Benefits of Roth Conversions

By LeGrand S. Redfield, Jr. CLU, ChFC, CFP

Roth conversions can be a valuable tool for retirement planning, offering a number of benefits to those who take advantage of them. Here are some of the most important benefits of Roth conversions:

  • Tax-free withdrawals: With a Roth conversion, the money you convert is taxed in the year of conversion, but all future withdrawals from the account are tax-free. This means that you won’t have to pay taxes on the money you withdraw in retirement, when you’re likely in a higher tax bracket.
  • No Required Minimum Distributions: Unlike traditional retirement accounts, Roth IRAs don’t have Required Minimum Distributions (RMDs), so you can leave the money in your account as long as you’d like, and you’ll never be forced to take money out.
  • Increased flexibility: With a Roth conversion, you have more control over your retirement funds, since you can withdraw your contributions at any time without taxes or penalties. This can be particularly useful in case of unexpected expenses or changes in your financial situation.
  • Potential for market growth: If you convert money to a Roth IRA while the stock market is down, you’ll pay taxes on a lower amount and your money will have more potential to grow tax-free in the future.
  • Estate planning benefits: Roth IRAs can also be a useful tool for estate planning. Since they don’t have RMDs, you can leave the money in your account for your beneficiaries, who will be able to take tax-free withdrawals.

It’s important to note that while Roth conversions can be a great choice for some, they may not be the best option for everyone. Factors such as your current tax bracket, retirement goals, and overall financial situation will all play a role in determining whether a Roth conversion is right for you. If you’re considering a Roth conversion, it’s a good idea to talk to a financial advisor to determine if it’s the right move for you.

In conclusion, Roth conversions offer a number of benefits for retirement planning, including tax-free withdrawals, increased flexibility, and the potential for market growth. If you’re considering a Roth conversion, it’s important to talk to a financial advisor to determine if it’s the right choice for you.

Market Insights: Stocks Dip on Inflation Report

A higher-than-expected inflation report triggered a sell-off on Friday, leaving stocks in the red for the week.
The Dow Jones Industrial Average lost 4.58%, while the Standard & Poor’s 500 dropped 5.05%. The Nasdaq Composite index slid 5.60% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, declined 1.81%.1,2,3

Inflation Upends Stocks
Stocks gyrated between gains and losses last week until sliding lower on Friday’s hot inflation report, which heightened worries over a more aggressive Fed and a further economic slowdown. Stocks moved higher to begin the week, despite rising bond yields, a profit warning from a major retailer, and Senate testimony by Secretary of Treasury Janet Yellen, who said that inflation was likely to remain elevated.
Stocks turned lower later in the week on renewed concerns of an economic slowdown, sparked by a downward revision in The Federal Reserve-Atlanta’s real-time estimate of second-quarter GDP growth and a drop in new mortgage applications. Investors lightening up on stocks ahead of Friday’s inflation report may have also contributed to Thursday’s selling.


Inside Inflation
Consumer prices rose 8.6% year-over-year in May, marking the highest rate since December 1981. Price increases over the last 12 months were driven by a 34.6% jump in energy prices and by food costs, which climbed 10.1%. Used car and truck prices, which had seen three straight months of declines, rose 1.8% from April, while airfares soared 12.6% in May.4
May’s inflation exceeded economists’ forecasts and dashed the hopes that inflation had plateaued. In a separate economic report on Friday, real wages (net of inflation) fell 0.6% in April and were lower by 3% from 12 months ago.5


This Week: Key Economic Data
Tuesday: Producer Price Index.
Wednesday: Retail Sales. FOMC Announcement.
Thursday: Jobless Claims. Housing Starts.
Friday: Industrial Production. Index of Leading Economic Indicators.


Source: Econoday, June 10, 2022
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

This Week: Companies Reporting Earnings
Thursday: Adobe, Inc. (ADBE), The Kroger Co. (KR).
Source: Zacks, June 10, 2022
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

“To look back is to relax one’s vigil.”
– Bette Davis

A Checklist of Common Errors When Preparing Your Tax Return
Properly preparing your tax return can be tricky, but here are some tips to help you avoid common errors:
• Submitting your tax return online ensures greater accuracy than mailing it in. The e-file system can detect common errors and send your filing back to you for you to correct, saving you a ton of time in processing and delays.
• Make sure to clearly print or type your full name, taxpayer identification number or SSN, and current address (including zip code).
• Choose only one correct filing status.
• Enter your income on the correct lines and include a Form 1040 to declare additional income and adjustments as needed.
• Put brackets around negative amounts.
• Keep a copy of the signed return and schedules for your records.

  • This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
    Tip adapted from IRS.gov6

What is Mindfulness?
You may have heard various definitions of mindfulness here and there or have your own ideas about what it is. Do you completely clear your mind? Is there more to it?
Interestingly, mindfulness is as simple as it sounds. It refers to the state of being fully present in where you are and what you’re doing. You can practice mindfulness as you’re driving, as you’re walking your dog, or as you’re playing with your children. It’s practicing being in the here and now and not letting your mind take you out of the present moment. These obsessive thoughts can lead to anxiety and stress.
To practice mindfulness, take a simple activity, like drinking your cup of coffee, and think about every sensation you’re experiencing. It takes practice but is worth it to improve your mental strength!
Tip adapted from Mindful7

What surrounds everyone and is the end of time and space?

Last week’s riddle: There is a 5-letter, single-syllable word that you can take 4 letters out of, leaving you with only a single letter that has the same pronunciation as the original 5-letter word. What is this word? (Hint: it involves waiting in line.) Riddle answer: Queue.

Footnotes and Sources

  1. The Wall Street Journal, June 10, 2022
  2. The Wall Street Journal, June 10, 2022
  3. The Wall Street Journal, June 10, 2022
  4. CNBC, June 10, 2022
  5. CNBC, June 10, 2022
  6. IRS.gov, January 3, 2021
  7. Mindful.org, July 8, 2020

Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Please consult your financial professional for additional information.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG is not affiliated with the named representative, financial professional, Registered Investment Advisor, Broker-Dealer, nor state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Copyright 2022 FMG Suite.

When Will the Market Hit Bottom?

The number one question I’m hearing this week is, “When are we going to see the stock market reach a low point?” In spite of recent volatility, my answer remains the same: rather than timing the markets, focus on time IN the market.

Bears and bulls are locked in a cage match. Bears are saying that the Fed’s rate-increase cycle will lead to a recession, dragging stocks even lower. Bulls are finding reasons for optimism, such as lower used-car prices and generally solid first-quarter corporate earnings. 

There’s no doubt that stocks have been gut-punched in the first half of 2022, and the bear bandwagon seems crowded. But Wall Street has a resilience all its own. Meanwhile, time IN the markets, not timing the markets, remains the wise way to go.

FOUR REALLY GOOD REASONS TO INVEST

Forty-four percent of Americans do not own any stocks or stock-related investments, according to a recent Gallup poll.1

Individuals may cite different reasons for not investing, but with important long-term financial goals, such as retirement, in the balance, the reasons may not be good enough.

Why Invest?

  • Make Money on Your Money

You might not have a hundred million dollars to invest, but that doesn’t mean your money can’t share in the same opportunities available to others. You work hard for your money; make sure your money works hard for you.

  • Achieve Self-Determination and Independence

When you build wealth, you may be in a better position to pursue the lifestyle you want. Your life can become one of possibilities rather than one of limitations.

  • Leave a Legacy to Your Heirs

The wealth you pass to the next generation can have a profound impact on your heirs, providing educational opportunities, the capital to start a business, or financial support to your grandchildren.

  • Support Causes Important to You

Wealth can be an important tool for impacting the world in a meaningful way. So whether your passion is the environment, the arts, or human welfare, you can use your wealth to affect positive changes in your community or around the world.

A Framework for Investing

The decision to invest is an acknowledgment that it comes with certain risks. Not all investments will do well, and some may lose money. However, without risk, there would be no opportunity to potentially earn the higher returns that can help you grow your wealth.

To manage investment risk, consider maintaining a broad diversification of your investments that reflects your personal risk tolerance, time horizon, and the nature of your financial goal. Remember, diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.

Because investing can be complicated, consider working with a financial professional to help guide you on your wealth-building journey.

1. Gallup.com, 2021

Fed Keeps Pushing Rates Higher

Few investors should have been surprised when the Federal Reserve raised interest rates after its May meeting.

Throughout April, Fed Chair Jerome Powell and several Fed Governors talked about the need to keep raising short-term rates to help manage hot inflation. They suggested that a series of rate hikes throughout the summer may be necessary to cool prices.

What should have surprised investors was the reaction by the financial markets.

As the May meeting came to a close, markets cheered as traders expressed confidence the Fed would be able to guide the economy to a “soft landing” and avoid a recession. But in the days that followed, stock and bond market volatility picked up as the reality of higher interest rates started to settle in.

What’s next? Fed Governors have prepared us for higher short-term rates in the coming months. But some economists point out that the bond market has already done some of the work for the Fed, meaning traders have already pushed longer-term interest rates higher. For example, the yield on the 10-year Treasury has doubled this year.

We’re in a transition period with the economy. High inflation is forcing the Fed into a cycle of raising interest rates. It’s best to prepare for more volatility as the markets adjust to what’s ahead. Please reach out if you want some additional insight. We’ll be happy to share more information.

Inflation Creeping into Personal Finances

If you have a balance on a credit card or an adjustable rate mortgage, you might be noticing changes in your payments. Higher interest rates are starting to ripple through the personal finance landscape, and it doesn’t look like that trend will change anytime soon.

The Federal Reserve has indicated it plans to keep raising short-term interest rates to help manage inflation, which is at its highest level in 40 years. You’re likely seeing the effects of inflation when buying gas or groceries, and you’ll notice it if you are shopping for a new or used car.

The Federal Reserve’s job is to control inflation. By raising interest rates, the Fed hopes to slow spending, bringing down consumer prices.

Time will tell whether higher interest rates will prompt us to consider changes to your portfolio. Remember, your overall strategy considers that there will be transition periods in the economy.

In the meantime, you may want to look at I Bonds, which are issued by the U.S. government and earn a fixed interest rate plus a variable interest inflation rate that’s adjusted twice a year. I Bonds have certain purchase limits, restrictions, and tax treatments, so they generally play a limited role in your financial picture.

If you have any questions about inflation or interest rates, please reach out. We’re always here to help put things into perspective.

DISABILITY AND YOUR FINANCES 

The Social Security Disability Insurance program is projected to pay out approximately $133 billion in benefits in 2020. And with new applicants each year, the system is expected to exhaust its reserves at the end of 2035 if changes aren’t made.1,2

Rather than depending on a government program to protect their income in the event of a disability, many individuals prefer to protect themselves with personal disability insurance.3

Disability insurance provides protection by replacing a portion of your income, usually between 50 percent and 70 percent, if you become disabled as a result of an injury or illness. This type of insurance may have considerable benefits since a disability can be a two-fold financial problem. Those who become disabled often find they are unable to work and are also saddled with unexpected medical expenses.

What About Workers Comp?

Many people think of workers compensation as a disability safety net. But workers compensation pays benefits only to individuals who become disabled while at work. If your disability is the result of a car accident or other off-the-job activity, you may not qualify for workers compensation.

Even with workers compensation, each state makes its own rules about payment and benefits, so coverage may vary considerably. You might consider finding out what your state offers and plan to supplement coverage on your own, if necessary, especially if you have a high-risk profession. Likewise, if you have an active lifestyle that puts you at a higher risk of disability, considering an extra layer of protection may be a sound financial decision.

If you become disabled, personal disability insurance can be structured to pay a benefit weekly or monthly. And benefits are not taxable, if you have paid the premiums in full.4

When you purchase a policy, you may be able to tailor coverage to suit your needs. For example, you might be able to adjust benefits or elimination periods. You might opt for comprehensive protection or decide to define coverage more specifically. Some policies also offer partial disability coverage, cost-of-living adjustments, residual benefits, survivor benefits, and pension supplements. Since coverage is designed to replace income, most people choose to purchase protection only during their working years.

Even as changes are made to federal disability programs, they typically provide only modest supplemental income, and qualifying can be difficult. If you don’t want to rely solely on Uncle Sam in the event of an unforeseen accident or illness, disability insurance may be a sound good way to protect your income and savings.

Out of Commission

According to the most recent data available, about 19.2 percent of working-age disabled Americans are employed.

Source: ACLI Life Insurers Fact Book, 2019

1. Social Security Administration, 2020
2. Barron’s.com, 2019
3. Disability insurance is issued by participating insurance companies. Not all policy types and product features are available in all states. Any obligations are dependent on the ability of the issuing insurance company to continue making claim payments.
4. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Federal and state laws and regulations are subject to change, which would have an impact on after-tax investment returns. Please consult a professional with legal or tax experience for specific information regarding your individual situation.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.

We Believe

“We believe that any advisor can manage your investment portfolio—but not every advisor can help you navigate all the aspects of life that your investment portfolio influences.” 

“We believe that investing for upside has a tremendous downside—more volatility, missed expectations, a poor investment experience, and ultimately bad investor decisions.” 

“We believe that the only way to receive quality financial advice is by working with an advisor who truly knows you and your unique challenges.

Keystone Habits: The Simple Way to Improve All Aspects of Your Life

by James Clear

There are certain habits and routines that make success easier, regardless of the circumstances you face.

In fact, you may already practice some of these habits, even though you are unaware of it right now.

But most importantly, if you understand how to harness these habits, then you can drastically improve your health, your work, and your relationships … and start living the life you deserve.

The Keystone Habit

In Charles Duhigg’s book, The Power of Habit, he discusses the idea of keystone habits.

We have habits everywhere in our lives, but certain routines — keystone habits — lead to a cascade of other actions because of them.

For example…

A few months ago, I started to notice a funny thing.

When I worked out, I wanted to eat better. Even though I could have rewarded myself with chocolate bars and ice cream, I felt like eating real, healthy foods.

I also slept better. And when I was awake, I seemed more productive. Especially in the hour or two after working out, when my mind seemed to think clearer and my writing was crisper. Thoughts flowed easily.

When I didn’t exercise, however, I was more prone to eating junk food. I would stay up later working on unimportant tasks. I started to feel tension in my back. I didn’t check it, but my guess is that my blood pressure raised as a result of additional stress and no place to release it.

In other words, fitness is the keystone habit the puts the rest of my life in place. When I workout, other things naturally fall into place. I don’t have to think about eating better. I don’t have to force myself to focus on getting things done. Exercise naturally pushes me towards my best self.

What Are Your Keystone Habits?

I’m not always on top of my game, but on the days that I work out everything seems to come a little bit easier. And I’ll take all the help I can get as I continue my quest to become better.

Imagine how much easier and more fulfilling your lifestyle could be if you discovered one or two keystone habits that naturally put the rest of your life in place.

So often, we struggle to live the way we want to simply because we don’t have the willpower to make different decisions. Whether it’s having the discipline to eat healthy or the courage to take a risk or the energy to volunteer more often or the drive to perform better at work, we delay these choices — even though we know they are important — simply because we don’t have the willpower to make something new happen today.

Improving your lifestyle and becoming the type of person who “has their act together” isn’t nearly as hard as you might think. In fact, you might need just one keystone habit before the dominoes start falling everywhere.

What are you doing when everything falls into place? What is your keystone habit?

Find it and do more of it.

P.S. If you want more practical ideas for how to build new habits (and break bad ones), check out my book Atomic Habits, which will show you how small changes in habits can lead to remarkable results.

Savings Rates Decline

by Bob Veres

You don’t hear much about America’s personal savings rate these days, and the reason may be because the news is discouraging: collectively, the percentage of our income that we save is trending downward again, and may be about to hit record lows.  The Federal Reserve Bank of St. Louis tracks the U.S. personal savings rate, going back to the late 1950s, when when people were setting aside a thrifty 11% of what they made.  Americans achieved a record 17% savings rate in the mid-1970s (see chart) before a long decline set in.  In 2013, the rate briefly spiked again above 10%, but as you can see from the chart, Americans have become less thrifty since then.  The most recent data point shows Americans saving just 3.6% of their income.

How does this compare to the rest of the world?  A chart on the Trading Economics website shows that most countries fall in the 4.5% to 10% range, but with considerable fluctuation.  For instance, Spain experienced a negative savings rate just last quarter, but this quarter reports a rate of more than 14%.  Japan and Mexico seem to be consistently the thriftiest of the reporting nations, each with savings rates above 20%.  (India’s rate on the chart appears to be in error.)

Does any of this matter?  Economists will tell you that when the savings rate is high, it cuts into consumption, which lowers economic activity.  But at the same time, countries with high savings rates have more capital to invest in their future, and their citizens tend to be less vulnerable to economic downturns.  On the whole, we should probably prefer more savings to less.

Sources:

https://tradingeconomics.com/united-states/personal-savings

https://fred.stlouisfed.org/series/PSAVERT