Category Archives: Uncategorized

Ideas with no specific focus

Bull Market Heading for Major Correction in 2018, Bank of America Says

My Comments: If I sound like a broken record, you have my apologies.

In these days of supposedly good cheer and optimism, no less an institution than Bank of America/Merrill Lynch says to be cautious. That’s good advice.

As I continue working on my book/course on retirement planning, I have one eye watching what’s happening in the world. I consider myself lucky that I still have two good eyes.

Watch for a publication announcement in the next few weeks. Happy Holidays!

By Bradley Keoun | Dec 6, 2017

Bank of America Corp. says signs are growing that the eight-year-old bull market in stocks and risky assets could soon come to an end.

And, as with all late-stage bull markets, the trick for investors is in getting the timing right.

The Standard & Poor’s 500 Index, a key benchmark for U.S. stocks, could peak at 2,863 during the first half of 2018, Bank of America analysts predicted in a report. That’s 8% above current levels.

But the second half could bring mostly gloom for investors, as the Federal Reserve tightens financial conditions by raising interest rates and shrinking its balance sheet.

Volatility — a measure of the size of daily price swings — could rise from this year’s unusually low levels. Inflation is likely to increase. Yields on corporate bonds could widen relative to those of U.S. Treasuries — an indicator of fading investor confidence in companies’ ability to repay their debt.

“Signs of bubble-like behavior abound,” according to the report, which cited examples like record-high art prices, soaring Bitcoin prices and a 100-year-bond sale by Argentina, the South American nation that has defaulted on its debt eight times in the past 200 years. Next year “could represent the move toward euphoria, which typically heralds the end of a bull market.”

Wall Street firms are becoming increasingly anxious about frothy conditions in financial markets, with Goldman Sachs Group inc. warning investors last week that stocks and bonds are trading at the highest average valuations since 1900.

Bank of America noted that much of the recent gains have been fueled by central banks like the Fed, which have pumped trillions of dollars into global markets in the past decade to kindle elusive economic growth.

In fact, according to the bank, there may be little driving the stock market at this point except for bullish sentiment.

While there are ample gains are to be had by savvy investors, the risks are growing. By the end of 2018, the bank predicts, the S&P 500 could fall from its mid-year peak to about 2,800.

Signs are growing that the bull market is “nearing the end of its leash, triggering a mid-year pullback alongside potential for some of the best returns in the last gasps of the cycle,” the analysts wrote.

Yields on U.S. Treasury 10-year bonds could surge to 2.9% or 3% by the end of 2018, from about 2.37% now, the report said, a move that would lead to falling prices for the assets. According to the analysts, the tax bill could lead to $1 trillion or more of U.S. budget deficits, prompting the Treasury to issue more bonds and increase market supply of the securities even as the Fed proceeds with a plan to liquidate government securities currently held on its balance sheet.

“Balance sheet unwinding could mean a spike in net supply of Treasuries the market would have to absorb,” according to the analysts.

A key call in the report is that China’s bond and foreign-exchange markets could face a reckoning after officials for more than a decade encouraged heavy borrowing and spending to fuel economic growth. President Xi Jinping’s efforts to reduce debt in the country’s financial system could become “messy,” the Bank of America analysts wrote.

Investor fears of a Chinese currency devaluation sent markets reeling in early 2016, until officials managed to stabilize the exchange rate through strict capital controls.

So — proceed with caution.


Roll Your 401k (or 403b) Into an IRA While You’re Still Working

My Comments: The prevailing wisdom is that if you have money inside a 401k, or a 403b (University and other not-for-profit employees), you are stuck there until you terminate your employment. This article says you can move it.

Being stuck means you can’t always make changes to insure your pile of money against a market correction. If you are young, it may not matter. But if you are really starting to think about your retirement, it could be seriously serious.

This chart shows the S&P500 over the past 20 years. To me it suggests there will be another downturn. You might want to be thinking about repositioning some of your retirement money…

Greg Soren, November 9, 2017

A client recently walked into my office and placed his 401(k) statement on my desk. He looked at me, pointed to the document and asked, “Can I bombproof my 401(k)?” We reviewed his statement, investment options and expenses, then considered his ability to lower risk inside the 401(k).

Unimpressed, his next question was, “Is there anything else I can do?” I hesitated for a moment, then asked him if he’d ever considered an In-Service Distribution. He looked at me with a blank stare that immediately let me know he had no idea what I was talking about.

Many employees diligently focus their energy on accumulating assets into their Employee Retirement Income Security Act 401(k) or 403(b) employer plans. But, they don’t take the time to understand all the associated rules; specifically, in-service distributions and other options those plans may afford to them as they approach retirement age.

Most employees are aware they have the option to roll their employer plan over to an Individual Retirement Arrangement (IRA) when they retire. However, very few know that they can take a distribution from the plan while they’re still employed with the company. The employee must be over the age of 59.5 to access the majority of their funds, and the fact that the Employee Retirement Income Security Act of 1974 (ERISA) may allow for such a distribution doesn’t necessarily mean your employer’s plan permits it.

Rollover while you are still employed
The In-Service Distribution allows you to initiate a tax-free, trustee-to-trustee rollover into an IRA while you’re still employed, offering advantages heading into retirement. The rollover can be made from a traditional employer plan, a Roth employer plan or a combination plan. (If you’re completing an In-Service Distribution for a Roth portion of your plan, you must be sure it rolls over to a Roth IRA.)

For Example
John Doe has been employed with ABC Widgets, Inc. for 35 years. At age 62, John is three years away from retirement and wants to decrease risk in his 401(k). John’s 401(k) plan does allow for In-Service Distributions, so he decides to diversify and take advantage of this option. John and his adviser determine to allocate 35% of his 401(k) to an outside investment. They agree upon and choose a lower-cost, lower-risk fixed indexed annuity and rebalance the 401(k) in order to accomplish this goal.

Advantages and Disadvantages of In-Service Distributions

• Unlimited Control: Once you roll employer plan dollars over to your IRA, you have total control and ownership of that investment. You can choose the investment strategy and the custodian without any restrictions, including unlimited withdrawal options. Under your employer’s plan, you’re restricted to the investments they select and also face potential blackout periods, related fees and limited distribution options.

• Investment Diversification: If you opt to roll over your employer plan dollars, you’ll be able to choose the investments you want in your IRA without being subject to the limited options of an employer plan. Or, you can use the In-Service Distribution to enjoy the best of both worlds by leaving some dollars in the employer plan and also transferring some to your IRA.

• Beneficiary Options: With employer plans, ERISA requires a spouse to be the primary beneficiary unless he/she signs paperwork to recuse himself/herself. With an IRA, you can name anyone as a beneficiary with no approval or additional signatures required. Your IRA beneficiary can be updated and changed as frequently as you like, just remember to always name a primary and a contingent beneficiary.

• Federal Tax Withholding: When you withdraw dollars from an employer plan, 20% federal withholding is required. If dollars are transferred to a rollover IRA and then withdrawn, there is no federal withholding requirement. The owner determines the federal and state withholding amounts needed, if any.

• Fees: IRA owners are able to shop and compare competitive fee pricing, which can result in savings compared to employer plan fees. My clients often say, “Oh, there are no fees in my 401(k),” but we know this isn’t true. Under ERISA, Code sections 408(b) (2) and 404(a) (5) require all plan participants receive a full disclosure of fees related to their company plan, including indirect and direct compensation and services. This information helps employees make the most informed decisions.

• Bankruptcy Protection: IRA owners maintain bankruptcy protection for their IRAs up to $1,283,025. However, like the ERISA plan, the amount of IRA dollars protected in bankruptcy is unlimited if dollars are rolled over to an IRA. Creditor protection in the IRA varies from state to state; some states have unlimited creditor protection while others are limited. Make sure to research the state in which you live.

• Prefund Your Retirement IRA: Once a rollover IRA is opened, it’s ready to house any additional plan dollars you contribute prior to retirement, making the transition that much easier.

• Net Unrealized Appreciation (NUA): Transferring plan assets to an IRA can disqualify an opportunity to benefit from Net Unrealized Appreciation (NUA), an option to tax gains from highly appreciated company stock at the more favorable long-term capital gains tax levels as opposed to ordinary income tax. Company stock is transferred from the company plan to a non-qualified account. Ordinary income tax is paid on the basis of the company stock, and the gain of this stock will be taxed at long-term capital gains rates when sold in the future. The ability to pay tax at the long-term rate on a portion of the plan dollars benefits the account owner.

• After-tax Dollars: Some qualified plans allow you to contribute after-tax dollars. Just be sure these monies are distributed to a Roth IRA or non-qualified account, as you don’t want to co-mingle after-tax dollars with pre-tax dollars. If this happens, your CPA will be required to complete IRS tax form 8606 every year thereafter on your federal taxes to inform the IRS what amount of after-tax money is in your pre-tax IRA. It’s much easier to segregate the two balances and have 100% access to your after-tax dollars.

• No Required Minimum Distributions (RMDs): Individuals are required to start taking their Required Minimum Distributions (RMDs) the year they turn 70½, or by April 1 the year following. The amount of money they must withdraw is based on the Single Life expectancy table or Joint Life expectancy table. If individuals do not take the appropriate distribution, the IRS can penalize them up to 50% of the RMD. Employees who remain working for the employer that houses their company plan do not have to take dollars out of the plan at age 70½ , and are allowed to waive the RMD until April 1 the year after they retire. Exceptions also exist for pre-1987 403B plan dollars; check your company plan for more information.

• Borrowing Availability: You may be able to take a loan from your company plan if the plan allows. You are not allowed to borrow money from a rollover IRA or contributory IRA.

Retirement: 4 financial issues you’re probably not planning for

My Comments: There are a lot more than 4. But it’s a start.

Wherever you are on life’s trajectory, what we call ‘retirement’ is somewhere in there. And unlike some things in life, it’s not something we get to practice in advance.

Getting older is a one time thing and if you get there, you had better hope you paid attention and minimized mistakes ‘cause you don’t get to go back and try again.

These 4 issues are not hard to get your arms around. The sooner you understand their implications the more pleasure you will get from retirement.

In the meantime, be looking for an announcement about the online course I’m creating called Successful Retirement Secret(s). It’s a way to think about, and process information into a system to help you get to the other end with more money rather than less money.

Wendy Connick, Oct. 5, 2017

If you’ve developed a well-researched and comprehensive retirement plan, then good for you (and bonus points if you put it in writing).

But before you get too cocky about your well-funded retirement, check to see if your plan has left out any of these common issues. If it has, you could end up with a much smaller retirement income than you expect, as your savings gets gobbled up by these unexpected expenses.


Inflation is the sneaky retirement-killer. It’s the reason why a dollar won’t buy as much today as it would 20 years ago. Inflation has averaged around 3% per year since the government began tracking it in 1913, although it can vary significantly over the short term. That means you must assume that your retirement savings will lose about 3% of their value every year.

To beat inflation, you need to pick investments that will produce high enough returns to outpace the loss of your money’s value. Historically, stocks are the only investment to reliably beat inflation year after year, with large-cap stocks producing an average return of around 10% before inflation over the past century. That’s why even retirees need to keep some money in stocks, despite their volatility.


As long as you live, the IRS — and possibly your state revenue board — will try to collect a cut of your income. If your retirement plan doesn’t account for your future taxes, your entire budget could be thrown out of whack. For example, say you figure out that you’ll need $3,000 per month in income from your retirement savings to get by, so you plan to remove $3,000 from your traditional 401(k) or IRA. Your withdrawals will be subject to income tax, so you’ll have to pay a hefty tax bill, leaving you with much less than $3,000 a month to work with. And if your taxable income is high enough, your Social Security benefits will be taxed, too — leaving you even deeper in the hole. So start thinking about how you will minimize the amount of income you fork over to the government.

Of all the retirement tax minimizing tools out there, the Roth-type account is the undeniable king. Having a significant percentage of your retirement savings in a Roth account gives you more control over how much income tax you pay each year, minimizes your required minimum distributions, and allows your investments to grow tax-free for as long as they’re in the account.

Estate planning

Failure to do at least minimal estate planning puts an unfair burden on your family. They’ll already be upset and stressed by your passing; they shouldn’t also have to deal with a mountain of legal and financial issues owing to your lack of planning. Skipping the basics of estate planning could also cause your beneficiaries to shell out a lot more money. For example, if you don’t have a will, in most states the court will assign an administrator to distribute your assets according to state law, and the administrator’s fees (and possibly other legal fees) will come out of your estate.

The essentials of estate planning include writing a will, naming beneficiaries for all your accounts (and keeping them up to date), and setting up a power of attorney in case you become incapacitated. You may also consider filling out an advance medical directive to dictate which extreme lifesaving measures you want doctors to undertake if you’re incapacitated, as well as setting up trusts to manage issues such as probate and estate taxes.

Long-term care

The odds that you’ll need long-term care at some point in your lifetime are considerably better than even, and that care doesn’t come cheap: The average cost of long-term care for a couple is around $130,000. That being the case, building long-term care expenses into your retirement planning is a must. You can’t count on Medicare to help with these expenses; it won’t cover long-term care expenses unless there’s a clear medical necessity, e.g., if a doctor orders a nursing home stay for you — and even then, Medicare only covers the first 100 days.

Long-term care insurance can protect you from such expenses, and it’s best acquired while you’re relatively young and in good health, which will keep your premiums as low as possible. Most people can get the best deal by purchasing long-term care insurance in their 50s. One often-overlooked benefit of long-term care insurance is that while long-term care expenses themselves are difficult to predict, the insurance premium is predictable and thus much easier to budget for.

If you wait until you’re retired to build these expenses into your budget, you’ll probably have to make some sacrifices in order to squeeze them in. Luckily, it’s never too late to revise your plan. Consider seeing a financial adviser or other expert to help you deal with these issues. For example, someone with extensive tax knowledge may be able to come up with ideas you’d never think of for reducing your tax burden.

The Coming Bear Market?

My Comments: The author of this article, Robert J. Shiller, is one of the worlds best known economists. To borrow a phrase, when he speaks, you should listen.

I’m phasing out of the investment advisory world. My skills are eroding. But I plan to keep myself informed and sharing ideas that I believe make sense and hopefully add value to whomever among you is paying attention.

In the meantime, know the world is not ending. Cracks are appearing in several directions, some of which are necessary and healthy. We need to be prepared for some significant bumps that are already starting to be felt.

September 21, 2017 • Robert J. Shiller

The US stock market today is characterized by a seemingly unusual combination of very high valuations, following a period of strong earnings growth, and very low volatility. What do these ostensibly conflicting messages imply about the likelihood that the United States is headed toward a bear market?

To answer that question, we must look to past bear markets. And that requires us to define precisely what a bear market entails. The media nowadays delineate a “classic” or “traditional” bear market as a 20% decline in stock prices.

That definition does not appear in any media outlet before the 1990s, and there has been no indication of who established it. It may be rooted in the experience of October 19, 1987, when the stock market dropped by just over 20% in a single day. Attempts to tie the term to the “Black Monday” story may have resulted in the 20% definition, which journalists and editors probably simply copied from one another.

In any case, that 20% figure is now widely accepted as an indicator of a bear market. Where there seems to be less overt consensus is on the time period for that decline. Indeed, those past newspaper reports often didn’t mention any time period at all in their definitions of a bear market. Journalists writing on the subject apparently did not think it necessary to be precise.

In assessing America’s past experience with bear markets, I used that traditional 20% figure, and added my own timing rubric. The peak before a bear market, per my definition, was the most recent 12-month high, and there should be some month in the subsequent year that is 20% lower. Whenever there was a contiguous sequence of peak months, I took the last one.

Referring to my compilation of monthly S&P Composite and related data, I found that there have been just 13 bear markets in the US since 1871. The peak months before the bear markets occurred in 1892, 1895, 1902, 1906, 1916, 1929, 1934, 1937, 1946, 1961, 1987, 2000, and 2007. A couple of notorious stock-market collapses – in 1968-70 and in 1973-74 – are not on the list, because they were more protracted and gradual.

Once the past bear markets were identified, it was time to assess stock valuations prior to them, using an indicator that my Harvard colleague John Y. Campbell and I developed in 1988 to predict long-term stock-market returns. The cyclically adjusted price-to-earnings (CAPE) ratio is found by dividing the real (inflation-adjusted) stock index by the average of ten years of earnings, with higher-than-average ratios implying lower-than-average returns. Our research showed that the CAPE ratio is somewhat effective at predicting real returns over a ten-year period, though we did not report how well that ratio predicts bear market

This month, the CAPE ratio in the US is just above 30. That is a high ratio. Indeed, between 1881 and today, the average CAPE ratio has stood at just 16.8. Moreover, it has exceeded 30 only twice during that period: in 1929 and in 1997-2002.

But that does not mean that high CAPE ratios aren’t associated with bear markets. On the contrary, in the peak months before past bear markets, the average CAPE ratio was higher than average, at 22.1, suggesting that the CAPE does tend to rise before a bear market.

Moreover, the three times when there was a bear market with a below-average CAPE ratio were after 1916 (during World War I), 1934 (during the Great Depression), and 1946 (during the post-World War II recession). A high CAPE ratio thus implies potential vulnerability to a bear market, though it is by no means a perfect predictor.

To be sure, there does seem to be some promising news. According to my data, real S&P Composite stock earnings have grown 1.8% per year, on average, since 1881. From the second quarter of 2016 to the second quarter of 2017, by contrast, real earnings growth was 13.2%, well above the historical annual rate.

But this high growth does not reduce the likelihood of a bear market. In fact, peak months before past bear markets also tended to show high real earnings growth: 13.3% per year, on average, for all 13 episodes. Moreover, at the market peak just before the biggest ever stock-market drop, in 1929-32, 12-month real earnings growth stood at 18.3%.

Another piece of ostensibly good news is that average stock-price volatility – measured by finding the standard deviation of monthly percentage changes in real stock prices for the preceding year – is an extremely low 1.2%. Between 1872 and 2017, volatility was nearly three times as high, at 3.5%.

Yet, again, this does not mean that a bear market isn’t approaching. In fact, stock-price volatility was lower than average in the year leading up to the peak month preceding the 13 previous US bear markets, though today’s level is lower than the 3.1% average for those periods. At the peak month for the stock market before the 1929 crash, volatility was only 2.8%.

In short, the US stock market today looks a lot like it did at the peaks before most of the country’s 13 previous bear markets. This is not to say that a bear market is guaranteed: such episodes are difficult to anticipate, and the next one may still be a long way off. And even if a bear market does arrive, for anyone who does not buy at the market’s peak and sell at the trough, losses tend to be less than 20%.

But my analysis should serve as a warning against complacency. Investors who allow faulty impressions of history to lead them to assume too much stock-market risk today may be inviting considerable losses.

Robert J. Shiller, a 2013 Nobel laureate in economics, is professor of economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of “Irrational Exuberance,” the third edition of which was published in January 2015, and, most recently, “Phishing for Phools: The Economics of Manipulation and Deception,” co-authored with George Akerlof.

Another Poll !

I’m now working on the graphics for my internet course about Retirement Planning.

Please mark the one you like best, or NONE of them.

Many thanks. Tony

Please Help Me Find The Best Name

I’m creating an internet course to help people know which questions to ask about retirement before they start worrying about the answers.

Part of the process is to register a domain name for everything related to the course. I’ve come up with four possible names. There were several others but they were already taken or someone wanted $XXXX.00 to buy them.

So I found a site that helps you create a poll to send to people you know. There are four names below. Please select the one that resonates most strongly with you.


Many thanks!


How Much Will Social Security Benefits Increase In 2018?

My Comments: Those of us alive in the 70’s and early 1980’s recall a time when inflation was so high it dominated any economic discussion.

Those of us still alive today and getting Social Security benefits enjoy the increase that sometimes happens every year in January. It’s a cost of living adjustment or COLA. In 2016 is was 0.3% which didn’t amount to didly squat. This year it might be a little higher.

Tipswatch \ July 24, 2017


  • News media widely reported that a 2.2% increase in Social Security benefits is likely in January 2018.
  • How is the COLA determined and how could anyone project it in early July?
  • We need three months of data – inflation for July, August and September – to know the answer.

My wife and I were on vacation last week, eating breakfast at an Interstate hotel in southern Wisconsin. She read me a line from a USA Today story: “Social Security benefits projected to rise 2.2% in 2018.”

“What?” I nearly spit out my artificially-processed scrambled eggs. “How can that be? Inflation is running at 1.6% and we’re only halfway into the year. Wouldn’t this number come out in October or December? How can it be 2.2%?”

The article noted that the 2.2% number was a projection by the Social Security trustees, but that “officials will release the official cost-of-living increase for Social Security recipients in October.”

So I realized I had a lot to learn about Social Security and its annual cost of living adjustments (COLAs). My wife and I aren’t collecting Social Security yet, but I do track inflation every month. I wanted to know more.

The Weird Index
Social Security COLAs are based on the Consumer Price Index For Urban Wage Earners And Clerical Workers, otherwise known as CPI-W. It is similar to CPI-U (the “headline” inflation that you read about every month) but includes information only from households with at least 50% of the household income coming from clerical or wage-paying jobs.

CPI-W isn’t widely tracked, but the Bureau of Labor Statistics does update the index each month in its overall inflation report. In June, for example, the index was set at 238.813, for a 12-month increase of 1.5%, a bit lower than overall U.S. inflation.

I repeat: CPI-W increased 1.5% over the last year, less than overall inflation. Hard to see where we are heading toward a 2.2% benefits increase in 2018, but my research continues …

The Weird Formula
The Social Security Administration doesn’t look at a full year’s data to determine the COLA. Instead it uses the average index for the third quarter – July, August and September. Here is the language from the SSA site:
A COLA effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective. If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA.

This is interesting wording, because it means that the SSA eliminates years where inflation was zero or negative, meaning there won’t be a “bounce-up” effect on benefits after a year of deflation. Instead, it goes back to the last year where there was an increase in benefits.

This happened in 2016, because there was negative average inflation in the third quarter of 2015 (and thus a 0.0% benefit increase in 2016). So when the 2016 benefit was determined (to take effect in 2017), the SSA compared the third-quarter averages of 2016 and 2014. Here is that formula:
(235.057 – 234.242) / 234.242 x 100 = 0.3 percent.

Benefits increased 0.3% in January 2017, and now the 2018 benefit will be determined by comparing the third quarter of 2017 with the third quarter of 2016 to determine the benefits increase starting January 2018.

Here are some historical numbers and my analysis of the current year’s trend:
Based on these numbers, a 2.2% benefits increase in January looks unlikely. If inflation remains stable over the next three months, the increase would be 1.6%. If it rises 0.1% each month, the increase would be 1.8%. And if it rises 0.2% each month, the increase would be 2.0% (In June, the index rose 0.08% before rounding. In May, it was 0.07%).

So why did we get a slew of news reports last week predicting a 2.2% increase in Social Security benefits in January? (Even the AARP reported the projection). The SSA trustees did issue their annual report on July 13, and it included projections that showed 2.2% as a “medium” outlook for the January COLA. But keep in mind that these projections were made before the third quarter began. There isn’t a single data point to support that projection. And if you follow inflation like I do, you know how unpredictable it can be from month to month.

Digging deeper into SSA data, I found a chart showing the half-year average CPI-W inflation numbers, which were up 2.2% in the first half of 2017. Interesting, but the COLA is based on inflation in three months – July, August and September – that aren’t in the first half of the year. So that number is irrelevant.

Last year, in their July 2016 annual report, the trustees projected a 0.2% COLA increase in January 2017. That number turned out to be 0.3%. Pretty close, or off by 50%?

I’d admit that the COLA could end up being 2.2% in January 2018, or it could be lower. Or even higher. I’ll also note there are no data – at this point – to support an accurate projection. We’re going to need to see inflation numbers for July, August and September.

The SSA says it will release the official number in October. I can tell you the exact date and time: Friday, October 13 at 8:30 am. That’s when the September inflation numbers will be released and then – and not until then – we will be able to say with confidence what the January 2018 COLA will be.