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Ponderings For the Week of May 25 to 31, 2020

Strong Week for Stocks

Investors enjoyed broad-based gains in stocks for the week, with small- and mid-cap issues leading the gainers, as did value shares outperform growth stocks. The primary catalyst last week, as in some previous weeks, was encouraging early test results for a coronavirus vaccine. Also, the federal government is pledging substantial funds to pharmaceutical companies at the forefront of vaccine development in hopes that vaccine availability can be sped up.

The investment markets were also helped by Federal Reserve Chair Powell’s remarks that “there is really no limit to what we can do” to counteract the slowdown. Labor reports, however, continued to show increased unemployment, causing concerns that many job losses could become permanent. There were a smattering of encouraging economic reports last week, including unexpected strength in the services sector and modestly stronger existing home sales. 


Nothing in Your Financial Life is "Either/Or"

A lot of people think that most of their financial choices are "either/or" decisions. In other words, when confronted with a financial decision, you must either take one course of action or the other. Financial salespeople often abet such thinking when trying to steer you into a particular, high cost/high commission financial product. But most financial choices don't require you to do either one thing or the other. Often, a combination is more appropriate. Here are some examples:

  • The investment markets are often scary, and you may be in a quandary about whether to sell a particular stock or fund. If you’re in a dither, why not sell a portion – say half of the amount you hold. That’s what a lot of professional investors have always done when concerned about a holding.
  • Anyone who holds traditional IRAs can convert them into Roth IRAs regardless of income. But you have to pay taxes on the conversion, so you may be reticent to incur a big tax bill. Again, this isn't an either/or decision. Perhaps converting a portion of your IRA money into a Roth is the answer. You can always convert more money in later years.
  • Long-term care insurance policies are an area where a compromise may be advisable. Either you get the coverage with all the expensive bells and whistles or you go without the coverage, right? A compromise might be to obtain a basic policy that offers moderate protection but won’t impair your budget with expensive options.    
  • Some pre retirees view the decision of what to do with their company retirement savings plans as either taking a lump sum payout from their plans or putting the money into an income annuity. But a combination of part lump sum and part annuity may be a better course of action or take the lump sum now and consider an income annuity later in life.
  • The decision about when to collect Social Security is a particularly challenging one that is often viewed as either collecting at the earliest possible time, age 62, or waiting until normal retirement age, which varies depending on your year of birth. But there are often situations where it’s preferable to collect after age 62 or even after normal retirement age – as late as age 70. Also, every month you delay commencing benefits results in a higher lifetime Social Security check.

So keep in mind that very little in your financial life involves an "either/or" decision. Realizing this will help you take better control of your financial future. Remember, it’s your money and therefore you are the one who should be in control.



Smart Money Tips

  • Car repair rip offs. It’s an epidemic. Take your car into a dealer for some minor repairs and maintenance or recall work and the friendly service manager may come up with a litany of expensive things that need to be done right away. They may say that the car is dangerous if the items aren’t fixed. One local dealer even “requires” the person to sign a form that says if the recommended repairs aren’t made, injury and death may ensue. It’s not just the auto dealers, either. Tire shops are notorious for upselling. One person recently got a flat right in front of a tire company. He thought he was fortunate until the shop told him he needed $3,400 of new tires and extensive repairs. Here’s a way to escape the trap. Tell them that you don’t have the money to do the repairs right now, but have them list the offending items. Then take the car to your trusty repair shop and have it review the list. Anything that needs to be done can likely be fixed by your shop for less money.
  • Required minimum distributions not required in 2020. If you are required to make annual required minimum distributions (RMDs) from your IRAs, the CARES Act waives that requirement for 2020. If you have already made an RMD this year, you will probably be able to reverse the distribution. The advantage of waiving the RMD – if you can afford to - is that it will lower your 2020 tax bill. One strategy you may wish to employ is to take the taxes that would otherwise be owed on your RMD to pay the taxes on a Roth IRA conversion, which may eventually be particularly advantageous to your heirs.





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