The Aftermath of Brexit

The Aftermath of Brexit

Pros and Cons: What Options Do Individual Investors Have?

The Aftermath of Brexit Pay Taxes Later Blog

What should you do about your own retirement plan in the aftermath of Brexit? Find out why now could be a great time to do a Roth conversion!

On June 23, 2016, a majority of British citizens voted to leave the 28-member European Union – an action referred to as the “Brexit”. The following day, Americans awoke to learn that global stock markets had not reacted well to the news. Our major domestic indices followed suit, with the Dow Jones Industrial Average declining more than 600 points in one day. Trillions of dollars in wealth were estimated to have been wiped out overnight, and more is likely to follow as the world adjusts to the news.

Prior to the historic Brexit vote, I watched with interest as the pollsters interviewed people on the streets and then confidently predicted that Britons would vote to stay in the union. The British pound made gains, and even the lethargic US stock markets seemed cheered at the news. Life, it seemed, would be good as long as the union remained intact. Investors throughout the world thought that the good citizens of Great Britain would never upset the apple cart, and placed their bets accordingly. And guess what? They bet wrong!

Time will tell, but I suspect that much of this market chaos is happening because the investors who relied on the pollsters got caught with their pants down. Plans were made and fund managers structured their portfolios assuming that the citizens of Great Britain would vote to stay – and they didn’t. Now these investors find themselves having to scramble to put their Plan B – assuming they even have one – in place. What does their mistake mean for you?

If you’re clients of ours, you know that we have always advocated using a balanced approach to money management. And we never advocate making changes to your portfolio based solely on what the market is doing. However, for many of you, now would be a great time for you to take that trip to London that you’ve always wanted to do. The US dollar strengthened on the news of the Brexit, and will stretch much further now than it would have a week ago. Or, consider establishing Roth IRAs or college tuition accounts for your grandchildren. If they have ten or more years to wait out a market recovery, you can fund those accounts with equities purchased at prices much lower than they were last week at this time.

What should you do about your own retirement plan in the aftermath of Brexit? If you hold any global funds in your IRA, now could be a great time to do a Roth conversion. By converting when the market value of the fund is low, you pay less in federal income tax than you would when the fund value is high. And if the market continues to drop even further, you can always recharacterize your conversion. I’ll be talking about some of these points on my next radio show on 1410 KQV. You can call in and ask questions during the live broadcast on Wednesday, July 6th, from 7:00 – 800 p.m., or catch the rebroadcast on Sunday, July 10th at 9:00 a.m. You can also read more about Roth conversions by clicking this link on my website: http://www.paytaxeslater.com/roth_ira/

Please call our office soon if you have been thinking about doing a Roth conversion, and we will run the numbers to see if it makes sense for you. And if you do go to London, send me a postcard!

Jim

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John C. Bogle – A Financial Industry Giant Addresses Congress

John Bogle, The Lange Money Hour, James Lange, Pittsburgh, PA Wednesday, October 1, 2014Join us this Wednesday, October 1 at 7:05 p.m. on KQV 1410 AM for The Lange Money Hour, Where Smart Money Talks.

Program also streams live at www.kqv.com

Encore presentations air on KQV EVERY SUNDAY at 9:00 a.m.

The three legs of America’s retirement system are shaky, neither structurally efficient nor fiscally stable. That’s what the U.S. Senate Finance Committee heard on September 16, during testimony by a man Fortune Magazine labeled one of four giants of American Finance: John C. Bogle, founder and now retired CEO of the Vanguard Group, the world’s largest mutual fund company, with more than 3 trillion dollars under management.

To hear why Mr. Bogle believes the situation is so precarious, tune in tomorrow evening at 7:05, as The Lange Money Hour welcomes him back to the show.

Over the course of his 63-year career, Mr. Bogle has changed the face of investing. A pioneer in the concept of index mutual funds, collective portfolios of stocks that mimic the movement of a defined market sector rather than a selection of individual companies, he is credited with creating the first index fund available to individual investors, the Vanguard 500.

Mr. Bogle has written a dozen books, including his 1994 bestseller Bogle on Mutual Funds to most recently The Clash of the Cultures: Investment vs. Speculation. At 85, he remains an active industry observer, appearing regularly on national financial media outlets. He recently described the personal mission he has set for himself in his retirement – “to speak out for truth and integrity and character in the world of finance, striving to build a better world for investors—honest-to-God, down-to-earth human beings who deserve a fair shake.”

You can watch his 6-minute Congressional testimony here:

http://johncbogle.com/wordpress/2014/09/17/testimony-before-the-senate-finance-committee-september-16-2014/

We’re honored to have Mr. Bogle back as a guest on The Lange Money Hour. Please plan to join us Wednesday, Oct. 1, 2014 at 7:05 on KQV 1410 for an interesting and informative hour. The program will also stream live at www.kqv.com.

If you can’t tune in October 1, 2104, KQV will rebroadcast the show at 9:00 a.m. this Sunday. You can also access the audio archive of past programs including written transcripts on the Lange Financial Group website, www.paytaxeslater.com. Click on RADIO.

Finally, mark your calendar for Wednesday, October 15th at 7:05 p.m., when Pittsburgh City Controller Michael Lamb will join us for the next new edition of The Lange Money Hour.

 

Numbers to Know: COLA for 2014

The Social Security Administration has announced new cost-of-living adjustment, or COLA, numbers for 2014.  The cost-of-living adjustment is decided by comparing consumer prices in July, August, and September of each year to the prior year’s numbers.  Since 1975, Social Security increases have averaged around 4%—less than 2%, only six times.  This year we will see one of the smallest COLAs since the program was adopted, just 1.5%.

Advocates for seniors say the 2013 Consumer Price Index measurements aren’t entirely fair.  While gasoline and electronics prices were down significantly in 2013, the cost of food increased slightly, and housing, medical, and utility costs rose dramatically.  Unfortunately, seniors generally spend more on healthcare goods and services, so they are facing dramatic increases in their spending.

‘‘This (cost-of-living adjustment) is not enough to keep up with inflation, as it affects seniors,’’ said Max Richtman, who heads the National Committee to Preserve Social Security and Medicare.  ‘‘There are some things that become cheaper, but they are not things that seniors buy.  Laptop computers have gone down dramatically, but how many people at age 70 are buying laptop computers?’’  Nearly 58 million Americans receive Social Security benefits of some kind. This 1.5% COLA will add an average of only $17 to the typical American’s monthly benefit.

Congratulations Eugene Fama of Dimensional Funds Advisors on Winning the 2013 Nobel Prize in Economics!

Eugene Fama, whose ideas and research, along with Kenneth French helped to form Dimensional Funds Advisors (DFA) has been annouced as the 2013 winner of the Nobel Prize in Economics.

He won based on the concept that he came up with decades ago and has gone about proving ever since “Stock prices reflect all available information.” Meaning that overall, it’s impossible to beat the market on a consistent, long-term basis. Eugene Fama, along with Professor French have identified seven risk factors that explain the vast majority of stock market returns.

This Prize comes after 40 years of proof that his theories were correct. Tune in to the Lange Money Hour on 1410 AM KQV tonight at 7:05pm EST (streaming live on www.kqv.com) to hear what PJ DiNuzzo, our DFA money manager has to say about this well-deserved and historic award.

(taken from press release from DIA, Inc.)

Government Shutdown a Concern for Investors, but No Need to Panic

A partial government shutdown began today, leaving plenty of federal employees out of work and unpaid. National Parks are closed, FAA safety inspectors are out of work, NASA is all but closed, even The Smithsonian Museums are shut down. Many Americans worry during this time how the shutdown will effect them, their taxes, and the economy as a whole. @MacroScope Reuters tweeted an interesting chart this morning on the performance of the S&P 500 prior to, during, and after the previous government shutdowns.

While we could be facing a bumpy time during the shutdown and immediately after, it looks alike in most cases the S&P 500 didn’t fair so badly in shutdown situations. The shutdown is going to be an aggrevation, but there is no need to start panicking about investments. Contact your advisor before making any hasty buying/selling decisions during this time. An over-reaction could end up costing you!

Positive Market News

In the latest issue of The Lange Report, we finally had a chance to share some positive market news. In fact, the second quarter of the year turned out to be the first positive quarter in a year.

Continuing the upturn, the market also had a great July. The S&P 500 reached its low on March 9, 2009 closing at 676.53.  On August 3, 2009, it closed at 1002.63.  This is a return of 48.2% off the March 9th bottom.  The second quarter performance of the S&P 500 – an increase of 15.9% for the quarter – was its best quarterly performance in over 10 years.

Even though the market is still well off the highs that we experienced in 2008, the latest market news is certainly promising.  Many of our clients continue to ask what’s going to happen to the market in the next 3 to 6 months or even in the next year.  The truth is – we don’t know.  Nobody knows.

However, it is interesting to take a look at historical trends.  From 1926 (before the depression) to the second quarter of 2009, the S&P 500 Index has generated an average annual return of 9.6% (compared to government bonds which have averaged 5.5%).  Let’s say that you invested $1 in 1926.  If you had invested in government bonds, you would have roughly $100 today.  If you had invested in the S&P 500 Index, you would have roughly $2,000 today.

Of course, individual circumstances play a critical role in determining what asset allocation is appropriate for you.  At Lange Financial Group we continue to be believers in well diversified portfolios with some representation in most asset categories.

If you’d like to take a look at a more detailed analysis of the latest market figures as well as other economic indicators including international markets, emerging markets, interest rate changes and unemployment figures – it’s all available in the latest edition of The Lange Report.  For a copy, please contact the office at 1-800-387-1129 or sign up for our e-mails on the home page of this website.