Absolutely insane news – my friend Tony @advicentcoo is about to throw a huge party @wealthstackconf and he’s bringing the legendary DJ Skribble with him. We’re over 500 registered attendees, #advisors hurry up and get your spot! https://t.co/9zJSVLWxgm pic.twitter.com/yLkJqG3TtG — Downtown Josh Brown (@ReformedBroker) August 16, 2019 Only a few weeks left til the best financial advisor event of the year. Ge...
Check this out. Josh here – just a quick announcement from me and my friend Anthony Stich of NaviPlan about what we’re about to unleash in Scottsdale, AZ next month for the first annual Wealth/Stack Conference. Tony is an expert in throwing monster parties at wealth management events and this time he’s pulling out all the stops. Over the last few years, NaviPlan has become a leading provider of enterpri...
“cut the shit.” Yesterday I tweeted about how difficult it is for an incumbent President to win reelection with an economic slowdown happening in the back half of their first term. It’s basically impossible, regardless of party or whatever else might be going on. There have been 19 incumbent Presidents since 1900 who have sought a second term. Fourteen of them got it and five lost. Of the five that lo...
Donald Trump was forced to learn a new term this week – “inverted yield curve” – and he is not surrounded by any actual experts who can help him understand what he needs to do. ...
I’ll make this very simple – if you have decades of saving and investing ahead of you, the best thing that could happen is a stock market that goes nowhere over the next ten years, allowing you to automatically buy dips in your 401(k) and accumulate your portfolio at prices that are not record highs. You cannot use or spend the money anyway. For the younger investor, the big risk in recession is that you̵...
The post How Young Investors Should Think About Yield Curves and Recessions appeared first on The Reformed Broker.
Read this too: Yield Curve Inversions Aren’t Great For Stocks (A Wealth Of Common Sense) ...
Folks who have retired or are preparing to retire before the Social Security Full Retirement Age (FRA) face a dilemma if they have IRA assets available. Specifically, is it better to take an income from the IRA account during the years prior to FRA (or age 70) in order to receive a larger Social Security benefit; or should you preserve IRA assets by taking the reduced Social Security benefits at age 62?
At face value, given the nature of IRA assets, it seems like the best thing to do is to preserve the IRA’s tax-deferral on those assets, even though it means that your Social Security benefit will be reduced.
If you look at the taxation of Social Security benefits though, you might discover that delaying receipt of your Social Security will provide a much more tax effective income later in life. In the tables below I’ll work through the numbers to illustrate what I’m talking about.
For our example, we have an individual who has a pre-tax income requirement of $75,000 per year. The individual has significant IRA assets available. If he takes Social Security at age 62, he will receive $22,500 per year. Delaying Social Security benefits to FRA would get him $30,000; waiting until age 70 would provide a benefit of $39,600 per year. In tables below we show what the tax impact would be for using Social Security at age 62, FRA, and age 70. In each case the required income is always $75,000.
Tax table in use is from 2019, and we’re assuming the individual is single. COLAs are not included in the example.
Table 1 – taking Social Security benefit at age 62:
Table 2 – taking Social Security benefit at age 66:
Table 3 – taking Social Security benefit at age 70:
The difference that you see in the tables is due to the fact that Social Security benefits are at most taxed at an 85% rate. With that in mind, the larger the portion of your required income that you can have covered by Social Security, the better. At this income level, the rate of taxable Social Security is even less, as only 85% of the amount above the $44,000 base (provisional income plus half of the Social Security benefit). This results in almost $5,000 less in taxes paid over the 29-year period illustrated by delaying to age FRA. The big benefit comes by a reduction of nearly $58,000 in taxes when you delay to age 70.
Note: at higher income levels, this differential will be less significant, but still results in a tax savings by delaying. It should also be noted that COLAs were not factored in, nor was inflation – these factors were eliminated to reduce complexity of the calculations. In addition, in calculating the tax, only the standard deduction was included.
This is to assume that the individual has the available IRA assets to allow for the early use of the funds, although in the end result, delaying to age 70 required less of a total outlay from the IRA, by nearly $180,000, in addition to the tax savings.
Hands down, this is a very significant reason to delay receiving Social Security benefits at least to FRA, and even more reason to delay to age 70. The only factor working against this strategy would be an early, untimely death, especially if the individual in question is not married. In that case the IRA assets would have been used up much more quickly than necessary, and no surviving spouse is available to carry on with the Social Security survivor benefit.
The post Should I Use IRA Funds or Social Security at Age 62? appeared first on Getting Your Financial Ducks In A Row.
Final Trades: United Tech, JM Smucker, AIG, KKR & more from CNBC. ...
Investors have flocked to single factor ETFs with $90 BN in flows over the past 10 years. However, when dissecting these flows further, one can’t help but notice that U.S. factor ETFs have captured the majority of flows and investor adoption of international factor ETFs has lagged. While investors have embraced both U.S. single factors and broad international markets, they have been slower to adopt international single factor ETFs despite international single factors offering the potential for return enhancement or risk reduction. Are investors missing an opportunity to pursue the potential benefits of factors in their international allocations? We would argue yes.
The role and use of factors in a portfolio shouldn’t stop with U.S. equity. Factors have been the long-term drivers of investment returns; their benefits and behaviors have persisted not only in U.S. markets but also in non-US markets. As a result, much like factors are used in a U.S. equity allocation, factors can also be deployed in international markets to seek enhanced returns or reduced risk. Not unexpectedly, international single factors have retained similar return and risk characteristics to their U.S. counterparts allowing investors familiar with U.S. factors to easily extend their use of factors to international markets. To illustrate, we evaluate the historical behavior of three single factors – quality, momentum and minimum volatility.
Using Factors to Beat the Market
Certain style factors such as quality and momentum can be deployed with the goal of enhancing return relative to the broader market. In the graph below, we examine the performance of these potential return-enhancing single factors in both U.S. and international markets. As expected, U.S. quality and momentum has outperformed the broader U.S. market over time. However, does this return-enhancing behavior of the quality and momentum factors hold in international markets? Indeed, the outperformance of quality and momentum factors has persisted in international markets over time. In fact, from January 2015 through June 2019, the international quality and momentum factors have outperformed the broader market by an average 1.6% and 1.1% per year, respectively. As a result, investors may consider deploying factors within their international allocations in seeking above-market returns.
Using Factors to Reduce Risk
However, what if the investor’s primary objective is not to enhance return, but rather to reduce risk in their portfolio while still remaining invested in the market? A minimum volatility strategy may be appropriate. Within the U.S., minimum volatility has historically delivered lower risk than the broader market as observed in the graph below. Notably, we also observe that this demonstrated behavior of lower risk compared to the broader market also persists in international markets. In fact, from February 2012 through June 2019, international minimum volatility has outperformed the broader market by an annualized 2.1% with only 75.6% of the risk. Thus, investors seeking to access international markets with lower risk or desiring to reduce the risk of their existing international allocations may want to consider using a minimum volatility strategy within their portfolios.
Interested in emerging market factors? Check out Holly’s blog on EEMV here.
Deploying International Factors
In addition to simply using international factors to strategically enhance return or reduce risk overtime, factors can also be deployed more tactically. Similar to U.S. single factors, the performance of international single factors has demonstrated cyclicality. Investors can leverage this demonstrated behavior by tilting toward or away from factors based on the economic cycle. For example, if the economy is headed into a period of slowdown or contraction, investors may want to build resilience into their portfolios and tilt toward quality or minimum volatility, which have tended to perform well in challenging market environments. On the other hand, if the economy is in a period of expansion, tilting toward momentum may be more appropriate.
Factors: quality, momentum, low size, value and minimum volatility, are the historical long-term drivers of returns and their characteristics have persisted within and across equity markets. As a result, investors can use factors across the globe both strategically, and tactically, to seek enhanced returns or reduced risk. The narrative and rationale for both U.S. and international exposures is also consistent, allowing investors’ familiarity with domestic factor investing to extend globally. For these reasons, we believe the prudent investor should consider incorporating the potential benefits of factor investing beyond the U.S, and into their international allocations.
Holly Framsted, CFA, is the Head of US Factor ETFs within BlackRock’s ETF and Index Investment Group and is a regular contributor to The Blog. Elizabeth Turner, CFA, Vice President and Christopher Carrano, Associate are members of the Factor ETF team and contributed to this post.
 Source: Blackrock, industry flows for value, momentum, low size, quality and minimum volatility Factor ETFs domiciled in the U.S., data from 2009 to 2019.
 International quality is represented by the MSCI World ex USA SN Quality Index. Momentum is represented by the MSCI World ex USA Momentum Index. The broader international market is represented by the MSCI World ex USA Index.
International minimum volatility is represented by the MSCI World ex USA Minimum Volatility (USD) Index. The broader international market is represented by the MSCI World ex USA Index. U.S. minimum volatility is represented by the MSCI USA Minimum Volatility (USD) Index. The broader U.S. market is represented by the S&P 500 Index.
Source: BlackRock, Morningstar, data from February 2012 – June 2019. Past performance does not guarantee future results.Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing. Investing involves risks, including possible loss of principal. The iShares Minimum Volatility Funds may experience more than minimum volatility as there is no guarantee that the underlying index's strategy of seeking to lower volatility will be successful. There can be no assurance that performance will be enhanced or risk will be reduced for funds that seek to provide exposure to certain quantitative investment characteristics ("factors"). Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. In such circumstances, a fund may seek to maintain exposure to the targeted investment factors and not adjust to target different factors, which could result in losses. Diversification and asset allocation may not protect against market risk or loss of principal. This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular. This document contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this material is at the sole discretion of the viewer. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”). The iShares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc., nor does this company make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with MSCI Inc. ©2019 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners. ICRMH0819U-914468-1/1
A surprise tariff announcement by the U.S. met with an unexpected depreciation in the Chinese currency, sending shock waves across global markets last week. This latest escalation in U.S.-China tensions reinforces our view that trade and geopolitical frictions have become the key driver of the global economy and markets. We stress the importance of portfolio resilience in this environment, yet view the decisively dovish shift by global central banks as helping extend the global expansion.
U.S. President Donald Trump announced a 10% tariff from next month on the $300 billion of Chinese imports not already subject to tariffs. This triggered a wave of tit-for-tat retaliations. China let its currency breach the psychologically important 7-per-U.S. dollar level – a departure from the People’s Bank of China (PBOC)’s usual practice of stabilizing the yuan when it’s under pressure. See the line for the yuan’s exchange rate. This sparked memories of the 2015 yuan devaluation that rocked global markets. Yet we do not expect a repeat. Capital outflows from China hit historic levels in 2015, but have ebbed since, with better curbs in place. And we see the deliberate nature of PBOC’s latest move stemming fears of uncontrolled devaluation. Spillover to other EM currencies has been subdued versus 2015. We see Beijing allowing the yuan to fall further, but in a controlled manner. Other recent tit-for-tat actions: The U.S. designated China a “currency manipulator,” China said it would stop buying U.S. agricultural goods, and the U.S. delayed a decision to loosen restrictions on Chinese telecoms giant Huawei.
Read more in our Weekly commentary
Focus on portfolio resilience
Trade disputes extend beyond the U.S. and China, and trade policy has increasingly become a tool that global governments use to pursue political objectives. The latest example: A row between Japan and South Korea over wartime compensations has morphed into an intensifying – and likely long-lasting – trade and technology dispute. Europe could be the next front of the global trade war, as European governments step up taxation of U.S. tech companies. See our geopolitical risk dashboard for more.
Rising macro uncertainty has contributed to a dovish tilt by global central banks. This stems downside risks to the economy and reinforces our view that despite a downgrade to our growth outlook, the global expansion can run on for longer. The latest shot of monetary easing came from central banks in New Zealand, Thailand and India. The trio surprised the markets, cutting rates by more than expected last week. The accommodative stance of central banks underscores our still-positive view on risk assets. This includes income opportunities such as local-currency EM debt of countries with low exposure to U.S.-China trade tensions.
The market turbulence underscores our call for portfolio resilience. Government bonds have lived up to their promise as portfolio stabilizers, even with U.S. 10-year Treasury yields now near three-year lows. German government bond yields have also declined – though not as drastically. This illustrates another of our key views: Core European bonds may offer a thin cushion against stock market selloffs as yields approach an effective lower bound. We like European sovereigns on a tactical basis, notably those from southern-tier countries, as we expect the European Central Bank to unleash further stimulus. By contrast, we see market expectations of aggressive Fed easing as excessive, given limited near-term recession risks. We see inflation-linked bonds offering buffers against equity drawdowns and underappreciated inflation risks. We prefer the U.S. equity market for its still longer-term reasonable valuations and a concentration of high-quality companies. We favor the min-vol factor, which has tended to do well during economic slowdowns.
Read more market insights in our Weekly commentary.