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John R. Deitrick, CFP®
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Portfolio Manager's
Commentary
The Portfolio Manager's Commentary
will be provided on a weekly basis. Enjoy!
Please click on the link below.
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Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
501 North Cattlemen Road, Suite 106, Sarasota, FL 34232
Tel (866) 641-2186
The Astrology of Investing
Synopsis
- The media has coined the phrase "Dow 20K" to represent the Dow
Jones Industrial Average index hovering around the 20,000 level.
- The media has a long history of designating major milestones in stock
indexes and then running countless hours of coverage surrounding the
event.
- Bulls and bears have differing opinions, and both offer convincing
arguments, so investors are anxious to understand the implications of
the Dow 20K.
Dow 20K
The Dow Jones Industrial Average is a stock market index that tracks 30 large publicly traded stocks. The "Dow" was first calculated in 1896, and it remains one of the most popular stock indices in the world. In fact, the index is so widely followed that it is often regarded as a proxy for the entire U.S stock market.
This current bull market has recently pushed the index up to the 20,000 level, and the media has jumped all over this historic event and even coined the phrase "Dow 20K" to signify its importance.
Google hosts a website called Trends
(https://www.google.com/trends/)
, which allows a visitor to search on a phrase and then graphically displays how popular the search phrase has ranked over time.
The chart below is a trend report on "Dow 20K," and the red circle indicates that recent interest has exploded.
The chart below is trend report from 2013, where interest in the phrase "Dow 15K" spiked right around early May, when the index breached 15,000 for the first time.
If someone were to run a trend report on other major milestones for the Dow, it's safe to say each would follow a similar pattern.
These milestones are covered so intensely by the media that many investors feel like they need to understand the implications of Dow 20K, but market pundits who are paid to offer their opinions cannot seem to agree on what to do next.
The bears urge listeners to sell stocks and lock in profits before the market takes a breather. They believe that the stock market is no different than Michael Jordan, in the sense that even the greatest need time to rest, and since the Dow has almost tripled from the depths of the financial crisis, hitting 20,000 means that stocks are now due for a break.
Evidence is aplenty for the bears, but no greater tale of caution can be cited than what happened just a few months after the Dow broke 2,000. Back in 1987, the Dow started at 1,896 and then staged one of the most impressive runs in history, surging nearly 44% to 2,722 in late August.
Days later, it reversed and dropped nearly 1,000 points in two months. The selling fury plateaued with a 23% crash on October 19, which lives in infamy as "Black Monday."
The bulls see things differently. They claim that hitting an all-time high only adds fuel to the engine of growth. It's a psychological level that will ignite even more confidence in a market that wants to go higher. Momentum will rule the day.
Once again, investors are faced with two opposing opinions that both make an equally convincing case. What is an investor to do?
Implications for Investors
I turned 40 years old right before the New Year, and my wife was kind enough to throw a surprise birthday party with close friends and family who flew in from all over the country to celebrate. The night was incredible and will always be a cherished memory.
The reason we celebrate big birthdays is because they signify milestones in life that society has designated to be important.
The same applies to the Dow, and investors should most certainly celebrate the Dow 20K when it happens because it signifies that the world's greatest economy has thrived over the past century in ways that few civilizations have ever experienced.
However, none of this changes the fact that both my age and the Dow index are just numbers. I did not wake up on my 40th any smarter, more confident, or wealthier. Aside from my amazing party, it was not much different than any other day that week.
The same goes for the Dow because it's not like the Dow 20K will add fuel to the entrepreneurship coming out of Silicon Valley or the innovation in biotech from universities surrounding Boston. Nor will it cause unemployment to improve further or increase the profit margins of companies in the index. Again, it's just a number.
Furthermore, every point of the index is technically an all-time high once it has been exceeded. Since the index started at one way back in 1896, once it crosses this major milestone, that means the Dow will have then hit its 20,000th all-time high. Why would this all-time high tell an investor something that the other 19,999 all-time highs could not?
The Dow has existed for 120 years, and since the average year has 252 trading days, there have been roughly 30,240 trading days (120 x 252 = 30,240) through the end of 2016. Divide the number of all-time highs by the number of trading days (20,000/30,240), and we average an all-time high two-thirds of the time.
Meaning, on average, an all-time has occurred every Monday, Tuesday, Wednesday, and Thursday morning (two-thirds of a week equates to 3.3 days) for the last 120 years. Within this context, an all-time high does not sound all that unique.
Just because pundits apply meaning to numbers does not oblige these numbers to have meaning. On their own, Dow index levels carry absolutely no predictive power at all, and those pundits on television who believe otherwise are using astrology to guide their investment advice.
At some point, the Dow 20K will be as much of a distant memory as the Dow 15K, Dow 10K, Dow 5K, and all others before it. Ironically, the media will be the first to have moved on because the story will become stale fast. They will put it away for a while until the day when the Dow begins to see 25,000 on the horizon. Then, take a wild guess what they will do.
The bottom line is that it is hard to find a more irrelevant story than Dow 20K to the long-term direction of stock prices, so it's best to just celebrate the event when it happens and avoid the temptation to react.
This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private Capital is an SEC Registered Investment Adviser.
Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
501 North Cattlemen Road, Suite 106, Sarasota, FL 34232
Tel (866) 641-2186
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Tax Changes for 2017: A Checklist
Used with permission from the Bottom Line CPA, LLC January Newsletter. For the full newsletter
click Here
Welcome, 2017! As the New Year rolls around, it's always a sure bet that there will be changes to current tax law and 2017 is no different. From health savings accounts to tax rate schedules and standard deductions, here's a checklist of tax changes to help you plan the year ahead.
Individuals
For 2017, more than 50 tax provisions are affected by inflation adjustments, including personal exemptions, AMT exemption amounts, and foreign earned income exclusion.
While the tax rate structure, which ranges from 10 to 39.6 percent, remains the same as in 2016, tax-bracket thresholds increase for each filing status. Standard deductions and the personal exemption have also been adjusted upward to reflect inflation. For details see the article, "Tax Brackets, Deductions, and Exemptions for 2017," below.
Alternative Minimum Tax (AMT)
Exemption amounts for the AMT, which was made permanent by the American Taxpayer Relief Act (ATRA) are indexed for inflation and allow the use of nonrefundable personal credits against the AMT. For 2017, the exemption amounts are $54,300 for individuals ($53,900 in 2016) and $84,500 for married couples filing jointly ($83,800 in 2016).
"Kiddie Tax"
For taxable years beginning in 2017, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $1,050 (same as 2016). The same $1,050 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax." For example, one of the requirements for the parental election is that a child's gross income for 2017 must be more than $1,050 but less than $10,500.
For 2017, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to "kiddie tax" is $2,100.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.
A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.
For calendar year 2017, a qualifying HDHP must have a deductible of at least $1,300 for self-only coverage or $2,600 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,550 for self-only coverage and $13,100 for family coverage.
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).
Self-only coverage. For taxable years beginning in 2017, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,250 and not more than $3,350 (same as 2016), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,500 (up $50 from 2016).
Family coverage. For taxable years beginning in 2017, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,500 and not more than $6,750 (up $50 from 2016), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,250 (up $100 from 2016).
Penalty for not Maintaining Minimum Essential Health Coverage
For calendar year 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.
AGI Limit for Deductible Medical Expenses
In 2017, the deduction threshold for deductible medical expenses remains at 10 percent (same as 2016) of adjusted gross income (AGI). Prior to January 1, 2017, if either you or your spouse were age 65 or older as of December 31, 2016, the 7.5 percent threshold that was in place in earlier tax years continued to apply. That provision expired at the end of 2016, however, and starting in 2017, the 10 percent of AGI threshold applies to everyone.
Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2017, the limitation is $410. Persons more than 40 but not more than 50 can deduct $770. Those more than 50 but not more than 60 can deduct $1,530 while individuals more than 60 but not more than 70 can deduct $4,090. The maximum deduction is $5,110 and applies to anyone more than 70 years of age.
Medicare Taxes
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly), which went into effect in 2013, remains in effect for 2017, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the new tax.
Foreign Earned Income Exclusion
For 2017, the foreign earned income exclusion amount is $102,100, up from $101,300 in 2016.
Long-Term Capital Gains and Dividends
In 2017 tax rates on capital gains and dividends remain the same as 2016 rates; however threshold amounts are indexed for inflation. As such, for taxpayers in the lower tax brackets (10 and 15 percent), the rate remains 0 percent. For taxpayers in the four middle tax brackets, 25, 28, 33, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 39.6 percent, whose income is at or above $418,400 ($470,700 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been permanently extended (and indexed to inflation) for taxable years beginning after December 31, 2012, and in 2017, affect taxpayers with income at or above $261,500 for single filers and $313,800 for married filing jointly.
Estate and Gift Taxes
For an estate of any decedent during calendar year 2017, the basic exclusion amount is $5,490,000, indexed for inflation (up from $5,450,000 in 2016). The maximum tax rate remains at 40 percent. The annual exclusion for gifts remains at $14,000.
Individuals - Tax Credits
Adoption Credit
In 2017, a non-refundable (only those individuals with tax liability will benefit) credit of up to $13,570 is available for qualified adoption expenses for each eligible child.
Earned Income Tax Credit
For tax year 2017, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,318, up from $6,269 in 2016. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Child Tax Credits
For tax year 2017, the child tax credit is $1,000 per child.
The enhanced child tax credit was made permanent this year by the Protecting Americans from Tax Hikes Act of 2016 (PATH). In addition to a $1,000 credit per qualifying child, an additional refundable credit equal to 15 percent of earned income in excess of $3,000 has been available since 2009.
Child and Dependent Care Credit
If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2017.For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Individuals - Education
American Opportunity Tax Credit and Lifetime Learning Credits
The American Opportunity Tax Credit (formerly Hope Scholarship Credit) was extended to the end of 2017 by ATRA but was made permanent by PATH in 2016. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000 per return; however, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.
Interest on Educational Loans
In 2017 (as in 2016), the $2,500 maximum deduction for interest paid on student loans is no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($135,000 joint filers).
Individuals - Retirement
Contribution Limits
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains at $18,000. Contribution limits for SIMPLE plans remain at $12,500. The maximum compensation used to determine contributions increases to $270,000 (up from $265,000 in 2016).
Income Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $62,000 and $72,000, up from $61,000 to $71,000.
For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range increases to $99,000 to $119,000, up from $98,000 to $118,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $186,000 and $196,000, up from $184,000 and $194,000.
The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household, up from $117,000 to $132,000. For married couples filing jointly, the income phase-out range is $186,000 to $196,000, up from $184,000 to $194,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Saver's Credit
In 2017, the AGI limit for the saver's credit (also known as the retirement savings contribution credit) for low and moderate income workers is $62,000 for married couples filing jointly, up from $61,500 in 2016; $46,500 for heads of household, up from $46,125; and $31,000 for married individuals filing separately and for singles, up from $30,750.
Global Financial Private Capital and Advanced Retirement Design are not affiliated in any manner with Tim Cistone or his firm Bottom Line CPA, LLC. The views expressed in this article are solely those of the author and are not those of Global Financial Private Capital, LLC., an SEC Registered Investment Adviser or Advanced Retirement Design. Global Financial Private Capital and Advanced Retirement Design are not responsible for any comments made by the author of the above article.
This material is for informational purposes only. It is not intended to provide tax, accounting or legal advice or to serve as the basis for any financial decisions. Individuals are advised to consult with their own accountant and/or attorney regarding all tax, accounting and legal matters.
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I hope you find this information adds value. If you would like to talk to John regarding these, or any other financial concerns, please feel free to call us at (614) 602-6506 and we will be happy to schedule a visit.
If for whatever reason you no longer wish to receive this newsletter, it's very simple to unsubscribe at the bottom of the page.
Make it a Great Week!
Enjoy His gift of today!
Investment Advisory Services offered on a fee basis through Global Financial Private Capital, LLC, an SEC Registered Investment Adviser. Past performance is not indicative of future results. This commentary is not intended as investment advice or an investment recommendation it is solely the opinion of our investment managers at the time of writing. Nothing in this commentary should be considered as a solicitation to buy or sell securities. Insurance and Annuity product guarantees are subject to the claims-paying ability of the issuing company, and are not offered through Global Financial Private Capital.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and the federally registered CFP (with flame design) in the US., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
AssetLock® is tracking software used to monitor the performance of a client's portfolio, and to predetermine the amount of downside the client is willing to tolerate. It is NOT an actual stop order and will NOT automatically sell the individual securities in the portfolio. Therefore, the AssetLock® value is a reference point to encourage a conversation between the advisor/firm and the client to determine if the client's portfolio should remain unchanged, reset the AssetLock® percentage by reallocating to a different risk profile, liquidate part or all of their portfolio or opt out of AssetLock®.
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John R. Deitrick
CFP®
Advanced Retirement Design LLC.
7263 Sawmill Rd.
Suite 150
Dublin, OH 43016
Office: 614.602.6506
Fax: 614.259.6094
Email: jdeitrick@advancedretirementdesign.com
advancedretirementdesign.com
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