Category: Investment - PFwise.com

Assessing the First Bitcoin Futures ETF

10/26/2021

One of the challenges for people interested in investing in Bitcoin is how to actually invest in it. ProShares debuted its Bitcoin Strategy ETF (BITO), which invests in Bitcoin futures contracts to give investors exposure to the cryptocurrency in an exchange-traded product with a 0.95% expense ratio. The ProShares ETF could be the first of many ETFs to follow, with several other managers planning launches in the fourth quarter of 2021, potentially leading to fee wars that could drive the costs of these investments lower (and in fact, VanEck is expecting to imminently be launching their own Bitcoin Strategy ETF [XBTF] with ‘just’ a 0.65% expense ratio).

An article at ETF.com agrees that Bitcoin Futures ETFs will make it easier for investors to invest in and manage Bitcoin exposure, however, systemic risk could develop due to an unnatural supply-and-demand imbalance for the Bitcoin Futures themselves. This could occur not only because of the potential popularity of the ETFs from consumers, but also because the ETFs could see huge flows from other funds managed by the issuer of a Bitcoin Futures ETF that could create destabilizing demand shocks.

The article suggests that ETFs that invest directly in Bitcoin itself, rather than via futures, would avoid many of these problems, citing the success of funds in Europe and Canada that hold Bitcoin directly. But so far, the Securities and Exchange Commission (SEC) appears to view the risk to investors of funds investing directly in Bitcoin or other cryptocurrencies (which are largely unregulated) as greater than the risk of funds investing in Bitcoin futures (which are SEC-regulated).

For now, investors seeking crypto exposure through ETFs will have to rely on products based on derivatives, and accept the risks that come with doing so!

What Are Realistic Income Opportunities in the Rest of 2021?

10/11/2021

Below is an article from Fidelity that scans income opportunities on the horizon for the rest 2021:

That possibility that higher inflation will eventually lead to higher rates is increasing the attractiveness of floating-rate assets including preferred stocks and loans from both the US and Canada. Unlike bonds that pay fixed rates of interest, floating-rate assets pay interest at rates that adjust periodically, based on a publicly available, short-term interest rate. That means floating-rate preferreds and loans are less likely than most fixed income investments to lose value when inflation and interest rates rise. While past performance is no guarantee of future results, floating-rate loans and preferreds historically have performed better than longer-duration fixed income bonds in rising rate environments. Remember though, that floating-rate loans are sub-investment grade assets that may be more volatile and present higher credit risk than investment-grade corporate and government bonds.

Master limited partnership (MLP) and clean energy yieldco dividends are another interesting source of income right now, though investing in them is best left to professional managers. MLPs pay the highest yields of any income-oriented asset class and have historically maintained their value in times of inflation. MLPs operate real properties, mostly oil and gas pipelines, and many also continue to be mispriced by the market. Clean energy yieldcos also operate real properties, mostly solar and wind power projects. Many MLPs have been increasing their free cash flows by cutting their capital spending and paying down debt and offer historically attractive yields, compared to high-yield bonds issued by energy companies. MLPs may also benefit if proposed increases in corporate income tax rates come to pass because as partnerships, rather than corporations, they have tax advantages that would become increasingly valuable in a higher tax environment.

Real estate investment trusts (REITs) in the US and Canada may also offer attractive and steady (or even rising) dividends plus the potential for capital appreciation as more people eventually return to offices, stores, and leisure activities. REITs can grow their earnings by raising rents and they pay dividends that are higher than the yields of both the S&P 500 and investment-grade bonds. Despite their improving fundamentals, some REITs are still being underpriced by the market and that's creating opportunities for skilled managers who practice careful security selection. Some of the concern about the persistence of COVID has been priced into casino and shopping mall REITs.

Dividend-paying value stocks from companies including oil producers and gold miners are another potential source of income. These stocks are paying healthy dividends and are also inexpensive by historical standards because investors may be pricing in an eventual rise in real yields. Gold miner stocks usually move with real yields which take into account inflation. If inflation rises and real yields move lower, gold miners and gold itself typically move higher. If real yields rise sharply, then gold miners might sell off, but a lot of that risk is already priced in.

While the market may or may not be correct in pricing in the risk of a rise in real yields, gold miner stocks offer a natural volatility dampener in the event that real yields rise. However, if real yields do not fall sharply, investors may reasonably expect to collect growing dividends and eventual capital appreciation.

Finding ideas
Investors interested in multi-asset income strategies should research professionally managed mutual funds or separately managed accounts. You can run screens using the Mutual Fund Evaluator on Fidelity.com. Below are the results of some illustrative mutual fund screens.

Multi-asset class income funds
Fidelity funds
Fidelity® Multi-Asset Income Fund (FMSDX)

Non-Fidelity funds
BlackRock Multi-Asset Income Portfolio (BAICX)
Invesco Multi-Asset Income Fund (PIAFX)

Separately managed accounts
BlackRock Diversified Income Portfolio

4 Stock Investment Exit Strategies

10/8/2021

1. Support and resistance
These 2 key technical levels can be good barometers of when to buy or sell.

Support occurs when a security bounces off a series of lows in price. Basically, it's the level at which demand for a security is strong enough to stop the security from falling any further. However, once a security breaks a support level, it could mean further downside pressure. Therefore, many investors place stop orders just below support to protect themselves.

Resistance is the opposite of support—when a security bounces off a series of highs. Here, the supply is strong enough to stop the security from moving higher. When a security struggles to break through resistance, it might be time to think about getting out and taking your profits.

2. Target profit/loss ratio
You can set profit and loss targets from a purchase price. For example, a rule could be a 2:1 or 3:1 profit/loss target. You can also use percentage terms, such as 10% profit/5% loss target or if you want something with a tighter stop a 9% profit/3% loss target.

3. The 1% rule
Provides a general rule of thumb that says investors should set their max loss at 1% of their liquid net worth. For example, if you have $50,000 in savings, you shouldn’t stand to lose more than $500 on any one investment.

4. Time exit strategy
Defines the maximum amount of time you plan on being exposed to a particular investment. What you do once you've arrived at that time is up to you, but most traders use their time exit signal as an indicator that they should, at the very least, re-evaluate their investment. Time exit strategies can work when the security is moving sideways for an extended period of time, when prices are moving against you but not enough to trigger a stop-loss (an order that triggers at a specific price which executes at the next available price), or when it's moving up too slowly for your liking.

IRAs With Alternative Assets Will Be Banned in House Tax Bill

10/2/2021

It seemed like a smart strategy: put an illiquid alternative asset, like a single-family rental house, into an IRA and then the income it generates will grow tax-free (or tax-deferred).

This works particularly well if you're Peter Thiel and the asset you're contributing is low-basis shares of PayPal, but it's also a popular tactic for middle-class taxpayers on up.

But here comes the Biden Administration to mess up your plans. Under the new tax bill, this strategy would be disallowed, writes Lynnley Browning at Financial-Plannig.com.

The emerging tax bill would ban individual retirement accounts of all types and any size from holding alternative investments intended only for investors whom securities regulators consider “sophisticated.” That means shares in anything other than publicly-traded stock, bonds or mutual funds — such as private businesses, startups, private equity-backed firms, real estate, hedge funds and peer-to-peer lending networks.

Under the House tax bill, investors would be prohibited from holding in their IRAs any investments that are only available to accredited investors starting next year. Affected investors would have two years to sell their investments or forfeit the tax-advantaged status of their IRA.

Read how things will change if the bill passes — and get ready to scramble.

What To Invest In Different Business Cycles

9/24/2021

A typical business cycle contains 4 distinct phases.

Early cycle: Generally, a sharp recovery from recession, as economic indicators such as gross domestic product and industrial production move from negative to positive and growth accelerates. More credit and low interest rates aid profit growth. Business inventories are low, and sales grow significantly.
Mid-cycle: Typically the longest phase with moderate growth. Economic activity gathers momentum, credit growth is strong, and profitability is healthy as monetary policy turns increasingly neutral.
Late cycle: Economic activity often reaches its peak, implying that growth remains positive but slowing. Rising inflation and a tight labor market may crimp profits and lead to higher interest rates.
Recession: Economic activity contracts, profits decline, and credit is scarce for businesses and consumers. Rates and business inventories gradually fall, setting the stage for recovery.

Historically, different investments have taken turns delivering the highest returns as the economy has moved from one stage of the cycle to the next. Due to structural shifts in the economy, technological innovation, regulatory changes, and other factors, no investment has behaved uniformly during every cycle. However, some types of stocks or bonds have consistently outperformed while others have underperformed, and knowing which is which can help set realistic expectations for returns.

2 Great Websites With Tons of Useful Financial Planning Information

9/22/2021

Professor Laurence Kotlikoff of Boston University: https://kotlikoff.net/
This site includes an easy-to-navigate compendium of his columns, articles, and books on the left sidebar. Super useful.

Ed Slott’s resources page: https://www.irahelp.com/iraResources.php
His specialty is IRAs, but this resources page has a ton of helpful links to retirement planning resources, including his monthly advisor newsletter.

Free ETF Screen and Research Sites from Fidelity

9/20/2021

Once you have identified an ETF in the asset class, sector, or region of the market that you want to invest in, you can use a tool like an ETF screener, for example, to find ETFs in this space with your desired attributes, such as a low average daily bid-ask spread and high average daily trading volume.

Other tools, like Fidelity’s ETF research page, can help you investigate additional characteristics of an ETF you are analyzing, including the underlying fundamentals of the stocks within the fund.

Are All ETFs Tax-efficient?

9/19/2021

Taxes are an important consideration for any investment held in a taxable account. In general, passive ETFs are considered tax-efficient on an absolute basis due to their unique structure, generally lower portfolio turnover, and how they are managed. One of the primary advantages of the ETF structure is that when an investor buys or sells shares of the ETF, the ETF administrator can match purchases and sales with other investors so that no actual security purchases inside the fund need to be made. As a result, this creation/redemption structure avoids triggering a taxable event.

However, not all ETFs are equally tax-efficient.

For example, ETF dividends are subject to taxes, and ETFs that pay nonqualified dividends may be less tax-efficient than those that pay qualified dividends. Annual distributions from an ETF to investors may be treated as qualified or nonqualified dividends.

Qualified dividends are taxed at no more than 15%. However, just because the ETF reports that its distribution was a qualified dividend, that does not automatically make it qualified for the investor. The investor must have held the ETF for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. ETF investors, like mutual fund investors, are subject to the relevant tax rates on distributions that flow through to end investors, whether they take the form of dividends on stocks or coupon payments on bonds.

It's also possible to invest tax-efficiently with ETFs by selecting those that minimize capital gains distributions and maximize exposure to qualified dividends, as well as holding tax-inefficient ETFs in tax-deferred or tax-exempt accounts.

Do ETFs Pay Dividends?

9/18/2021

If a stock is held in an ETF and that stock pays a dividend, then so does the ETF.

While some ETFs pay dividends as soon as they are received from each company that is held in the fund, most distribute dividends quarterly. Some ETFs hold the individual dividends in cash until the ETF’s payout date. Others reinvest the dividends back into the fund as they are received, and then distribute them as cash on the ETF’s payout date.

ETFs may provide the option of forgoing receiving cash in exchange for the purchase of new shares with the dividends received. And certain brokers, including Fidelity, might allow you to reinvest dividends commission-free. You can find out if and how an ETF pays a dividend by examining its prospectus.

How to Buy Chinese Stocks In the US

9/15/2021

There are multiple ways for investors who are bullish on the Chinese economy and want to buy Chinese stocks.

1. Buy ADRs.
American Depositary Receipts (ADRs) entitle investors to foreign shares being held on their behalf at a bank.

2. Buy H-Shares (Chinese stocks listed in Hong Kong)
Those are called H-shares, and U.S. investors need Hong Kong dollars to purchase H-shares. You have two options: a) convert U.S. dollars to Hong Kong dollars; b) buy Hong Kong stocks on margin, borrowing Hong Kong dollars from a brokerage firm with U.S. investments as collateral.

Interactive Brokers, Fidelity, Vanguard, and Charles Schwab all support this option.

3. Buy A-Shares (China's domestic listed stocks) through two special programs
The Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs are cross-boundary channels that allow investors in each market to trade shares on the other market using local brokers and clearing houses.

Only Interactive Brokers supports this option.

4. Buy ETFs that hold Chinese stocks
For investors who don't want to directly own any Chinese stocks, here are some major ETFs that mainly hold China A-shares or H-shares:

Xtrackers Harvest CSI 300 China A-shares (ASHR): A-shares only
KraneShares Bosera MSCI China A (KBA): A-shares only
iShares MSCI China A (CNYA): A-shares only
iShares China Large-cap (FXI): Hong Kong-traded shares only
SPDR S&P China (GXC): mainly H-shares

Why Inflation is a Stealth Tax?

9/2/2021

Inflation is a "tax" that has nothing to do with revenue - instead, it diminishes your clients' purchasing power. Today, a 50/50 portfolio of U.S. Treasury bonds and the S&P produces 75% less income than it did 10 years ago, in July 2011. Van Mueller explains how this works, why that last bag of Doritos felt a little lighter than usual, and why now is the best time ever to get cash value life insurance.

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What is inflation? Isn’t it a very complex concept? Doesn’t the government intend for it to be complex, so that the American people don’t understand that they are being taxed, again, without it being called a tax? Isn’t it a way for the government to tax the poor, middle class and the upper middle class without those groups even realizing what is happening to them? Isn’t it a way for our government to add additional tax revenue from the wealthy? Did you notice I didn’t say super-rich? Most of the super-rich do not pay income taxes. They have planners who put strategies in place to offset the damage caused by inflation and yes, even take advantage of inflation. Shouldn’t our customers be made aware that the same strategies are available to them?

So, in its simplest terms, what is inflation? The simplest answer is that it is the lost purchasing power of our money! We will discover later in this month’s newsletter that it is much more complex than that. However, our customers do not desire complexity from us. They desire simplicity. They want to understand exactly what is happening to their money.

Our customers do not desire complexity from us. They desire simplicity. They want to understand exactly what is happening to their money.

Here is an example of the lost purchasing power of our money that is relevant to many of the customers we talk with.

Healthview Services is an organization that reviews Social Security and Medicare and reports on the effectiveness of those programs. They recently reported that if you were receiving $2,000 per month in Social Security benefits in the year 2000, that in 2020 you would now require $2,800 per month to buy the same amount of goods and services. There are two important points to share. First, that increase was during a low inflation period. It even included a deflationary period in 2007 and 2008. Second, the information did not include the massive inflation increase that we are seeing in 2021. How does the dictionary define inflation? In economics, inflation (or less frequently, price inflation) is a general rise in the price level of an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the PURCHASING POWER per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and service. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, CPI, over time.

There are other indices that are used widely as measurements.
1. Producer Price Indices – This is an increase in costs at the producer level rather than the consumer level.
2. Commodity Price Indices – This measures a basket of commodities.
3. Core Price Indices – Food and oil prices can change quickly. Therefore, most statistical agencies also report a measure of “core inflation.” That removes volatile expenditures like food and oil from a broader index like the consumer price index. Many times, the inflation rate we are reported excludes spending on food, oil and even home purchases. It is dramatically understated. Why? Because the government doesn’t want most of America to realize that their standard of living is being reduced. That’s why people in the know call inflation a “stealth tax.”

The government doesn’t want most of America to realize that their standard of living is being reduced. That’s why people in the know call inflation a “stealth tax.”
4. GDP Deflator – This measures all the prices for goods and services against our Gross Domestic Product (GDP). This is a measurement of all the goods and services produced by Americans.
5. Regional Inflation – Prices are very different in different regions of our country. Costs of things could vary dramatically if measured by the north versus the south or the east versus the west or the coasts versus inland United States.
6. Asset Price Inflation – This is a dramatic increase in the price of financial assets such as stocks, bonds and real estate.

There are three major sources of inflation.
1. Demand-Pull – When demand for goods or services exceeds production capacity. When people want to buy Giannis Antetokounmpo sneakers and they can’t be produced fast enough, the price increases.
2. Cost-Push – When production costs increase prices. If the price of helium increases for special occasion balloons, that will increase the price for the balloons.
3. Built-In – When prices rise, wages rise also in order to maintain living costs. If wages rise, prices will increase. This has been under control for a while. This reason for inflation is heating up again.

In order to understand the impact of inflation in the future we must look at inflation in the past. Let’s look at the last time we had excessive inflation. From 1975 to 1990 we had very aggressive inflation in our country and the world for that matter. Do you know that in the 46 years since 1975 you now need $5,050.11 today to buy the same amount of goods and services that $1,000.00 bought in 1975. That means your money only buys 19.80 percent of what it could buy in 1975. You lost 80 percent of your purchasing power. The average inflation rate over those 46 years is 3.58 percent. That means you need to double your income every 20 years in order to maintain the purchasing power of your money when you began. Even at only 3.58 percent average inflation retirees would need almost a double and another half of a double increase during their life expectancy to maintain their purchasing power if they retired at age 65 and lived to age 95.

You need to double your income every 20 years in order to maintain the purchasing power of your money when you began.What happens to the quality of your retirement if you retired in 1975 when the rate of inflation was 9.13 percent and lived through bad inflation like those retirees had to until 1990? What happens to your standard of living?

Here are the rates of inflation from 1975 to 1990.
1975: 9.13 Percent
1976: 5.76 Percent
1977: 6.50 Percent
1978: 7.59 Percent
1979: 11.35 Percent
1980: 13.50 Percent
1981: 10.32 Percent
1982: 6.16 Percent
1983: 3.21 Percent
1984: 4.32 Percent
1985: 3.56 Percent
1986: 1.86 Percent
1987: 3.65 Percent
1988: 4.14 Percent
1989: 4.82 Percent
1990: 5.40 Percent

Any inflation rate over 2 percent is considered unfavorable. Any inflation rate below 2 percent is also considered unfavorable for the economy. From 1991 to 2020 the inflation rate was in the 2 to 4 percent range. 2021 is the first time it has entered the 5 percent range at 5.05 percent. Simply stated, that means that in 2022 you will need $1,005 to buy the same amount of goods and services that you bought in the year 2021. A cup of coffee was $0.25 in 1970. In the year 2000 a cup of coffee had increased in price to $1.00. In 2019 it increased to $1.59. That’s not a Starbucks cup of coffee, that’s a regular cup of coffee. That is inflation.

So, what’s happening with inflation today? Are we creating 1975 to 1990 inflation right now? Let’s review a few things and see if we can figure out what our government is currently doing.

The Federal Reserve’s current Quantitative Easing programs created $120 billion per month to $1.4 trillion of newly printed money annually. Jerome Powell said they would reduce this amount in 2022 or 2023. That will probably not happen now. The Biden administration let it be known that President Biden will reappoint Jerome Powell as the Federal Reserve Chairman in 2022. The administration would not have reappointed Mr. Powell unless he agreed to continue President Biden’s strategy going strong into the November 2022 elections. That means no reduced quantitative easing or rate hikes or money tightening strategies for a while. So, if shutting down the economy causes a depression, they will print money. If the stock market crashes 30 or 40 percent, they will print money. If municipal bonds collapse because investors don’t believe our cities and states will be able to meet all their healthcare, pension and debt obligations, won’t they print more money? If our economy continues to struggle because the Delta variant of the COVID-19 virus causes state officials to partially or completely lock down their economies, what will the Federal Reserve do? Won’t they print more money? What if the economy doesn’t recover fast enough. What will the government do? Won’t they just print more money? They don’t really have ANY other alternatives. Don’t believe me yet? Please try to wrap your head around the next few sentences. Our government has printed so much money to offset the negative consequences of the COVID-19 lockdowns that if you add up all the money that our country has ever printed; over 40 percent of that money was printed in the year 2020. This won’t stop soon. There will be trillions for infrastructure, climate change and many other things. We are not allowing our economy to heal itself. We are artificially manipulating the economy to win elections or pursue short-term agendas that promote candidates or party’s rather than the longterm well-being of our country and our country’s economy.

Our government has printed so much money to offset the negative consequences of the COVID-19 lockdowns that if you add up all the money that our country has ever printed, over 40 percent of that money was printed in the year 2020.All of this additional liquidity is causing problems globally. There is no place to hide. There used to be global alternatives, however, we sold the Kool-aid to the rest of the world. Since March 2020 central banks have printed more than $27 trillion in stimulus. That is approximately 30 percent of the GDP of the planet. There are no words to explain the eventual damage that will be done to the world’s economy.

Using your own common sense, you will also understand that the government continues to mislead on inflation. The Bureau of Labor Statistics shared that healthcare spending has increased only one percent in the last year. If you sell health insurance, you know that is ridiculous. The same Bureau of Labor Statistics reported the housing portion of inflation increased 2.6 percent in the last year. Housing prices have increased over 14 percent. They are currently rising at the fastest rate since the real estate bubble of 2007 and 2008. They are not counting the costs of housing or medical care or food costs or energy costs even remotely correctly. This is even more manipulation

Inflation creates dramatically unfair and dishonest behavior in the markets. If you were to use a wine maker as an example, let’s see what choices are required to be made if the Federal Reserve doubles or triples the money supply. If the wine maker is selling his wine for $22 per bottle, he is now confronted with a very difficult decision. Here are his choices: He can continue to sell his wine for $22 per bottle and lose 50 percent or more of his profit, or he can use cheaper ingredients and destroy the quality of his wine and continue to sell it for $22, thus maintaining his profit, or he can double the price to $44 per bottle. The issue with the third idea is that the wine maker will face competition pressures from other wine makers who don’t have as much pride in their product or integrity in the way they operate. Inflation puts financial pressure on individuals to be dishonest. They must weigh their moral integrity against their financial wellbeing. Average individuals gain no long-term benefits from excessive inflation. It is taxation without representation.

Inflation puts financial pressure on individuals to be dishonest. They must weigh their moral integrity against their financial wellbeing.Inflation is a tax. It’s not an actual tax like a sales tax or income tax. It has nothing to do with tax revenue. There is no line for it on form 1040 that makes you pay two or three percent of your earnings because of inflation. There is no payment that must be made to account for the rising inflation rates. The inflation tax is unseen. The inflation tax is a “stealth tax.” That is why it is so complicated and difficult to plan for. The inflation tax is a forfeiture on the cash you hold as inflation increases. As inflation increases, cash becomes less valuable. In short, what you save today will be worth less tomorrow.

In a recent article in Think Tank Advisor, Dr. Michael Finke who is a professor of wealth management at the American College of Financial Services stated this:

“Unfortunately, if these retirees hope to live on income from these investments, they will feel the effects of asset inflation. Asset inflation should also affect the expected growth in portfolios of bonds and stocks. A 50/50 portfolio of 10-year U.S. Treasury bonds and the S&P 500 produces exactly 75% less income today than it did 10 years ago, in July 2011.

In other words, $1 million today will produce the same annual dividends and interest income from a balanced portfolio as $250,000 did for a retiree in 2011. Retirees who reach for yield by taking greater risk in credit markets are facing spreads between risky corporate high-yield bonds and Treasury bonds lower than they were before the pandemic, despite a likely tapering in bond buying by the Fed in the coming months.”

WOW! Americans have lost 75 percent of the dividend and interest income they were receiving in 2011. How do they make that up?

Americans have lost 75 percent of the dividend and interest income they were receiving in 2011.One more thing: Become aware of the word “shrinkflation.” Instead of raising prices, companies are hiding those rising costs by shrinking the size of everyday products. As an example, General Mills shrank its family size cereal boxes from 19.3 to 18.1 ounces.

With rising labor costs and ingredient prices combined with increased demand and a shipping crisis, you can expect shrinkflation to expand exponentially in the future. Here are some additional examples of shrinkflation.

Clorox now includes 75 wipes per pack, down from 85, for the same price.
Frito-Lay just shrank their bags of Doritos from 9.75 ounces to 9.25 ounces. Both are currently for sale at Target for the same price.
Hershey’s cut its 18-ounce pack of dark chocolate kisses by almost two ounces.
Hefty’s mega pack went from 90 bags to 80 bags, at the same price.
A two-pack of Reese’s Peanut Butter Cups used to weigh 1.6 ounces. Now it’s just 1.5 ounces.
Tubs of Pringles are different weights depending on the flavor in the U.S., but at Walmart they all cost the same.
Tillamook deceased the size of its ice cream cartons from 56 ounces to 48 ounces. It said that it didn’t make the decision lightly, but that if it didn’t make its cartons smaller it would have had to hike up prices because of rising ingredient costs.
Some of Royal Canins’ cans of cat food now weigh 5.1 ounces, down from 5.9 ounces, but they still cost the same. Royal Canin, a subsidiary of Mars, said that it reduced some product sizes because of unprecedented demand for pet food during the pandemic.
Charmin toilet paper originally had 650 sheets per roll. It now only contains around half of that. Even its Mega Rolls and Super Mega Rolls don’t have as many sheets as the original. The sheets have reportedly gotten smaller as well.
Cadbury changed the shape of its famous Dairy Milk bars in 2013 and changed the weight of them too. The individual pieces now have round edges and contain nearly 10 percent less chocolate than before.

This information is why it is the greatest time ever to be an insurance and financial professional and it is without a doubt the greatest time ever to sell cash value life insurance.

This information is why it is the greatest time ever to be an insurance and financial professional and it is without a doubt the greatest time ever to sell cash value life insurance.

It is obvious that there are no products by themselves that can overcome the challenges of aggressive inflation. It is also obvious that only STRATEGIES must be used to not be hurt by inflation and actually take advantage of inflation. I know you are all thinking to yourselves, HOW? You already know how. I have been writing this newsletter for years with ideas to beat inflation. We are the only industry that can. Here are several bullet points to remember. We will go into more detail in the months ahead.

1. Never Lose Any Money!
2. Have access to your money that you didn’t lose to take advantage of opportunities when they present themselves.
3. Reduce or eliminate income tax liability
4. Use pennies to buy dollars. Use leverage to make money more effective and more efficient.
5. Have one dollar do the work of many dollars. My dollars benefit if you die too soon, live too long, become disabled, have a catastrophic illness, have a terminal illness, require long term care or wish to supplement your retirement income. All with the same dollar.
6. Finally, learn and use mortality and longevity credits to increase retirement income.

So, what do you think? Do you know more about inflation than you ever wanted to know? I hope not. This will be an important concern for every American going forward. Let’s help our customers be in control of that journey.

Min Vol ETF Strategies

8/31/2021

Min vol investment choices may help you execute your strategy if you are concerned about a short-term market decline. We have shared a list of min volatility ETFs before, if you want to explore more min vol ETFs, here are the 10 largest by net assets:

iShares MSCI Min Vol USA ETF (USMV)
iShares MSCI Min Vol EAFE ETF (EFAV)
Invesco S&P 500® Low Volatility ETF (SPLV)
iShares MSCI Min Vol Global ETF (ACWV)
iShares MSCI Emerging Markets Min Vol Factor ETF (EEMV)
iShares MSCI USA Min Vol Factor ETF (USMV)
Invesco S&P Midcap Low Volatility ETF (XMLV)
Invesco S&P Smallcap Low Volatility ETF (XSLV)
iShares MSCI USA Smallcap Min Vol Factor ETF (SMMV)
Invesco S&P Intl Developed Low Volatility ETF (IDLV)

Other volatility strategies
There are several other ways that investors may be able to weather an increase in volatility. Bonds, for example, tend to be less volatile than stocks. When the stock market is expected to be more volatile, tactical investors may want to consider increasing their bond allocation. It is worth noting that the bond market is not immune to volatility.

High-yielding stocks are another opportunity that investors can explore. The income component of high-yielding stocks tends to make these investments less volatile than more cyclical stocks, which have lower or no dividend yield. Of course, the 2008 financial crisis highlights that even this strategy may not be immune to severe market stress.

You could also consider industry/sector-specific mutual funds that have historically exhibited lower volatility, relative to the broad market, as well as managed account solutions—particularly those with a defensive strategy.

Additionally, there are several options strategies, including straddles, strangles, and other spreads, which can be used to take advantage of expected market volatility.

3 Investments to Keep in Retirement

8/21/2021

Below is an article from fool.com, it mentions three investments to hang onto once retirement rolls around.

1. Dividend stocks
The great thing about dividend stocks is that they allow you to make money in two ways. First, like all stocks, dividend stocks have the potential to gain value over time. You could buy shares of a given dividend-paying company today at $400 apiece, and in 20 years, they could end up being worth $1,200 apiece.

But dividend stocks also, not shockingly, pay dividends, generally on a quarterly basis. That means getting access to a steady stream of income during retirement, which is particularly appealing to me.

If there's a year when the stock market underperforms and I can't sell stocks at a gain, I can fall back on the dividend payments I receive and use them as income to pay my expenses. And if that's not necessary, I can always reinvest my dividends for added growth.

2. Municipal bonds
Municipal bonds are those issued by states, cities, and other localities (as opposed to corporate bonds, which are issued by corporations). Municipal bonds tend to pay less interest than corporate bonds, but the benefit is that the interest payments you collect won't be taxable at the federal level. Plus, if you buy municipal bonds issued by your home state, you won't pay state or local taxes on that interest income, either.

Here's why that's important to me. Right now, I have my retirement savings in a SEP IRA and solo 401(k). Both accounts give me an up-front tax break on my contributions, but withdrawals during retirement will be subject to taxes. Because of that, it's important for me to have a source of income that doesn't add to my tax burden.

Plus, bonds are generally a less volatile investment than stocks. During retirement, I feel I'll need to keep a large chunk of my portfolio in bonds to avoid exposing myself to undue risk.

3. S&P 500 index funds
Once I retire, I suspect that my risk tolerance might wane in the context of investing. And that's why I think S&P 500 index funds are a good bet.

Index funds are passively managed funds that aim to match the performance of the benchmarks they're tied to. S&P 500 index funds track an index that's comprised of the 500 largest publicly traded stocks (as measured by market capitalization). The index itself offers instant diversification, which is a good thing to have in your portfolio as a retiree. And that's a great way to keep gaining wealth while getting some protection against market downturns.

The choices you make for your investment portfolio could set the stage for a rewarding retirement. Though I'm not planning to wrap up my career anytime soon, right now, all of these investments seem like a good bet for me, and they may be a good bet for you, too.

How to Use IRA to Invest in Early Stage Companies Properly

8/20/2021

For entrepreneurially minded individuals, the potential to generate investment returns and wealth creation through the founding and growth of a business is often unrivaled. The caveat, of course, is that rapid growth businesses also face substantial taxation on that growth when they are eventually sold. Accordingly, when such individuals have retirement account assets – effectively legal tax shelters – the question arises: “How can I shift some of the value of my fast-growing business into my retirement account?” or better yet “Can I use my tax-free Roth IRA to invest into early stage growth companies?” (as was highlighted in a recent ProPublica article about Peter Thiel’s early stage investments into PayPal and Facebook to create a whopping $5 billion Roth IRA).

Because the reality is that while a Roth IRA can certainly own shares of stocks – including privately held companies that are not (yet) publicly traded – there are limitations on who an IRA can buy shares from, and who can be compensated by an IRA-owned company, under the so-called “Prohibited Transaction” rules.

At the highest level, the Prohibited Transaction rules restrict an individual from using their (Roth) IRA to engage in various types of transactions with certain “Disqualified Persons”. Which is important because, in the case of an IRA owner, failure to abide by these rules results in a deemed distribution of the entire IRA in which the transaction occurs as of January 1 of the year in which the Prohibited Transaction occurs (causing a forced liquidation of the entire retirement account and forfeiting its tax-preferenced status altogether!).

Among the Prohibited Transaction rules outlined in IRC Section 4975, IRAs are prohibited from buying/selling property to/from, lending/borrowing to/from, or furnishing/receiving goods, services, or facilities to/from, a Disqualified Person. Disqualified Persons are also prohibited from using IRA assets for their own personal benefit. Finally, Disqualified Persons who are also fiduciaries must avoid dealing with the income or assets of an IRA for their own account, or (in general) receiving any consideration from the IRA.

Critically, an IRA owner is always a Disqualified Person, and fiduciary with respect to their own IRA. Other Disqualified Persons, with respect to an individual’s IRA (who may or may not be fiduciaries), are the individual’s spouse, ancestors, lineal descendants, and any spouse of a lineal descendant. In the event an IRA owner, along with those related Disqualified Persons owns 50% or more of a business, then the business, itself, also becomes a Disqualified Person, along with its officers, directors (and persons with similar responsibilities), 10% or greater owners, and employees earnings 10% or more of its total wages.

The end result of these rules is that in order for a Roth IRA to invest into an early stage growth business, it must have someone besides the IRA owner (or his/her family members) to buy the shares from (as they cannot be contributed in-kind to an IRA). Which means businesses that are fully owned by the founder (and/or their family members) are effectively ineligible to be purchased inside of an IRA! And even if the business isn’t fully owned by Disqualified Persons, if the IRA owner (and other family members) own 50% or more of all shares, the business cannot even issue new shares to the IRA and must find other non-Disqualified-Person owners to buy from (and even then, there is a risk that the IRS will scrutinize the transaction further under the self-dealing rules for IRAs).

Interestingly, though, for individuals who want to start a new business owned by an IRA, 100% IRA ownership is achievable. As the Tax Court has repeatedly determined that since prior to the formation and capitalization of a company, it has no owners and thus, cannot yet be a Disqualified Person! Accordingly, the company can issue 100% of its shares/interests to an individual’s IRA.

However, even when a business is fully owned by an IRA, entrepreneurs must still be cautious with respect to their compensation. Because in situations where the business is owned 50% or more by an individual’s IRA, “control” essentially always exists (either directly or indirectly), and thus receipt of compensation personally should be universally avoided (to avoid running afoul of the self-dealing rules for IRAs). Though at the same time, absent the receipt of compensation, an individual can still create a Prohibited Transaction through the provision of services (‘sweat equity’) to their IRA-owned business. As while an IRA owner can perform certain administrative and decision-making duties on behalf of an IRA-owned business (e.g., paying bills of the IRA-owned business with IRA money, deciding on investments to be made by the company), it cannot do the work of the business.

Ultimately, the key point is that while IRAs can be used to purchase private, non-public companies, the Prohibited Transaction rules significantly restrict both who can sell shares to the IRA, what compensation the entrepreneur can receive when working for an IRA-owned company, and even the ability to contribute sweat equity to an IRA-owned company. Which is important to navigate, given the harsh tax consequences associated with the Prohibited Transaction rules!

Do I Need to Pay Net Investment Income Tax?

8/17/2021

The Net Investment Income Tax (NIIT) became effective January 1, 2013, to help fund the Affordable Care Act. This additional 3.8% federal tax can impact taxpayers who exceed the modified adjusted gross income (MAGI) thresholds of $200,000 for single filers, and $250,000 for married couples filing jointly. The 3.8% NIIT applies to the lesser of net investment income or the excess of MAGI over the threshold amount. However, taxpayers may be able to avoid the NIIT by carefully managing their MAGI levels and net investment income levels.

Planning Considerations
Consider strategies that lower MAGI and net investment income.

Tax-deferred annuities: If you do not need income now and would like for some of your assets to continue growing tax-deferred, a nonqualified annuity allows you to defer the growth. Because no income is being paid out, the deferred growth will not be subject to NIIT. However, if you start taking distributions, the growth will increase your MAGI and may be subject to NIIT.
Charitable giving: Gifts made to charities may lower your overall MAGI.
Roth IRAs: Qualified distributions from Roth IRAs are not subject to income tax, so it will not increase your MAGI. o Municipal bonds: Income from these bonds is generally not included in MAGI.
Your workplace retirement plan: Distributions from most 401(k)s, 403(b)s, and other employer retirement plans are not considered net investment income, but will increase your MAGI.

Are Your Investments Taxed Diversified?

8/16/2021

Use the following checklist to help determine how tax-diversified your investments are.

Risk Capacity and Risk Attitude Could Be Different

8/9/2021

It's probably not surprising that there could be a big difference between one's risk capacity and one's risk attitude and risk perception, as this article points out.

The main takeaways from this article are:

Risk capacity must be measured separately from risk attitude/tolerance.
Risk capacity is evaluated as part of the financial planning process.
Risk attitude is best evaluated via a “psychometrically” designed questionnaire.
Risk perception shifts and must be managed constantly.
An integrated approach allows the planner to optimally address the client’s overall risk profile.

Reasons to Consider Tax-Free Bonds

8/8/2021

An article from thestreet.com discusses several reasons why people should consider tax-free bonds:

Here is the reality - there is not a lot of value in short-term bonds today, but keeping a significant portion of the muni allocation in shorter-term bonds and in cash provides the opportunity to lengthen maturities if rates rise during the second half of the year or in early 2022.

In addition, there are opportunities to enhance yields by investing in lower-quality debt — either the lower tiers of the investment-grade universe or in non-investment grade municipal bonds. Selectivity in this segment of the bond market is critical, so investing with an actively managed fund rather than an index fund or ETF is recommended.

Use DCF Model to Determine if Market is at a Top

7/31/2021

We can measure the value of investments and determine if they are appropriately priced or not by using the discounted cash flow model (DCF). The inputs to the DCF formula include earnings growth, the payout ratio (dividends plus buybacks as a percent of earnings), interest rates, and the risk premium.

This article from Fidelity.com discusses the details of each of the 4 inputs to the DCF model and analyzed their possible moves and the resulting impact on stock valuations.

The conclusion?
"In my view, interest rates are repressed by the Fed, and this will likely continue for a long time. That means that the stock market is 25% higher than it would otherwise be, but this can remain the case for a long time. Having said that, at 1.3% the 10-year yield probably has more upside than downside, and, all else being equal, that should be a drag on valuation.

In my view, only an earnings decline or regulatory action will slow this train. As long as rates are low and companies produce more free cash flow than they can put to use, they will buy back shares, inflating EPS and raising the payout ratio in the process.

Finally, while there have been pockets of exuberance and speculation in the markets, as a veteran of 36 years of market cycles I just don't see the bell-ringing signs that the market as a whole has reached a sentiment extreme.

A bubble? No, not in the classic sense. Distortions through policy and financial engineering? You bet. Can it last? You bet. For how long? Well, my secular bull market roadmap suggests another 5–7 years of outsized returns. So I'll go with that."

Alternative Ways to Get Emergency Reserve Money

7/29/2021

While having an "emergency fund" is a staple of basic financial planning, near-zero yields on cash makes it especially unappealing to hold any substantive level of cash in the current market environment, both in terms of absolute returns (almost nothing) and the opportunity cost of not getting cash invested and put to more productive use.

Accordingly, while the standard approach is to hold 3-6 months of living expenses, Clements offered suggestions on alternative approaches to maintain the necessary emergency reserve, including:

if you've ever made any prepayments on your mortgage, consider trying to have your mortgage recast for a lower payment, which reduces the amount of fixed costs to be emergency reserved in the first place;
take a hard look at what truly are fixed costs, to make sure you're only emergency reserving what needs to be reserved against (and not holding reserves to cover discretionary payments that in practice would likely just be trimmed out if times were truly tough);
remember that having a Home Equity Line Of Credit (HELOC) provides a pathway to borrow against home equity in an emergency (but otherwise doesn't have the opportunity cost of cash, since it's not tapped unless actually needed);
be cognizant of other pathways to borrow if/when needed, including 401(k) loans or even borrowing on margin from an investment account (which again isn't ideal, but borrowing in an actual emergency is a reasonable course of action, because you're only borrowing when you really do need to);
contribute to a Roth IRA, recognizing that after-tax contributions can be withdrawn tax- and penalty free if needed; and
consider funding an HSA but then pay for medical expenses out of pocket on top (which can presumably be done if you had the extra cash to save in an emergency fund in the first place), and then keep your receipts and in an emergency, use your receipts to validate tax-free withdrawals from your HSA to cover the emergency

Top 10 ESG ETFs

7/28/2021

Among the investing trends that have becoming increasingly popular in recent years is sustainable investing as defined by ESG factors—environmental, social, and governance.

Generally, ESG factors involve the impact that a company's operations and products have on the environment; the relationship a company has with customers, employees, suppliers, and communities they operate in; and a company's governance policies. The Global Sustainable Investment Alliance recently estimates that sustainable investments now account for more than a third of all global assets.

If you are interested in exploring ESG-focused ETFs, here are the 10 largest ESG ETFs by net assets, as of July 2021:

iShares ESG Aware MSCI USA ETF (ESGU)
iShares ESG Aware MSCI EM ETF (ESGE)
iShares Global Clean Energy ETF (ICLN)
iShares ESG Aware MSCI EAFE ETF (ESGD)
Vanguard ESG US Stock ETF (ESGV)
XTrackers MSCI USA ESG Leaders Equity ETF (USSG)
iShares ESG MSCI USA Leaders ETF (SUSL)
iShares MSCI USA ESG Select ETF (SUSA)
iShares MSCI KLD 400 Social ETF (DSI)
First Trust Nasdaq® Clean Edge® Green Energy Index Fund (QCLN)

Top 10 Infrastructure-Focused ETFs

7/27/2021

Amid the latest worries over new COVID cases, expectations for potentially significant infrastructure spending is helping drive many segments of the market higher. There's a long way to go before proposals might be signed into law, but a bipartisan group of US senators continue to work with the White House on a $579 billion infrastructure package for the nation's highways, ports, and rail lines. That is on top of an existing transportation bill, which would bring the proposed total spending for infrastructure to $1.2 trillion.

If you are interested in exploring infrastructure-focused ETFs, here are the largest types of these ETFs (sorted by net assets), as of July 2021:

Global X US Infrastructure Development ETF (PAVE)
iShares Global Infrastructure ETF (IGF)
Flexshares Stoxx Global Broad Infrastructure Index Fund (NFRA)
iShares US Infrastructure ETF (IFRA)
SPDR® S&P Global Infrastructure ETF (GII)
ProShares DJ Brookfield Global Infrastructure ETF (TOLZ)
iShares Emerging Markets Infrastructure ETF (EMIF)
Legg Mason Global Infrastructure ETF (INFR)
AGFiQ Global Infrastructure ETF (GLIF)

Top 10 COVID Related Momentum ETFs

7/26/2021

While there are no ETFs explicitly designed to provide exposure to investments that a fund manager has constructed to capitalize on market views related to COVID trends, momentum measures may provide an insight into those ETFs that have been able to outperform during the pandemic.

Here are the top 10 results for ETFs with the highest 1-year market total returns (54% and above) and a "high" Sharpe ratio (month-end 1 year) to account for risk-adjusted returns, sorted by highest net assets, as of July 22, 2021:

iShares Core S&P Small-Cap ETF (IJR)
iShares Russell 2000 ETF (IWM)
Vanguard Small-Cap Index Fund ETF Shares (VB)
Financial Select Sector SPDR® Fund (XLF)
Vanguard Small-Cap Value Index Fund ETF Shares (VBR)
Vanguard Extended Market Index Fund ETF Shares (VXF)
iShares Russell 2000 Value ETF (IWN)
Schwab US Small-Cap ETF™ (SCHA)
Vanguard Financials Index Fund ETF Shares (VFH)
iShares S&P Small-Cap 600 Value ETF (IJS)

Top 10 Money Rules

7/25/2021

I like these top 10 money rules in this article -

What money can and can’t do for you isn’t intuitive, so most people are surprised at how they feel when they suddenly have more or less than before.
Money makes it easy to mistake optimism (good) with gullibility (dangerous) and overconfidence (disastrous).
Getting rich and staying rich are different things that require different skills.
The formula for how to do well with money is simple. The behaviors you battle while implementing that formula are hard.
“Save more money and be more patient” is too simple for most people to take seriously, but it’s the best solution to most financial problems.
Expectations move slower than reality on the ground, so it’s easy to become frustrated when clinging to the economic trends of a previous era.
Everything is relative. John D. Rockefeller was asked how much money was enough and said, “Just a little bit more.” Everyone, at every income, tends to feel the same.
Spending money to show people how much money you have is the fastest way to have less money.
Debt removes options, savings add them.
No one is impressed with your possessions as much as you are.

Net Investment Tax Questions and Answers - Part C

7/20/2021

Previous net investment tax questions are answered here.

6. Can federal income tax credits be used to offset NIIT liability?

Although federal income tax credits can offset any tax liability, the final regulations state that income tax credits are allowed only against regular income tax and may not reduce net investment income tax. Examples of this type of tax credit include the foreign income tax credit and the general business tax credit.

The denial of tax credits as an offset of the NIIT is reflected by the sequence of reporting tax and tax credits on Form 1040. To this point, regular income tax is reported on line 46 of Form 1040. All tax credits reducing that regular income tax are taken lines 47-53. Beginning on line 56, “other taxes,” including the NIIT (reported on line 60), are reported. So logistically, all tax credits that reduce regular income tax are taken before the entry for the NIIT.

7. What form is used to report NIIT?

Net investment income tax is reported on line 60 of Form 1040. On Form 8960 (attached to Form 1040), the taxpayer computes the tax. In addition to reporting all the taxpayer’s net investment income, amounts reported on Form 8814 (Parents’ Election to Report Child’s Interest and Dividends) are also included.

Similar to regular income tax or self-employment tax, individuals who expect to be liable for the NIIT may either make estimated tax payments or request that their employer withhold additional amounts to avoid being subject to penalties for underpayment of taxes.

8. What is the additional Medicare tax? Who is liable for paying it?

The additional Medicare tax is a tax of 0.9% that is tacked on to the “regular” Medicare tax on all wages and self-employment income (collectively referred to as “earned income”) that exceed applicable threshold amounts. Thus, on earned income in excess of the applicable threshold amount, the total Medicare tax rate is 3.8% (the 2.9% regular Medicare tax rate plus the 0.9% additional Medicare tax rate).

In spite of its name, the tax revenue generated by the additional Medicare tax is not specifically earmarked for the Medicare fund. Similar to the regular Medicare tax, the additional Medicare tax is imposed only on individual taxpayers. Thus, entities such as C corporations, trusts and estates are not subject to the tax.

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PFwise.com does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.

To the extent that any material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

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