Clips From Today’s Halftime Report

Bulls bet on Dick’s Sporting Goods, Chinese e-commerce name from CNBC.

Source: http://thereformedbroker.com/2018/08/16/clips-from-todays-halftime-report-571/

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How to rev up your idle cash

New York City has stringent anti-idling laws for parked vehicles. The City even pays bounties for citizens who send in video evidence of people sitting in their cars with their motors running. The spirit of the law is to prevent wasting gas and to improve community conditions.

Leaving cash in your brokerage account is akin to burning fuel without getting anywhere. It’s not productive for you or your long-term investment goals. I’m anti-idling for the long-term investor. Cash is basically a zero-expected return asset class. But the reality is that there’s always going to be some cash in your brokerage account. Cash generally comes from deposits you make, proceeds from selling your investments and dividends. And some investors simply prefer having some portion of a portfolio in the safety and surety of cash.

Making cash on your cash

Retail brokers look to help you avoid idle cash. They typically place it in some form of interest-bearing program. Pay attention to what your broker does with your cash. When you open a brokerage account, there is usually some default position, or action, for your cash.

Some brokers place your cash into money market funds, often their proprietary, in-house funds. This allows the broker to earn fees from your idle cash. Some brokers “sweep” your cash from the brokerage into a bank, typically a bank they also own (an “affiliated” bank). These deposits are often insured by the FDIC. The bank pays you some interest rate on your “sweep” deposits, and invests your cash into higher-yielding investments (usually bonds).  The bank earns a “spread” on the difference between the rate it pays you on your cash deposits, and the rate it earns on the investments it makes using your cash.  This is called “net interest margin” or “NIM” in industry jargon. One-year U.S. Treasury yields are about 2.4% as of August 10, 2018. The bank sweep deposit interest rate in one of my accounts, with one of the top three retail brokers, was 0.22% (22 basis points) as of July 31, 2018. Although I tend not to leave idle cash in my account, that means the bank could take my deposits, buy one-year U.S. government bonds and pocket the annualized difference between 2.4% and 0.2%.

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Earning revenue from your cash is one of the ways brokers make money, even when accounts are otherwise “free.” There isn’t anything inappropriate about this, but you can do a little work and find a better deal. For example, consider the management fee rate on the default-setting money market fund.  Is the fee rate competitive? There are ultra-short duration, cash-focused ETFs, like iShares Ultra Short-Term Bond ETF (ICSH), or money market funds that may offer a much lower fee than the broker’s affiliated default option. You can also look at how much the broker’s affiliated bank is paying you for the privilege of using your cash deposits. There are ample one-year, FDIC-insured certificates of deposit (CDs) that pay rates of 2.5% available if you wish to maintain more exposure to cash.  There are also high-yield savings accounts that pay annual rates of over 1% and permit more frequent, monthly withdrawals versus a locked-up, fixed-term CD. I keep an allocation to cash in case of emergency, and that money isn’t in my brokerage account.  It’s in CDs and a high yield savings account.

Why should you bother?

Small amounts add up to large sums over long periods—the old penny saved is a penny earned. Idling your cash is a missed opportunity, and spending a few moments maximizing the value of that cash can getting you moving instead of going nowhere.

Martin Small is the Head of U.S. iShares and a regular contributor to The Blog

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 http://www.iShares.com or http://www.blackrock.com. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal.

An investment in fixed income funds is not equivalent to and involves risks not associated with an investment in cash. Money market funds typically seek to maintain a net asset value of $1.00 per share. Fixed income funds do not have a similar objective.

The iShares Ultra Short-Term Bond ETF (“the Fund”) is actively managed and does not seek to replicate the performance of a specified index. The Fund may have a higher portfolio turnover than funds that seek to replicate the performance of an index.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

Securities with floating or variable interest rates may decline in value if their coupon rates do not keep pace with comparable market interest rates. The Fund’s income may decline when interest rates fall because most of the debt instruments held by the Fund will have floating or variable rates.

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 post are derived from proprietary and non-proprietary 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 post 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 post is at the sole discretion of the reader.

Before engaging any broker-dealer, you should evaluate the overall fees and charges of the firm as well as the services provided. Conditions and other fees may apply to “no transaction fee” programs.

Diversification and asset allocation may not protect against market risk or loss of principal.

The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

©2018 BlackRock. iSHARES and BLACKROCK are registered trademarks of BlackRock. All other marks are the property of their respective owners.

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Source: https://www.blackrockblog.com/2018/08/15/avoid-idle-cash/

Choosing a Beneficiary for Your IRA

choosing a beneficiaryOne of the very important tenets of estate planning is to ensure that you’ve made an appropriate choice, or set of choices, for beneficiary(s) of your IRA account(s).  The title of this article could be a bit misleading – the point of this article is to list some of the consequences of various choices for a beneficiary of your IRA.

Don’t get me wrong – this article doesn’t suggest that the tax consequences should drive your choice of beneficiary(s).  Rather, the assumption here is that you have several beneficiaries to choose from, and other classes of assets that you can direct toward heirs that aren’t as able as others to take advantage of the tax-favorable provisions.

Following are the benefits and consequences of some of the major groupings of choices that you might make for beneficiary(s) of your IRA.

Age

Younger Individual

If you choose a young individual as the beneficiary of your IRA, your heir will be able to take advantage of long-term tax deferral using the method that provides for payout over the life expectancy of the beneficiary.  By doing so, the tax-deferred status of the account can remain in force for a considerably long time (consider a 2-year-old heir, providing for 80+ years of potential tax deferral).

Older Individual

If you choose an older individual as the beneficiary of your IRA, this heir can also take advantage of the life expectancy payout method – but the payout period will be much less (due to the age of the beneficiary).  Therefore the tax-deferral benefit will be considerably less for the older individual versus the younger individual.

Spouse (any age)

Directly

If you leave your IRA directly to your spouse by name, he or she can elect to treat the inherited IRA as his or her own IRA.  This means that your spouse will be able to defer distributions from the account until he or she reaches age 70½, and then use the Uniform Life Table for distributions.  As you may know, the ULT is much more favorable than the Single Lifetime Table, which is the one required to be used by owners of inherited IRAs.  Your spouse can also name his or her own beneficiary for any amounts remaining in the IRA at his or her death – which provides for additional deferral in the account.

In Trust

If instead, you decide to leave your IRA to your spouse via a trust (even a look-through trust), you remove the possibility for your spouse to assume ownership of the IRA (as described above).  By doing so, the account must be treated as an inherited IRA, subject to the immediate Required Minimum Distributions from the account, regardless of the age of your spouse.  Further deferral of taxes is limited in many cases, since if the spouse is younger than 70½ he or she has to take distributions now rather than delaying until age 70½.  In addition, your spouse will be required to use the less-favorable Single Lifetime Table for the distributions; your spouse also cannot name his or her own beneficiary for the account for further deferral after his or her death.

Now, if the spouse is the sole beneficiary of the trust, the account can be treated as if it were directly inherited by your spouse, as in effect the look-through trust becomes a conduit trust.  With a conduit trust, the effect is the same as specifically naming your spouse the sole beneficiary of the account – so the same rules apply as when you leave the account directly to your spouse.  The only difference is that you’ve spent extra money drafting the trust agreement.

Other Beneficiary Options

Group (versus Individual)

Leaving your IRA to a group of people instead of one person can introduce quite a bit of complexity to the situation.  Where possible you might split your IRA into separate accounts and direct each account to an individual beneficiary, saving your heirs a lot of extra headaches at your passing.  If this is not possible or you would prefer not to split your account your heirs can do it later – it’s just a lot of extra paperwork for them that you could have handled for them in advance.  See this article for additional information on splitting inherited IRAs.

Charity

As tax-exempt entities, charities do not have to pay tax on any donations.  So if you choose to name a charity as beneficiary of your IRA, there are no tax consequences on an asset that would otherwise be fully subject to ordinary income tax.  This can be a very tax efficient way to provide charitable bequests – leaving your more tax-favorable assets to non-charity recipients.

Your Estate

If you choose to leave your IRA assets to your estate – either intentionally by naming your estate as beneficiary, or unintentionally by not naming a beneficiary or by naming a non-look-through trust as your beneficiary – longer-term tax deferral benefits are lost. Estates and non-look-through trusts have no life expectancy, therefore there is no life expectancy payout option.  This is not to say that there are no good reasons to choose your estate as beneficiary of your IRA – but that’s a topic for another post…

Bottom Line

As I mentioned before, you should not cause the tax code to be the determining factor when choosing a beneficiary.  You should leave your assets to whomever you wish.  You can, however, use the information on this page to help guide your process of choosing a beneficiary, making tax-efficient choices.  Making thoughtful decisions about this process can ease the tax burden for your heirs.

The post Choosing a Beneficiary for Your IRA appeared first on Getting Your Financial Ducks In A Row.


Source: https://financialducksinarow.com/2258/choosing-a-beneficiary-for-your-ira/

Lake Success

My guy Gary Shteyngart’s next novel is coming out, it’s about a runaway hedge fund manager who’s lost his taste for the relentless pursuit of money. I’ve been talking to him for the last year or so as he’s been researching and writing it. It’s going to be great – I’ve been obsessed with all of his books.
My faves are Super Sad True Love Story and Absurdistan.
Anyway, this ju…
Source: http://thereformedbroker.com/2018/08/14/lake-success/

Asia on sale

While not enjoying 2017-like returns, stocks are having a decent year. Developed market equities are up more than 4% in dollar terms. Things look even better in the United States, with the S&P 500 Index up around 7%. As many markets started the year at already full valuations, investors could be forgiven for thinking that there are few bargains left. Interestingly, much of Asia appears really cheap.

As of the end of July, Japanese equities remain the cheapest equity market in the developed world.  The Topix Index (TPX) is trading at 1.8 times price-to-book (P/B), roughly half the level of the S&P 500. The current discount is close to the lowest since 2012, a period that preceded a three-year, 150% rally.

The Asian discount applies to a number of emerging markets as well. For example, Korean equities remains not only the cheapest equity market but by some measures the cheapest asset class (see Chart 1). Korean equities even look inexpensive relative to the already discounted emerging market space. The current valuation represents a 40% discount to the rest of EM, the largest discount since the 1997 Asian financial crisis.cross-assetFinal

Why so cheap?

Historically, many of these markets have traded at a discount. Korea normally screens cheap. Similarly, for many years Japan has traded at a discount to the rest of the world. However, while the discount may have been justified in the past, much has changed in recent years.

Japan has witnessed a significant improvement in both corporate governance and profitability. The return-on-equity (ROE) for the TPX now stands at 11.1%, close to a multi-decade high and more than twice the level of six years ago. Japan’s low valuation seems even harder to justify given this improvement in corporate profitability and still ultra-accommodative monetary conditions.

Rather than fundamentals, today’s Asia discount can likely be attributed to three trends: stellar U.S. earnings growth, a stronger dollar as a headwind for EM stocks and rising trade frictions. In the United States, 20% earnings growth has led many investors to abandon international markets. At the same time, a stronger dollar has created a genuine headwind for emerging market equities. Finally, many countries in Asia have been vulnerable to rising trade concerns. The Shanghai Composite is down roughly 15% from the May peak and more than 20% since late January.

Bottom Line

While trade and the dollar remains real issues, these concerns already appear reflected in the price. As I discussed recently, the broader emerging market complex is cheap, with countries like Korea and Taiwan looking cheaper than most. As a result, Japan and much of Asia appears to be that increasingly rare find: a bargain.

Russ Koesterich, CFA, is Portfolio Manager for BlackRock’s Global Allocation team and is a regular contributor to The Blog.

Investing involves risks, including possible loss of principal.   

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks may be heightened for investments in emerging markets.

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 August 2018 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary 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 post 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 forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

©2018 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

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Source: https://www.blackrockblog.com/2018/08/14/asia-equities-bargain/

Behavior

Three red-hot posts from my crew here in the last few days.
Ben did this thing about how the brain has three layers, each with a specific role to get you through life. You want to check this out for sure.
The Layers of the Brain (A Wealth Of Common Sense)
Nick’s got a great post up about how information has now been almost fully democratized. Messages that used to take 10,000 minutes and only go to the privileged no…
Source: http://thereformedbroker.com/2018/08/14/behavior/