take an RMD from your traditional IRA the year you make the rollover, you must take it before converting it to Roth.3

All this may have you thinking about opening up a Roth IRA or creating one from existing IRA assets. A chat with the financial professional you know and trust will help you evaluate whether a Roth IRA is right for you given your particular tax situation and retirement horizon.

1) 892348234237489[37[43709[47903USA / GREG OLIVER / report/update /OFS

Bag Lady Syndrome

Bag Lady Syndrome

You must avoid it. Think about tomorrow, not just today.


No woman wants to end up a “bag lady” – impoverished, out of options, left to fend for herself on the streets. Only a tiny percentage of women from affluent households will experience this retirement nightmare, but that does not mean the risk should be dismissed.

This is the financial circumstance you may fear more than any other. What can you do to counter that fear and guard against running out of money in retirement?

The first step is to plan. You must plan with the knowledge that you might outlive your spouse; that you might spend some, or even all, of your retirement alone. Because of your potentially longer lifespan and the lack of a spousal safety net, it is not unreasonable to assume that you may need 150% of the retirement money that a man in your situation might need. That may be stunning, but it is worth realizing. Imagine your children having to bear the financial burden of taking care of you when you are elderly. If you have no children, imagine having to rely on welfare and Medicaid at that time. Surely that is not the future you imagine or want.

Value your future comfort as much as you value your comfort today. Think ahead and investigate what it might take to retire comfortably in terms of income and lifetime savings. If you haven’t done much financial preparation for the future, you may be shocked when you see what needs to be done. Regardless, there is no avoiding it. Time is your friend in these matters, and procrastination in saving and investing only makes your retirement more of a question mark.

See wealth as something you build, not something you own. So often, society looks at wealth in terms of material items. You spend money to acquire those items, and, with rare exceptions, their value depreciates as years go by.

Rather than direct your money into depreciating items, you can save and invest it. You can steadily contribute to IRAs, brokerage accounts, workplace retirement plans, and other vehicles that permit you to invest in equities. Investing in equities is crucial, for they offer you the potential to grow your money at a rate faster than inflation. Yes, Wall Street has some bad years as well as good ones – but, over several decades, the good have outnumbered the bad. The broad benchmark of Wall Street – the S&P 500 – posted annual gains in 31 of the 41 years from 1975-2015, sometimes large ones.1

Many women are concerned about not losing money. In retirement, that is indeed a prime concern for both women and men. Prior to retirement, though, accepting some risk in your investments can lead to much greater potential reward (i.e., yield) than you might get from the typical savings or checking account or fixed-income bank investment.

Plan income streams. Too many seniors rely on a single income stream in retirement – Social Security. In fact, 47% of unmarried elderly Social Security recipients rely on Social Security for at least 90% of their income. In 2015, the average monthly benefit was just $1,335.2

On average, an American woman retires at age 62. In 2014, 40.8% of women who began receiving Social Security retirement benefits filed for them at – not surprisingly – age 62. The upside of this decision was that they gained an income stream. The downside was that by filing for benefits at 62, they received a monthly benefit about 30% smaller than the one they could have received by first claiming benefits at 66.3

One in four 65-year-old women today will live to be at least 90. Can you imagine relying heavily, or solely, on Social Security for 20, 25, or 30 years? If you find yourself in such straits, you will be consigned to a life of poverty, unless you sell or borrow against assets you own to come up with more retirement money.3

Social Security cannot be your lone income source in retirement, and, before you retire, you must arrange others.

What is a chat with a financial professional worth? It may be worth a great deal – it may be eye-opening and illuminating with regard to your retirement prospects. If you want to see where you stand today, what you may want to do to approach retirement with confidence and adequate financial resources, start there.

GREG OLIVER 0i23049[123704923709[423709409`
1 - [6/28/16]
2 – [10/13/15]
3 – [8/11/15]

Good Retirement Savings Habits Before Age 40

Good Retirement Savings Habits Before Age 40

Some early financial behaviors that may promote a comfortable future.


You know you should start saving for retirement before you turn 40. What can you start doing today to make that effort more productive, to improve your chances of ending up with more retirement money, rather than less?

Structure your budget with the future in mind. Live within your means and assign a portion of what you earn to retirement savings. How much? Well, any percentage is better than nothing – but, ideally, you pour 10% or more of what you earn into your retirement fund. If that seems excessive, consider this: you are at risk of living 25-30% of your lifetime with no paycheck except for Social Security. (That is, assuming Social Security is still around when you retire.)

Saving and investing 10-15% of what you earn for retirement can really make an impact over time. For example, say you set aside $4,000 for retirement in your thirtieth year, in an investment account that earns a consistent (albeit hypothetical) 6% a year. Even if you never made a contribution to that retirement account again, that $4,000 would grow to $30,744 by age 65. If you supplant that initial $4,000 with monthly contributions of $400, that retirement fund mushrooms to $565,631 at 65.1

Avoid cashing out workplace retirement plan accounts. Learn from the terrible retirement saving mistake too many baby boomers and Gen Xers have made. It may be tempting to just take the cash when you leave a job, especially when the account balance is small. Resist the temptation. One recent study (conducted by behavioral finance analytics firm Boston Research Technologies) found that 53% of baby boomers who had drained a workplace retirement plan account regretted their decision. So did 46% of the Gen Xers who had cashed out.2

Instead, arrange a rollover of that money to an IRA, or to your new employer’s retirement plan if that employer allows. That way, the money can stay invested and retain the opportunity for growth. If the money loses that opportunity, you will pay an opportunity cost when it comes to retirement savings. As an example, say you cash out a $5,000 balance in a retirement plan when you are 25. If that $5,000 stays invested and yields 5% interest a year, it becomes $35,200 some 40 years later. So today’s $5,000 retirement account drawdown could amount to robbing yourself of $35,000 (or more) for retirement.3

Save enough to get a match. Some employers will match your retirement contributions to some degree. You may have to work at least 2-3 years for an employer for this to apply, but the match may be offered to you sooner than that. The match is often 50 cents for every dollar the employee puts into the account, up to 6% of his or her salary. With the exception of an inheritance, an employer match is the closest thing to free money you will ever see as you save for the future. That is why you should strive to save at a level to get it, if at all possible.4

Saving enough to get the match in your workplace retirement plan may make your overall retirement savings effort a bit easier. Say your goal is to save 10% of your income for retirement. If the employer match is 50 cents to the dollar and you direct 6% of your income into that savings plan, your employer contributes the equivalent of 3% of your income. You are almost to that 10% goal right there.4

Think about going Roth. The younger you are, the more attractive Roth retirement accounts (such as Roth IRAs) may look. The downside of a Roth account? Contributions are not tax-deductible. On the other hand, there is plenty of upside. You get tax-deferred growth of the invested assets, you may withdraw account contributions tax-free, and you get to withdraw account earnings tax-free once you are 59½ or older and have owned the account for at least five years. Having a tax-free retirement fund is pretty nice.4

To have a Roth IRA in 2016, your modified adjusted gross income must be less than $132,000 (single taxpayer) or $194,000 (married and filing taxes jointly).4

Set it & forget it. Saving consistently becomes easier when you have an automated direct deposit or salary deferral arrangement set up for you. You can gradually increase the monthly amount that goes into your accounts with time, as you earn more.

Invest for growth. Much wealth has been built through long-term investment in equities. Wall Street has good years and bad years, but the good years have outnumbered the bad. Early investment in equities may assist your retirement savings effort more than any other factor, except time.

Time is of the essence. Start saving and investing for retirement today, and you may find yourself way ahead of your peers financially by the time you reach 40 or 50.

GREG OLIVER [09347059[34713975[193475[1034905[1934805[1934
1 - [7/7/16]
2 – [6/30/16]
3 – [11/20/15]
4 – [2/4/16]