A Charitable Strategy for Tax-Efficiency: Qualified Charitable Distributions

If supporting charities meaningful to you is part of your long-term financial plan, creating a strategy around your giving can help you maximize the gifts you give. It can also be tax-efficient across several dimensions of your overall plan.

A qualified charitable distribution (QCD) is a distribution from your IRA account that you are eligible for beginning at age 70 ½. But because it goes directly to the charity of your choice, it doesn’t count as taxable income to you. It can keep your income at a lower level and help you avoid taxes on social security and premium surcharges on Medicare. In addition, the IRS will allow the QCD to count as a required minimum distribution (RMD) from your account.There are rules to follow and limits to be aware of but being thoughtful about including qualified charitable distributions in your financial plan can help you achieve multiple goals.

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GMB #130: Innovation in Stock Market Structure: A 40 Year History Lesson With Kenny Polcari

With the widespread adoption of retail investing and the usage of handheld devices, investing and stock trading have become easier than ever. However, in the 1980s, it used to be an entirely different story. This week on Grow Money Business, we bring you an informative and entertaining conversation with a stock trading veteran who has been in the industry during many of the defining moments of the financial markets over the last four decades. Kenny Polcari, Managing Partner Kace Capital Advisors, joins us today to dive deep into how the stock market structure has evolved over the last few decades.

 

 

Show Notes

[02:54] Getting to Know Kenny – We start the conversation with Kenny’s long career in the financial sector and discuss what the New York Stock Exchange was like when Kenny began his career in the 80s.

[08:16] Building a Career – Kenny reflects on a couple of stories from the early years of his career and how he progressed through the industry.

[15:23] Stock Trading in the 80s – Kenny talks about the way stock markets worked in the 80s and why that environment was exciting.

[22:50] Members of Stock Exchange – Kenny explains the role of a member of the New York Stock exchange.

[27:17] Technology – Kenny discusses early applications of computer-based analytics for financial markets and how relying too much on technology led to a meltdown in the financial markets across the globe.

[42:19] The Tech Boom – Kenny shares his thoughts on how the massive expansion of technology that took place in the 90s shaped the financial markets.

[48:36] The Evolution – How the stock markets and the technologies used for stock trading has evolved over the last few decades.

[54:06] Impact of 9/11 – Kenny reflects on how the September 11th attacks destroyed the infrastructure of the New York Stock Exchange and the process of recovering from that destruction.

[1:00:55] Modern Stock Trading – How the modern stock trading systems make use of the latest technology available in order to make stock trading more reliable and immune to threats.

 

Resources

GMB Ep #129: No, Index Investing Isn’t Bad For The Markets

 

With recent developments in the financial markets, we’re seeing quite a bit of people who are concerned about index investing and the effects it may have on the economy. We dedicated today’s episode of Grow Money Business to addressing some of these concerns. Throughout the episode, Grant shares his thoughts on four of the biggest arguments against index investing and some studies that question the legitimacy of each.

 

 

Show Notes

[03:18] Recent Developments – How the recent developments in the financial markets reignited the discussion against index funds.

[06:15] Competition – One of the major arguments against index investing is that it reduces competition within an industry. Grant shares his thoughts on why this notion is not valid.

[13:11] Corporate Governance Standards – Grant explains how index funds allocate their resources in a way that’s beneficial to shareholders and why index investing won’t create corporate governance issues.

[16:46] Price Discovery – Grant breaks down how the price discovery mechanism works and why index investing is unlikely to hurt price discovery.

[28:20] Income Inequality – Grant shares his take on the argument that index investing exacerbates income inequality.

 

Resources

Are Fed Actions Working? Parsing the New Data

After April’s downturn, the first two weeks of May have not seen substantial improvement. By Thursday, May 12, markets were dangerously close to bear territory. The Fed enacted a 50-basis point increase in the Fed funds rate at the May FOMC meeting, and we also now have April’s key data. In addition, Fed Chairman Powell sat for an interview in which he discussed his definition of a “soft landing” and what it will take to get there.

Our three main points are the labor markets, interest rate hikes, and economic growth as measured by GDP. Let’s dive in.

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GMB Ep #127 – Should You Adjust Your Bond Holdings Since Interest Rates Are Rising?

 

If you’ve been paying attention to the financial markets lately, you’ve probably noticed that interest rates have been increasing, resulting in a decrease in bond prices. Other recent developments, such as Elon Musk’s Twitter acquisition and the decreased performance of popular growth stocks, have a lot of people questioning if it is time to adjust their portfolios. In today’s episode, Grant reviews the relationship between interest rates and bonds, how investors should react to increasing interest rates, and some of the stock price behaviors related to acquisitions.

 

 

Show Notes

[03:30] Market Updates – Grant recaps some of the interesting developments in the financial markets.

[05:26] Growth Stocks – In recent months, some of the popular growth stocks, such as Netflix and Amazon, have not been performing very well. Grant shares his thoughts on the implications of this trend.

[07:18] Bonds and Interest Rates – Grant dives into how the value of bonds fluctuates based on the interest rates and some of the methods used to evaluate bonds.

[13:31] Responding to Interest Rates – How investors should respond to increasing interest rates and why this is not a good reason to sell your bonds.

[20:25] Bond Funds – How bond funds work, differences between stock funds and bond funds, and how to evaluate bond funds.

[27:14] 60/40 Portfolios – Grant shares his thoughts on whether 60/40 portfolios are a good asset class to invest in.

[29:46] Twitter Share Prices – Grant discusses Elon Musk’s acquisition of Twitter, and what this means for investors.

 

Resources

What’s Driving the Recent Volatility? A Quick Guide

The Federal Reserve has been very clear about its intentions to move more aggressively in fighting inflation. It currently defines “more aggressively” as a likely series of 50 basis point rate hikes, beginning with the May Federal Open Market Committee meeting. This will mark the first time in 22 years that the Fed has doubled the normal 25 basis point increase.

In remarks at a panel discussion at the IMF on April 21st, Chairman Powell reiterated that it is appropriate “to be moving a little more quickly” on rate hikes. He also indicated that he believes that financial markets are “acting appropriately generally,” meaning that they are adjusting to the expectations of higher rates.

Markets are forward-looking, so prices today reflect what markets think will happen in the future. A good example of this is mortgage rates: The average rate on a 30-year fixed-rate mortgage was 5.29% as the last week of April opened. For contrast, in early March, it was 3.76%.

Markets are having trouble interpreting this information. The problem is that so far, we’ve heard the Fed’s intentions, but without corresponding data showing whether or not rate hikes are working, markets can’t assess the likely path. And that leads to volatility.

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What’s the Fed Up To? Rates, Inversions, and Quantitative Tightening

The U.S. Treasury yield curve inverted last week. An inversion is when the shorter-term yield in a pair of U.S. Treasury maturities is higher than the longer-term yield, reversing or inverting the normal relationship. The significance of a yield curve inversion is that inversions have a history of predicting recessions.

The yield curve inverts because investors believe that the economy will slow in the future. The Fed attempts to control inflation by increasing interest rates, which makes business investment more expensive. Markets appear to think that the Fed will overshoot with rate increases, which will stifle rather than slow economic growth. The Fed will then have to begin decreasing rates again.

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A Plan for Managing Stock Sales: 10b5-1s and SEC Rules

Corporate insiders at publicly traded companies are privy to information that can have a major impact on the share price, such as a Federal Drug Administration (FDA) approval or rejection of a new drug. As a result, corporate trading policies restrict the number of days corporate insiders can buy or sell shares. Often, these policies limit the number of open trading windows to less than 60 days per year.

Overall, insider trading restrictions include blackout periods and exposure to material, non-public information (MNPI).

These trading constraints hamper corporate executives’ ability to manage their holdings, posing a stock concentration risk within their overall investment portfolios.

There is a solution to this problem: Rule 10b5-1

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March Market Commentary: In Like A Lamb, Out Like a Lion?

March Recap and April Outlook

Ukraine’s fierce response to and subsequent repulsion of Russian troops surprised everyone, not least Vladimir Putin. As March came to a close, negotiations were beginning to be more realistic, and the evidence on the ground was that Russia was retreating and reassessing.

The Federal Reserve held the monthly FOMC meeting and raised the key short-term interest rate by 25 basis points. What wasn’t expected was Fed Chairman Powell’s subsequent remarks about the pace of rate increases. Powell has worked to be transparent and proactive in communicating the Fed’s intentions.

The change in the pace of rate increases was clear in his language that “There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability.”

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Planning for 2022: The IRS Has Increased Several Key Deductions and Exemptions

The spike in inflation we’ve seen this year has impacts beyond having to pay more for goods and services. The IRS uses consumer price inflation (CPI) to determine certain increases to exemptions and deductions for federal tax purposes. These are automatic and calculated from the rise in CPI. That means that the increased inflation this year may actually end up saving you money. While the changes are for 2022 and you won’t be paying the associated taxes until 2023, it’s a good idea to be aware of the new limits.

You may be able to make changes as you go that can help you maximize the benefit. For example, the amounts for Flexible Spending Accounts (FSAs) and the commuter benefit increased, so you may want to have more taken out of your paycheck. This saves you money by paying with pre-tax dollars.

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