Category: Investment - PFwise.com

How to Dodge a Nasty December Tax Surprise?

9/19/2020

If you a person who plans ahead, you know waiting until year end to factor in portfolio volatility is risky business.

In this Financial-Planning.com article, it explains the need and how to prepare in order to dodge a nasty December tax surprise. Although it is an article for financial advisors, it is a good read for consumers who want to take charge of this matter themselves.

Do Active Funds Do Better in Bear Markets?

9/8/2020

One of the longstanding claims of those who advocate for active management is that it’s hard to beat the indices in a raging bull market (where the investors who are most rewarded are usually the ones who just throw caution to the wind and dial up the risk), but when the bear market comes, prudence and (active) risk management will be rewarded.

The recent pandemic volatility and March/April bear market sell-off provides a perfect situation to test this claim.

in its midyear installment of the Morningstar Active/Passive Barometer report, 51% of active funds that were around at the beginning of the year survived and outperformed their average index peer during the first half of the year… which means active funds were not categorically better than passive funds during the market volatility (though they were not worse, either).

Notably, though, there was some variability within fund categories, as only 48% of active U.S. stock funds beat their passive peers, but nearly 60% of foreign stock funds did, yet only 40% of active intermediate core, corporate, and high-yield bond funds managed to do so. On a longer-term 10-year basis – which includes the bull market of the 2010s and the bear market that started the 2020s – the results are generally worse, as even amongst lower-cost funds with only 19% of large-growth funds outperforming (and just 3% of high-cost funds in that category) and 36% of foreign large-stock funds outperforming (and only 19% of high-cost). Although 54% of low-cost emerging markets funds did outperform, along with 60% of low-cost global real estate, and 63% of low-cost high-yield. And ironically, the Morningstar research finds that on average, investors do tend to pick above-average (and lower-cost) fund managers than the rest, but often still end out underperforming passive peers simply because their timing of when they buy active managers is still not good.

The New Definition of Accredited Investor by SEC

9/7/2020

The SEC has issued new guidance on the Accredited Investor rules, expanding the Accredited Investor definitions to be based not only on income or net worth, but also on alternative measures of “financial sophistication”.

Specifically, the income and net worth thresholds – earning $200,000/year (or $300,000/year of combined income if married) for at least the last two years, or having a net worth of $1M outside the value of the primary residence – were not altered,

However, there is a new category - financial advisors holding either the Series 7, Series 65, or Series 82 (for offering private securities), will qualify as Accredited Investors, as will Registered Investment Advisers themselves.

Why Markets Don’t Seem to Care If the EconomyStinks

8/15/2020

So many of the most battered industries don’t matter much because of the way stock indexes are structured.

August 4, 2020, 6:00 AM EDT
By Barry Ritholz

The stock market has been on a tear, yet the economy is in the dumps. So why do so many people believe -- undoubtedly incorrectly -- that the stock market has decoupled from reality?

The economy many people experience, while bleak, is local, personal and, for the most part, either not publicly traded or plays only a small part in the stock market’s moves. To explain why these personal experiences have so little effect on equity markets, we must look more closely at the market role of the weakest industry sectors.

The surprising conclusion: The most visible and economically vulnerable industries are also among the smallest, based on their market-capitalization weight in major indexes such as the S&P 500. Markets, it turns out, are not especially vulnerable to highly visible but relatively tiny industries. The 30 most economically damaged industry categories could be de-listed before tomorrow’s market open, and it would hardly shave more than a few percentage points off the S&P 500.

This is so despite the worst U.S. economic collapse since the Great Depression. All of the economic data is so bad that figures on gross domestic product, unemployment and initial jobless claims must be re-scaled to even fit on charts.

But the U.S. economy is not the stock market and vice versa. As we discussed before, ignoring overseas strength is a major oversight. The so-called FAANGs (along with Microsoft) derive about half -- and in some cases even more -- of their revenue from abroad. Beyond that, the pandemic lockdown in the U.S. has benefited the giant tech companies’ sales and profits. No wonder the Nasdaq Composite 100 Index, which is dominated by big tech companies, is up about 26% this year.

But a reasonable person might argue that GDP fell by about a third in the second quarter and the S&P 500 should be in synch with that. What’s more, of the 500 companies in the S&P 500, about 450 of them are doing terribly. Industries such as retail, travel, energy, entertainment, dining have seen sales evaporate. Bankruptcies are piling up -- legendary retailer Lord & Taylor is just the latest -- and more are surely coming. Yet, the S&P 500, after a huge plunge in March, is up 2% this year.

Market capitalization explains why.

Start with some of 2020’s worst-performing industries: Year-to-date (as of the end of July), these include department stores, down 62.6%; airlines, off 55%; travel services, down 51.4%; oil and gas equipment and services, down 50.5%; resorts and casinos, down 45.4%; and hotel and motel real estate investment trusts, off 41.9%. The next 15 industry sectors in the index are down between 30.5% and 41.7%. And that’s four months after the market rebounded from the lows of late March.

These are highly visible industries, with companies that are well-covered by the news media with household names known to many consumers. Retailers are everywhere we go. Gas stations, chain restaurants and hotels are ubiquitous in cities and suburbs across the country.

So although high visibility industries may be of considerable significance to the economy, they are not very significant to the capitalization-weighted stock market indexes.

Consider how little these beaten-up sectors mentioned above affect the indexes. Department stores may have fallen 62.3%, but on a market-cap basis they are a mere 0.01% of the S&P 500. Airlines are larger, but not much: They weigh in at 0.18% of the index. The story is the same for travel services, hotel and motel REITs, and resorts and casinos.

The market is telling us that these industries just don’t matter very much to stock market performance. And the sectors that do matter? Consider just four industry group -- internet content, software infrastructure, consumer electronics and internet retailers -- account for more than $8 trillion in market value, or almost a quarter of total U.S. stock market value of about $35 trillion. Take the 10 biggest technology companies in the S&P 500 and weight them equally, and they would be up more than 37% for the year. Do the same for the next 490 names in the index, and they are down about 7.7%. That shows just how much a few giants matter to the index.

On some level, it’s completely understandable why many people believe that markets are no longer tethered to reality because the performance doesn’t correspond to their personal experience, which is one of job loss, economic hardship and personal despair. But what’s important to understand is that indexes based on market-cap weighting can be -- as they are
now -- driven by the gains of just a handful of companies.

We can argue about whether the way the market reacts is good or bad and never reach a satisfying conclusion. But one thing the market isn’t is irrational or disconnected from is the reality of market capitalization, and its impact on stock indexes.

How to Harvesting Investment Tax Losses - Part G

8/8/2020

In last blogpost, we discussed the importance of keeping tax loss harvesting in mind when develop your investment strategies. Now we will discuss the cost basis for tax loss calculation.

Select the most advantageous cost basis method
Finally, take a look at how the cost basis on your investments is calculated. Cost basis is simply the price you paid for a security, plus any brokerage costs or commissions.

If you have acquired multiple lots of the same security over time, either through new purchases or dividend reinvestments, your cost basis can be calculated either as a per-share average of all the purchases (the average-cost method) or by keeping track of the actual-cost of each lot of shares (the actual cost method).

For tax-loss harvesting, the actual-cost method has the advantage of enabling you to designate specific, higher-cost shares to sell, thus increasing the amount of the realized loss.

How to Harvesting Investment Tax Losses - Part F

8/7/2020

In last blogpost, we discussed wash sales and tax loss harvesting. Now we will discuss how to make tax loss harvesting part of your year round tax and investing strategies.

Make tax-loss harvesting part of your year-round tax and investing strategies
The best way to maximize the value of tax-loss harvesting is to incorporate it into your year-round tax planning and investing strategy.

In managing the asset allocation for your taxable portfolio, don't use big pieces like a large cap fund of funds. Instead, use more individual investments pieces that can help you create tax efficiency. For example, invest in individual large cap value, core and growth funds. This allows you the opportunity to tax loss harvest as individual securities and styles go in and out of favor.

Tax-loss harvesting and portfolio rebalancing are also a natural fit. In addition to keeping your portfolio aligned with your goals, a periodic rebalancing provides an opportunity to reexamine lagging investments that could be candidates for tax-loss harvesting.

In next blogpost, we will discuss which cost basis to choose.

How to Harvesting Investment Tax Losses - Part D

8/5/2020

In last blogpost, we discussed gains and losses in mutual funds. Now we will discuss tax loss harvesting details.

Harvest losses to maximize your tax savings
What to look for?
When looking for tax-loss selling candidates, consider investments that no longer fit your strategy, have poor prospects for future growth, or can be easily replaced by other investments that fill a similar role in your portfolio.

When you're looking for tax losses, focusing on short-term losses provides the greatest benefit because they are first used to offset short-term gains—and short-term gains are taxed at a higher marginal rate.

According to the tax code, short- and long-term losses must be used first to offset gains of the same type. But if your losses of one type exceed your gains of the same type, then you can apply the excess to the other type. For example, if you were to sell a long-term investment at a $15,000 loss but had only $5,000 in long-term gains for the year, you could apply the remaining $10,000 excess to any short-term gains.

What to avoid?
If you have harvested short-term losses but have only unrealized long-term gains, you may want to consider saving them for the future. The least effective use of harvested short-term losses would be to apply them to long-term capital gains. But, depending on the circumstances, that may still be preferable to paying the long-term capital gains tax.

Also, keep in mind that realizing a capital loss can be effective even if you didn't realize capital gains this year, thanks to the capital loss tax deduction and carryover provisions. The tax code allows you to apply up to $3,000 a year in capital losses to reduce ordinary income, which is taxed at the same rate as short-term capital gains.

If you still have capital losses after applying them first to capital gains and then to ordinary income, you can carry them forward for use in future years.

In next blogpost, we will discuss wash sale and tax loss harvesting.

How to Harvesting Investment Tax Losses - Part C

8/4/2020

In last blogpost, we discussed the important differences between short term and long term losses. Now we will discuss the gains and losses in mutual funds.

Gains and losses in mutual funds
If you're a mutual fund investor, your short- and long-term gains may be in the form of mutual fund distributions. Keep a close eye on your funds' projected distribution dates for capital gains. Harvested losses can be used to offset these gains.

Short-term capital gains distributions from mutual funds are treated as ordinary income for tax purposes. Unlike short-term capital gains resulting from the sale of securities held directly, the investor cannot offset them with capital losses.

In next blogpost, we will discuss how to harvest losses to maximize your tax savings.

How to Harvesting Investment Tax Losses - Part B

8/3/2020

In last blogpost, we discussed what is investment tax loss harvesting, now we will discuss some details.

Short-term vs Long-term gains and losses
There are 2 types of gains and losses: short-term and long-term.

Short-term capital gains and losses are those realized from the sale of investments that you have owned for 1 year or less.
Long-term capital gains and losses are realized after selling investments held longer than 1 year.

The key difference between short- and long-term gains is the rate at which they are taxed.

Short-term capital gains are taxed at your marginal tax rate on ordinary income. The top marginal federal tax rate on ordinary income is 37%.

For those subject to the net investment income tax (NIIT), which is 3.8%, the effective rate can be as high as 40.8%. And with state and local income taxes added in, the rates can be even higher.

But for long-term capital gains, the capital-gains tax rate applies, and it's significantly lower.

In next blogpost, we will discuss gains and losses in Mutual Funds.

How to Harvesting Investment Tax Losses - Part A

8/2/2020

What is investment tax loss harvesting?
The strategy that changes an investment that has lost money into a tax winner is called tax-loss harvesting.

Tax-loss harvesting may be able to help you reduce taxes now and in the future. It can also help boost your investment returns.

Tax-loss harvesting allows you to sell investments that are down, replace them with reasonably similar investments, and then offset realized investment gains with those losses. The end result is that less of your money goes to taxes and more stays invested and working for you.

2 ways to harvest tax losses
An investment loss can be used for 2 different things:

The losses can be used to offset investment gains
The losses can offset $3,000 of income on a joint tax return in one year

Unused losses can be carried forward indefinitely. But there are some important details to know as you see how tax-loss harvesting might help lower your tax bill.

In next blogpost, we will discuss short-term versus long-term gains and losses.

5 Midyear Financial Checkups

7/19/2020

1. Review your financial goals
You probably have several savings goals and accounts. Your annual financial review should revisit each of your priorities. If your life situation has changed, make adjustments as necessary.

At the same time, check the beneficiaries you've listed on your accounts. Your retirement account assets (for example, money in a 401(k) or IRA) pass directly to the beneficiaries you designate with your account custodian, trustee, or plan administrator. Your beneficiary designations supersede any directions in your will for accounts that have them—so consistency in who you name as a beneficiary is important.

2. Check your investments
This is also the time to see what you own, ensure that your investment mix continues to meet your needs, and make any changes that might be necessary due to the past year’s market performance. In general, if any of your allocations are more than 10% away from your target, you may want to rebalance it back to your desired investment mix.

Then, look at specific investments and evaluate their role in your portfolio. If you own mutual funds, see whether they are performing as you expected and if there have been any changes to the fund's investment approach. If you own stock in individual companies, evaluate each company’s current status and prospects, and decide whether they justify being kept in your portfolio.

3. Get a tax break
A simple way to reduce your taxes is to take advantage of opportunities to lower your taxable income by contributing to tax-advantaged retirement accounts like a 401(k) or IRA. If you have a high deductible health plan (HDHP) and are eligible for a health savings account (HSA), contributing to the HSA can also give you a tax break. A taxpayer with a marginal tax rate of 24%, for example, could potentially realize a tax savings of $240 for every $1,000 in pre-tax dollars contributed to an HSA, traditional 401(k), 403(b), or IRA.

4. Protect what's yours
It's wise to evaluate your insurance needs annually to make sure you have the right amount and type of insurance to cover unforeseen circumstances that can derail your finances.

Life insurance may be a good place to start. If your family is growing, you might want to increase the amount of your life insurance to protect your loved ones. You might also benefit from looking into long-term care insurance, which may offer a variety of features and options. Don't forget disability insurance as well. You may be covered at work. But it’s a good idea to make sure you're adequately covered just in case anything prevents you from working and earning a paycheck for an extended period of time.

5. Review important paperwork
Thinking about a will, health care proxy, and power of attorney can be an uncomfortable topic, but consider the alternative: Do you want someone else making important financial and health decisions on your behalf without any input from you? If you don't have any of these key documents, take the time to set them up.

If you have them, review your paperwork and think about any life events you’ve been through. Marriage, divorce, birth, and death are 4 big events that can affect estate plans, but there are other factors that could affect your planning.

Why We Are Not So Great at Risk Assessment

7/17/2020

A recent New York Times article highlights many factors at play in human psychology that can skew our risk perception. Here are the things skewing your assessments:

Optimistic bias. Optimistic bias is the reason we order a side of bacon even though we know diets high in processed meats correlate with a higher risk of colon cancer. Surely colon cancer happens to other people, right? However, people living in heavily individualistic societies — like the United States — tend to exhibit higher levels of optimistic bias.

False sense of control. The more control people think they have, generally, the less worried they are. This is why, for many, driving a car seems safer than flying in a plane. The car, of course, is statistically much more dangerous — in 2018, according to the National Transportation Safety Board, 36,560 Americans died in car accidents compared with 381 Americans killed in aviation accidents. So while masks and frequent hand washing are definitely ways to lower your risk of contracting the coronavirus, they may also be emboldening you. Social distancing is still key to preventing the spread of Covid-19.

Unclear cultural cues. We often learn about dangers in the same way from multiple sources. Take smoking, for example. You probably learned about tobacco causing cancer as a kid — either from your parents or from school. The messaging around Covid-19 is less clear because there’s not an existing well of shared cultural knowledge about its dangers. In fact, in some places, public health experts and elected officials are disagreeing on what is and isn’t safe. That means we’re getting a range of cultural cues and we may struggle to parse out which cues to follow.

Confirmation bias. If you are wondering if it is safe to dine outdoors with friends, you may do a search for: “Is dining outside safe during coronavirus?” But that search is likely to turn up articles about why it is safe to dine outside at this time. What most people do is that they only seek confirming evidence, a phenomenon called confirmation bias. If you really want the full breadth of information on dining out, you should also look up “dangers of dining outside during coronavirus."

Exposure therapy. Many of us are getting used to living in a pandemic. That’s lowering our guard as well. Exposure therapy, or having people confront their fears in tiny doses, is how patients with anxiety-specific phobias are treated. If you were afraid of dogs but had to work in a puppy store, eventually, you’re going to get used to it.

How Much Money Do You Need to be “Happy”?

7/12/2020

The question of “how much do you really need to spend to be happy” is one that anyone (or any couple) can ask of themselves.

In this great article, Moore suggests a practical approach to answer it:

First, simply track spending for a while to figure out what the monthly spend number is.

Next, take a hard look at the expenditures to figure out what would it really take minimalistically just to ‘survive’ in the current lifestyle.

Third, calculate the difference between the two – what you’re spending in practice, and what it would take at a minimum – and consider which dollars really, purposefully, should be put back into the spending budget to add to the (admittedly very) minimalistic lifestyle.

Finally, figure out how to adapt spending in practice to fit the (more ideal) spending pattern that’s now delineated.

Did Actively Managed Funds Perform Better In Bear Markets?

7/11/2020

Q. Did actively managed funds perform better in bear markets?

A. There is an assumption that actively managed funds tend to do better in bear markets. Unfortunately, it doesn't hold up in front of data.

According to the latest Morningstar data, 52% of actively managed mutual funds and almost 60% of actively managed bond funds were able to beat their category index benchmarks in Q2 (with just over 50% of actively managed funds outperforming during the downturn itself from the market peak in February to the trough in late March).

However, viewed on a year-to-date basis, only 43% of actively managed future funds have been able to outperform, as the number of equity outperformers dropped below 50%, and in the case of active bond funds in particular, barely 1/3rd outperformed in total year-to-date (as short duration bets were the wrong way in the midst of rapidly falling interest rates as the pandemic recession unfolded).

You Can Have Direct Access to Coveted DFA Strategies Soon

7/10/2020

Dimensional Fund Advisors (DFA), which built a $500 billion active mutual fund business by providing exclusive access to financial advisers, is entering the world of exchange-traded funds later in 2020 where anyone with a brokerage account will have access to at least three DFA strategies.

The ETFs, which will be actively managed, include a U.S. all-cap core strategy, non-U.S. developed all-cap core and emerging markets all-cap core.

The move is significant not simply for DFA’s foray into ETFs themselves, but the fact that by repackaging their mutual funds as ETFs, they will become available to any/all investors who wish to buy them (unlike DFA’s mutual funds that were only available through DFA-approved advisors).

Use Fidelity's Stock Screen Tools to Search Stocks Amid COVID-19

6/29/2020

The original article is here -

A chart of US stocks—as measured by the S&P 500—shows they have recouped much of their COVID-19 losses, as of June 25, 2020. But a closer look into what's actually driving the stock recovery reveals that the S&P 500's 5 largest companies, which make up more than 20% of the market-cap weighting of the index, according to data from FactSet, have accounted for much of those gains over the past few months. This suggests the breadth of the rebound has not been broad based.

More importantly, a recent surge in new coronavirus cases in several US states, as well as in countries like Brazil and India, underlies fears that the worst of the pandemic may not be over yet.
This is a market unlike any in history. Consequently, active investors may need to rethink how typical tools and strategies are utilized. If you are seeking new stock ideas, one tool that is commonly used is a stock screener. Here are 3 stock screens using Fidelity's Stock Screener that illustrate how you may want to approach screening for stocks, plus top results for each.

Looking for income
One of the most common screening characteristics on Fidelity.com is dividend yield. The top 10 results of a screen of common stocks with a market cap of at least $3.92 billion and a dividend yield of 5.96% or higher (sorted by dividend yield), as of June 25, 2020, were:

Ares Capital ( ARCC )
Oneok ( OKE )
Owl Rock Capital ( ORCC )
CenturyLink ( CTL )
Hess Midstream ( HESM )
Gap ( GPS )
Altria ( MO )
Williams ( WMB )
TFS Financial ( TFSL )
Wells Fargo ( WFC )

Let's dig into these screen results. While there are a few retailers and energy exploration companies that have been significantly impacted by coronavirus, as nearly all business have been to varying degrees, there are no companies in industries that have been hit the hardest—like restaurants, airlines, and hotels.

This is noteworthy for this screen because of how dividend yield is directly affected by stock price. It is calculated as the annual dividend per share divided by the stock price. If a stock price were depressed by coronavirus, that might artificially inflate the dividend yield (because the denominator decreased). While you would always want to explore if and why a stock price is depressed relative to its historical price range, this can be particularly important amid the umbrella of uncertainty introduced by COVID-19.

Even though this screen appears not to generate any stocks that are among the most impacted by coronavirus, you may want to add additional filters to strengthen your search results/align with your objectives. For example, if you want to add the insights of professional analysts, you might consider adding the Equity Summary Score (ESS) from StarMine from Refinitiv. Doing so produces the following list, sorted by highest ESS:

CenturyLink ( CTL )
BCE ( BCE )
Janus Henderson Group ( JHG )
People's United Financial ( PBCT )
Altria ( MO )
Philip Morris ( PM )
PPL ( PPL )
AT&T ( T )
Comerica ( CMA )
Dow ( DOW )

Searching for value
Screening for stocks using value as a primary objective can be more complicated than usual. For instance, value filters might produce a screen of stocks whose price has been beaten down due to the economic exposure of COVID-19, potentially resulting in its value appearing better than during more "normal" times (assuming the underlying earnings impact is not also factored in).

On the other hand, some stock prices may be inflated as investors anticipate benefits from changing COVID-19 dynamics. An example of this type of stock might be a pharma company that is working on vaccines and treatments. This could result in a higher-than-normal stock price that would make it appear like it has lower relative value.

One of the most popular value filters on Fidelity.com is price-to-earnings (P/E). The top 10 results of a screen of common stocks with a market cap of at least $3.92 billion and a P/E ratio of 8.78 or lower, as of June 25, 2020:

NRG Energy ( NRG )
Equitable Holdings ( EQH )
Vornado Realty Trust ( VNO )
MGM Resorts ( MGM )
Aercap Holdings ( AER )
Metlife ( MET )
Jefferies Financial ( JEF )
Synchrony Financial ( SYF )
Delta Air Lines ( DAL )
Ameriprise Financial ( AMP )

Unlike the first income screen above, this screen produces hotels and airlines, among other companies, that have been deeply impacted by the pandemic. Again, you may want to add additional filters, such as ESS. Here is that list, sorted by highest ESS:

Biogen ( BIIB )
Metlife ( MET )
CenturyLink ( CTL )
Seagate Technology ( STX )
Bank of New York Mellon ( BK )
Aercap ( AER )
HP ( HPQ )
People's United Financial ( PBCT )
Hartford Financial ( HIG )
First American ( FAF )

This list is dominated by financial services and technology companies, which are not immune to the adverse impacts of a worsening in the pandemic, among other risk factors. Again, it's important to do additional research to evaluate screen results. You might consider looking at a multiyear price chart to see if these companies were exhibiting trends before the crisis that might help explain why their value appears as it does (e.g., is there a long-term price drop that is causing the stock's P/E to appear relatively attractive).

Tailoring preset independent expert screens
P/E is primarily used to compare a stock with another comparable stock. While that can provide useful information, many professional investors attempt to determine the intrinsic value of a stock. On Fidelity.com, there is an expert screen from third party research firm ISS-EVA that looks for attractively valued stocks in relation to their intrinsic value within their sector. This screen is based on the widely known "value at a reasonable price" methodology. It looks at a firm's ability to earn and increase economic profit, which measures profit after deducting the cost of all capital. The screen adjusts for risk and excludes stocks trading under $5 a share, as well as those with minimal trading volume.

As of June 25, 2020, the top 10 results of this screen, sorted by the highest ISS-EVA score of common stocks with a market cap of at least $3.92 billion, were:

Agco (AGCO)
Amdocs (DOX)
Flowers Foods (FLO)
Icon (ICLR)
MDU Resources (MDU)
Magna International (MGA)
Northern Trust (NTRS)
Oshkosh (OSK)
Booking Holdings (BKNG)
Reliance Steel & Aluminum (RS)

Of course, even if you have determined the intrinsic value of a stock, that may not account for how the investment might perform while the coronavirus pandemic persists. Several stocks from this screen have significant exposure to the pandemic's impact on the economy, including a restaurant/travel reservation site. Even though this is an expert screen, you still might want to include additional screening filters. Adding in ESS may provide a qualitative aspect that the intrinsic value criteria isn't capturing. Here is that list, sorted by highest ESS:

Qualys ( QLYS )
Amdocs ( DOX)
Schneider National ( SNDR )
J.M. Smucker ( SJM )
Tech Data ( TECD )
Northern Trust ( NTRS )
Flowers Foods ( FLO )
Icon ( ICLR )
Allison Transmission ( ALSN )
MDU Resources ( MDU )

Dig deeper
With any stock screen strategy, more research is needed to determine if any of these investments are right for you. You should fully understand the risks involved, and each investing opportunity should be considered within the context of a well-diversified investment strategy that conforms to your specific time horizon, objectives, and risk parameters. Given the rising risk of a resurgence in coronavirus infections around the world as global economies attempt to open back up, you may need to adjust how you normally use screeners and other strategies.

5 Conditional Orders An Investor Could Use

6/25/2020

A conditional order allows you to set order triggers for stocks and options based on the price movement of stocks, indexes, or options contracts.

There are 5 types of conditional orders:

contingent (CO)
multi-contingent (MCO)
one-triggers-the-other (OTO)
one-cancels-the-other (OCO),
one-triggers-a-one-cancels-the-other (OTOCO)

We will illustrate each of them in 5 graphs below:

How to Satisfy a Margin Call?

6/24/2020

Q. What is a margin call and how to deal with it?

A. Trading on margin offers a variety of potential benefits, as well as some additional risks, including margin calls, which is a demand from your brokerage firm to increase the amount of equity in your account.

How to satisfy a margin call?
Brokerage firms are not required to notify customers of margin calls, although most do. In some cases, a firm may simply sell shares without notifying the customer in order to bring the account equity up to or over the minimum house maintenance requirements. This usually happens in volatile markets or when there is an extreme movement of a concentrated position. Still, in many cases investors have an opportunity to choose the method and time at which they meet a margin call.

If an investor has a $2,000 margin call, here are 3 options to use in order to meet a margin call:

Deposit cash: simply deposit $2,000 into her account.
Deposit marginable securities: deposit fully paid-for shares of stock as additional collateral for the margin loan. To determine how many shares would be necessary to meet a $2,000 margin call, divide $2,000 by the loan value of the stock you plan to deposit. The loan value is equal to 100% minus the maintenance requirement for that stock. Assuming the maintenance requirement is 30%, you can divide $2,000 by 0.70 to arrive at the figure of $2,857. That's the amount of marginable stock you must deposit to cover a $2,000 margin call.
Sell shares of stock: Similar to the calculation for depositing securities, you multiply the value of the stock sold by the maintenance requirement for the shares that remain in the account. Assuming a 30% maintenance requirement, you can sell $6,670 worth of the company stock to satisfy the $2,000 margin call.

A Tool Helps Consumers to File Financial Complaints

6/23/2020

If you want to file a complaint about financial services offered by a bank or any other financial companies, here is a powerful online tool from the Consumer Financial Protection Bureau: www.cfpb.gov/complaint

You can use the tool to check up on a bank, lender, or other financial firm before you do business with it. You will find a link to the database of published complaints, which allows you to search by date, company name, and key words. The tool will also forward your complaint to the company in question, and most reply within 15 days.

Where to Find Yields - Part 7 High Yield Bonds (5%-9%)

6/9/2020

In last blogpost, we discussed closed-end funds. Now we will turn to high yield bonds.

7. High Yield Bonds (5% - 9%)

What are they?
High yield bonds also called junk bonds, they are issued by sub-investment grade companies. Investors receive high yields for taking the extra risk of lending to these lower-rated businesses.

What are the risks?
Recession could lead to surge of defaults of high yield issuers. The high yields reflect the high risks.

Examples

Index funds, such as SPDR Bloomberg Barclays High Yield Bond (JNK)
Actively managed funds, such as PGIM High Yield (PHYZX), and Vanguard High Yield Corporate (VWEHX)

Where to Find Yields - Part 6 Closed-end Funds (5%-8%)

6/8/2020

In last blogpost, we discussed dividend stocks. Now let's take a look at closed-end funds.

6. Closed-End Funds (5% - 8%)

What are they?
Closed-end funds sell a set number of shares and investment the money in stocks, bonds, loans, MLPs, and other types of securities. Most closed-end funds use leverage, or borrowed money, which is a double-edged sword. Depending on investor demand, a closed-end fund's price could be below or above its NAV.

What are the risks?
If a closed-end fund's NAV declines too much, driving its leverage ratio too high, it could violate regulatory limits, which would be forced to lighten its debt load by dumping assets and/or delaying or cutting dividends, like some MLP closed-end funds today.

Examples

EV Senior Floating Rate (EFR): it trades at a discount to NAV and has a relatively high leverage ratio.
Flaherty & Crumrine Dynamic Preferred & Income (DFP)

In next blogpost, we will discuss High Yield Bonds.

Where to Find Yields - Part 5 Dividend Stocks (4%-7%)

6/7/2020

In last blogpost, we discussed REITs. Now we will discuss Dividend Stocks.

5. Dividend Stocks

What are they?
Dividend paying stocks can be an important component of a diversified portfolio. Unlike fixed-income securities, dividend paying stocks could raise their dividends. Preferred stocks are a kind of hybrid - their dividends are fixed, but take priority over dividend payments to the same issuer's common-stock shareholders.

What are the risks?
The recession could force some companies to cut or stop paying dividends.

Examples

High quality companies with strong balance sheets, sufficient cash, and low dividend payout ratios, such as Verizon, AT&T, Pfizer, and Dominion Energy.
Banks are risky plays, sch as JPMorgan Chase, and Wells Fargo.
Preferred stocks or ETFs, such as IShares Preferred and Income Securities (PFF).

In next blogpost, we will discuss Closed-end Funds.

Where to Find Yields - Part 4 REITs (3%-6%)

6/6/2020

In last blogpost, we discussed investment grade bonds, now we will take a look at REITs.

4. REITS (3% - 6%)

What are they?
REITs are hybrid securities that offer bond-like yields and stock-like appreciation potentials. REITs are designed to generate income for investors as 90% of their taxable income must be distributed each year to shareholders.

What are the risks?
REITs can be volatile, just like stocks. Many REITs are not immune from the economic ravages of a recession.

Examples

Realty Income Corp (O)
Healthcare and Technology REITs, such as Physicians Realty Trust (DOC) and Digital Realty Trust (DLR)
REITs index fund, such as Vanguard Real Estate Index (VNQ), it provides a low cost entry to a diversified portfolio of about 180 REITs.

In next blogpost, we will discuss Dividend Stocks.

Where to Find Yields - Part 3 Investment Grade Bonds (2%-3%)

6/5/2020

In last blogpost, we discussed Muni Bonds, now we will discuss Investment Grade Bonds.

3. Investment Grade Bonds (2% - 3%)

What are they?
They are investment grade bonds issued by government, agencies, and corporations.

What are the risks?
Many triple-B bonds (the lowest rung on the investment grade ladder) - especially in energy and other economy-sensitive sectors - have suffered sharp declines in value and therefore trade at high yield levels, but they may be downgraded by the rating agencies to junk status.

Examples

Index funds, such as Vanguard Intermediate-Term Corporate Bond Index (VICSX) or IShares Core US Aggregate Bond (AGG).
Actively managed funds, such as Doubleline Total Return (DLTNX) and Dodge & Cox Income (DODIX).

In next blogpost, we will discuss REITs.

Where to Find Yields - Part 2 Muni Bonds (2%-3%)

6/4/2020

In last blogpost, we discussed short term savings accounts which have the lowest yields (also the safest). Now the next option.

2. Municipal Bonds (2% - 3%)

What are they?
Muni bonds are IOUs issued by state and local governments in the U.S. Their interest income is free from federal taxes, and for bonds issued in your state of residency, free from state and local taxes as well.

What are the risks?
In the rush for safe havens, investors snapped up Treasuries but not munis, Muni ETFs began trading at unprecedented discounts to their NAVs.

The longer the pandemic drags on and the deeper the recession, the more financial stress the state and local governments will feel, and munis from some sectors will be impacted.

Look for the muni bonds' durations. For example, if a bond fund's average duration is 5, it means if interest rates were to rise by 1%, its value would decrease by 5%.

Examples
National muni funds such as Fidelity Intermediate Municipal Income (FLTMX) and Vanguard Intermediate-Term Tax-Exempt Bond (VWITX).

In next blogpost, we will discuss Investment Grade Bonds.

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