Month: June 2023

Newton’s First Law of Motion, that a moving object will persist in both speed and direction unless interrupted by an external force, has significant financial implications. The ethic to habitually save and invest a portion of one’s monthly excess minimizes external forces of derailment with the wealth it creates. Dollar-cost averaging, matched and/or deductible contributions, tax deferred growth, low expense index funds, and penalized early withdrawals are contributing factors to continuous wealth production. The portion of your retirement expenses attributable to future healthcare costs, which the Bureau of Labor Statistics suggests for Americans is presently 8.1%, or $13,000 annually,¹ is treated preferentially to your other investments in a Health Savings Account (HSA), and can, therefore, compound that portion of your retirement wealth more efficiently.

HSA’s offer for qualified expenses what Traditional and Roth IRA’s don’t: tax-deductible contributions, tax-deferred growth, and tax-free withdrawals, whoa! Since future qualified healthcare costs will likely exceed what is accumulated in a HSA, most Americans should be utilizing this super tax-efficient means of wealth production. Consider the rules, dynamics, and primary benefit of a HSA:

HSA RULES

• 2023 HSA contributions require enrollment in a health plan with a minimum individual deductible of $1,500 ($3,000 for a family), and an out of pocket maximum of $7,500 ($15,000 for family).

• Participants may not be enrolled in Medicare, and may not be claimed as a dependent on someone else’s tax return.

• The 2023 contribution limit is $3,850 ($7,750 for family), though participants over age 55 can invest an extra $1,000.

• Contributions must be made by the tax filing deadline, like IRA’s (April 18, 2023 for 2022 contributions).

• A 6% excise tax applies to overcontributions, and stiff taxes and penalties apply to distributions spent on nonqualified expenses,² so know HSA rules.

• Qualified medical expenses include co-pays, dental treatments, medications, and many over-the-counter products, but do not include cosmetic services, gym memberships or supplements. IRS Publication 502 provides a more exhaustive list.³

HSA Dynamics

• Tax-deferred growth is a key benefit of the program, yet only 15% of current HSA’s are invested! Some custodians offer stocks, bonds, mutual funds and ETF’s. Consider your time horizon, risk tolerance and investment objective before investing HSA funds.

• Keep receipts and an expense log for HSA transactions.

• Name beneficiaries on a HSA account. Spouses inherit all tax benefits, but non-spouses lose the tax-free withdrawal benefit.⁴  

HSA Primary Benefit 

Deducting an investment (into a great business at a fair price) from your taxable income, then compounding the dividends and growth of that investment on a tax-deferred basis for decades, then withdrawing the funds to pay for future health expenses tax free, are the unequalled tax and investment benefits of the HSA.

The HSA, now that is an object in motion!

Think about it, Shaun.

“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”  ~Warren Buffet

“The prudent sees danger and hides himself, but the simple go on and suffer for it.” ~Proverbs 27:12

1,3,4 Evergreen Gavekal, “Utilizing a Health Savings Account”, by Katie Vercio, June 22, 2023 https://evergreengavekal.com/utilizing-a-health-savings-account/

2 Fidelity, “HSA Contribution Limits and Eligibility Rules”, September, 2022. https://www.fidelity.com/learning-center/smart-money/hsa-contribution-limits

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company. Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Forecasting mountain weather is an extremely challenging exercise at its easiest. The climber’s life is hinged to a consensus of probable weather scenarios, while on a slab of granite big enough to generate its own weather from invisible systems of energy without warning. To say the climber advances with a back-up plan is an understatement, yet the determination to “rope up” or “hunker down”, remains a critical daily assignment. Investors, like climbers, also operate within a realm of probabilities, and from them must constantly make a forecast of price scenarios, and their financial lives also depend on those judgments. Good climbers understand the indications offered by cloud formations and seek the help of every weather factor before advancing. That example of discipline compels us as investors to consider two more indications that stock indices are reversing:

• The S&P 500 just posted its first positive Trailing 12-Month Return in over a year. A mere 9 times in 73 years, including 2022, has this measure posted a year or longer of stock price declines. Following the 8 prior reversals, in every single case the S&P 500 moved higher over the ensuing year, and by an average percentage nearly twice that of all 12 month periods over the 73 year timespan.¹ A sample base of 73 years is significant, sample occurrences don’t exceed 100%, and twice the average return is noteworthy.  

• Stock indices have been climbing “the wall of worry”. This is phase one of a bull market, especially those following major bear markets, like in 2022. Recent polls and reports reveal stock sentiment among investors is the most bearish in a dozen or more years. A recent Gallup poll showed only 18% of investors believe “the best long-term investment” will be stocks, the lowest reading since 2011.² This indication is very comforting to those accumulating shares of great businesses at this time, given the extraordinarily counter-intuitive nature of the stock market, and the average investor’s failure to understand that dynamic.

We can add these two additional indicators to the stock market “positives” identified last week: probability of a rate cycle peak, decelerating inflation, S&P 500 above its 200 daily moving average (DMA), historic sideline cash, and the history of post, mid-Presidential election years for stocks. Don’t forget rules have exceptions. No indicator is perfect or can be trusted alone. Indicators are like truth, which is supported and affirmed by other truths, which are all agreeable. The scales of probability seem to be suggesting to Prudence that stock market positives now decidedly outweigh negatives, but stay vigilant, and watch for the additional indications streaming in.     

Think about it, Shaun.

“Every prudent man acts with knowledge, but a fool flaunts his folly.” ~Proverbs 13:16

“In the business world, the rearview mirror is always clearer than the windshield.” ~Warren Buffet

1 Stansberry Research, Daily Wealth, “Stocks Turn Positive, With More Gains to Come”, by Brett Eversole, June 8, 2023. 2 Stansberry Research, Daily Wealth, “A Changing of the Guard in Investment Sentiment, by Brett Eversole, June 6, 2023.

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

During a Denali expedition in 2017, following a 9 day confinement at 14,200 foot camp due to a severe cold storm that saw a handful of climbers with frozen appendages rescued by helicopter, a climbing day arrived! To our dismay and disapproval, the expedition’s head guide decided we would not ascend the head wall to cache supplies on the West Buttress Ridge due to perceived avalanche danger from the 8 inches of snow that accumulated in the night. Retrospective analysis concluded three things: 1) the extreme cold air and constant sunlight over 9 days had consolidated prior accumulations into a sheet of ice, leaving great climbing conditions with little probability of avalanche, 2) the teams which climbed that particular day safely advanced in near-perfect conditions, and 3) that guide decision squandered our team’s only remaining opportunity to summit. Erring on the side of safety and conservativism is sometimes prudent, but success requires the climber to identify opportunities to ascend the mountain, and to do so! Investing is similar to climbing in this regard. Let’s identify the bigger risks and opportunities in the stock market today, in hopes of gaining insight as to whether this is a “hunker down” or “rope up” moment.

Big stock market negatives today include:

• The credit market is tightening, which generally accompanies recession and triggers bankruptcy for heavily indebted businesses. When credit gets too tight, a systemic crisis can erupt. So far the credit market has tightened modestly.

• After improving substantially in Q1, market breadth is declining. Broad advances in stock prices are sustainable, but narrow advances, when indexes rise as the price of most stocks in those indexes fall, are a warning. So far breadth declines seem to be indicating a mere pause in the advancement of stock prices.

• The yield curve warns of a coming economic contraction. The most reliable recession indicator with a near perfect 70 year track record is flashing red. Some notable investors suggest yield curve warnings are no longer reliable due to the Fed’s predominant ownership of outstanding Treasury bonds. So far the yield curve warning of a deep and lengthy contraction has not been substantiated by other economic data.

Big stock market positives today include:

• The Fed has indicated a rate pause, and that rates approach a cycle peak. Less bad conditions often indicate major reversals, especially pertaining to the cost for businesses to access operational credit.

• Inflation continues to decelerate. “The invisible tax” is generally punishing to stock prices when rising, as was the case in 2022, but again, less bad conditions can present enormous opportunity for the nimble, as most investors wait for more certain indications to buy.

• The S&P500 remains above its 200 daily moving average, historically a time to buy stocks.

• A mountain of cash remains on the sidelines, awaiting more certain indications to buy, but many of America’s greatest investors are carefully positioning themselves in front of it. 

• In the past century there has not been a single down year for stocks in a post, mid-presidential election year. This could prove arbitrary, but 100 years is a long time.

In conclusion, while significant risks remain for stocks, the positives look more influential, less uncertain, and more numerous than the negatives. This does not appear to be a time to hide from the storms in your tent! Great businesses with large free-cash flow, and which dominate their respective industry and pay consistent dividends are selling for the lowest valuations in years. Buying great businesses after big sell-offs, like in 2022, is generally a very wise thing to do. If you ever see every stock indicator flashing green, STOP, for the real buying opportunity has definitely passed you by! Stay vigilant. Stay diversified. Focus on quality. Look for screaming buys in leading sectors and industries.

Think about it, Shaun.

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Eccliastes 11:2

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company. Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.