The FMI Market Commentary is intended to deliver advice and insights centered around our economy, markets, and investment issues at this time. It is our goal to bring you timely and valuable ideas, updates, concepts, and strategies to help you in your quest for financial security and independence. Please feel free to contact us regarding questions you have or the specific application to your situation.
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-Financial Management, Inc.
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FINANCIAL EXTRAS
Data reproduced with permission of By the Numbers
NOT A RECORD WE WANT
- The
total debt of the United States
is projected to reach
$21.5 trillion
by the end of fiscal year 2018 (i.e., 9/30/18), equal to
107% of the size of the US economy
. That's the
highest level of debt
relative to the size of our nation's economy
since 1947
(source: Office of Management and Budget).
DEBT RELIEF
- Greece, a country with debt equal to
179% of the size of its economy
, negotiated on 6/22/18 to
delay the repayment
to its creditors of 40% of its total debt (96 billion Euros) for
10 years
(from 2023 to 2033), a decade-long period during which Greece will make
zero principal or interest payments
(source: Financial Times).
MORE EXPENSIVE
- Proposed US tariffs on car imports
will add an estimated $5,800
to the price of an
imported foreign vehicle
(source: Alliance of Automobile Manufacturers).
HOW HIGH ARE YOURS?
- 45 US states collect
statewide sales taxes
, i.e., 5 states (Alaska, Delaware, Montana, New Hampshire and Oregon) have
no state sales tax
. California has the
highest state sales tax
(7.25%) in the nation (source: Tax Foundation).
BE PREPARED FOR THIS
- The average American household, even after the benefit of
Medicare coverage, spends $197,000
in
"out-of-pocket" health care costs
during retirement. This figure
does not include
any costs relating to nursing home care (source: Webb and Zhivan).
STILL THE KING - 33-year old LeBron James agreed to a 4-year, $154 million guaranteed contract on 7/01/18. If James was to play the same number of regular season games and playoff games over the next 4 years that he played during the just completed 2017-2018 basketball season (i.e., 104 games), the 4-time NBA MVP would make $370,000 per game
over the duration of his new 4-year deal (source: ESPN).
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Stay Connected
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Ten Year-End Tax Tips for 2018
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Here are 10 things to consider as you weigh potential tax moves between now and the end of the year.
1. Set aside time to plan
Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year. There's a real opportunity for tax savings if you'll be paying taxes at a lower rate in one year than in the other. However, the window for most tax-saving moves closes on December 31, so don't procrastinate.
2. Defer income to next year
Consider opportunities to defer income to 2019, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.
3. Accelerate deductions
You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year, instead of paying them in early 2019, could make a difference on your 2018 return.
4. Factor in the AMT
If you're subject to the alternative minimum tax (AMT), traditional year-end maneuvers such as deferring income and accelerating deductions can have a negative effect. Essentially a separate federal income tax system with its own rates and rules, the AMT effectively disallows a number of itemized deductions. For example, if you're subject to the AMT in 2018, prepaying 2019 state and local taxes probably won't help your 2018 tax situation, but could hurt your 2019 bottom line. Taking the time to determine whether you may be subject to the AMT before you make any year-end moves could help save you from making a costly mistake.
5. Bump up withholding to cover a tax shortfall
If it looks as though you're going to owe federal income tax for the year, especially if you think you may be subject to an estimated tax penalty, consider asking your employer (via Form W-4) to increase your withholding for the remainder of the year to cover the shortfall. The biggest advantage in doing so is that withholding is considered as having been paid evenly through the year instead of when the dollars are actually taken from your paycheck. This strategy can also be used to make up for low or missing quarterly estimated tax payments. With all the recent tax changes, it may be especially important to review your withholding in 2018.
6. Maximize retirement savings
Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2018 taxable income. If you haven't already contributed up to the maximum amount allowed, consider doing so by year-end.
7. Take any required distributions
Once you reach age 70½, you generally must start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (an exception may apply if you're still working for the employer sponsoring the plan). Take any distributions by the date required - the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.
8. Weigh year-end investment moves
You shouldn't let tax considerations drive your investment decisions. However, it's worth considering the tax implications of any year-end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.
9. Beware the net investment income tax
Don't forget to account for the 3.8% net investment income tax. This additional tax may apply to some or all of your net investment income if your modified adjusted gross income (AGI) exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).
10. Get help if you need it
There's a lot to think about when it comes to tax planning. That's why it often makes sense to talk to a tax professional who is able to evaluate your situation and help you determine if any year-end moves make sense for you.
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The Tech Sector Could Be Dominating Your Portfolio
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The biggest names in technology powered stock market gains and bouts of volatility in 2017, and the trend continued into 2018. The S&P Information Technology sector index posted a 13.19% total return from January through July 2018, compared with 6.47% for the broader S&P 500 index.
1
Wall Street analysts and the business media often refer to well-known technology companies Facebook, Apple, Amazon, Netflix, and Google (now officially Alphabet) collectively with the acronym FAANG. Others use FAAMG, which substitutes Microsoft for Netflix. Apple, Microsoft, Amazon, and Facebook, respectively, are the four most valuable companies by market capitalization in the S&P 500 index; Alphabet is ranked eighth and ninth (based on two different share classes).
2
These tech giants are household names because they already play a huge role in everyday life, but they are also bold innovators with lots of cash on hand. They aim to expand their influence further by developing new products (such as self-driving cars and virtual reality) and disrupting established industries.
3
The problem with popularity
Many benchmark indexes are weighted by market capitalization (the value of a company's outstanding shares), which gives larger companies an outsized role in index performance. The same large-cap tech stocks dominate the index mutual funds and exchange-traded funds (ETFs) that track these indexes, and can also be found among the largest holdings of many actively managed funds.
Spreading investments among the 11 different sectors is a common way to diversify stock holdings. However, investors holding a mix of different funds for the sake of diversification could be surprised by the heavy concentration of popular technology stocks if they eventually fall out of favor and prices fall.
Asset allocation and diversification are methods used to help manage risk; they do not guarantee a profit or protect against investment loss.
Mind your sector exposure
Over time, a core portfolio of diversified equity funds can become overweighted in a sector that has been outperforming the broader market. Some investors with large positions in technology stocks may not be aware of the concentration level in their portfolios. Others could be ignoring the risk, possibly because they are overly optimistic about the sector's future prospects.
Each business cycle is unique, which makes it difficult to predict which sectors stand to benefit in the months ahead. Although there's little you can do about the returns delivered by the financial markets, you
can control the composition of your portfolio. For this reason, you may want to review the sector allocation and risk profile of your investment portfolio, if you have not done so lately.
All investments are subject to market fluctuation, risk, and loss of principal. Shares, when sold, may be worth more or less than their original cost. Investments seeking to achieve a higher return may involve greater risk. Sector funds tend to be more volatile than the market in general and may carry additional risks.
Mutual funds and ETFs are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
1-2
S&P Dow Jones Indices, 2018
3 T
he Economist, June 2, 2018
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Buying and Selling: Trading Basics
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The New York Stock Exchange Group averaged more than 5.7 million trades per day in 2017, with an average of almost 1.5 billion shares changing hands.
1 Many of these trades are more complex than most investors need to consider, but it may be helpful to understand some basic terms and types of trades.
Bid and ask - The bid price is the maximum a buyer is willing to pay for a security. The ask price is the minimum a seller is willing to accept. The difference between them, called the spread, may be as low as a penny for the stock of a large well-known company, but wider for a smaller, more obscure company.
Market order - An order to buy or sell a security immediately at the best available price (though there is no price guarantee). A market order generally will execute at or near the current bid price for a sell order, or the ask price for a buy order. However, the last-traded price, typically the price you see listed on an exchange, is not necessarily the price at which a market order will be executed.
The following order types do not guarantee that the trade will be executed. They typically allow the investor to set a time limit that may range from a day to a year.
Limit order - An order to buy or sell a security at a specific price or better. For example, if an investor wants to purchase shares of XYZ stock for no more than $10 per share, the investor could submit a buy limit order for $10 and the order will execute only if the price of XYZ stock is $10 or lower. If the investor wants to sell at a price of at least $20 per share, a sell limit order for $20 would execute only at a price of $20 or higher.
Stop order (or stop-loss order) - An order to buy or sell a security once the price reaches a specified level, known as the stop price. Investors generally use a sell stop order to limit a loss or protect a profit on a stock they own.
For example, if you own shares of XYZ security that are currently trading at $50 per share, and are concerned about holding the shares in a declining market, you could set a stop-loss order at $48 per share. If the share price declines to $48, your shares would sell at the next market price, which would typically be a little below $48 if the market decline is gradual. However, if trading is interrupted or there are large changes overnight, you could end up selling at a lower price than anticipated.
Stop-limit order - An order to buy or sell a security once the price reaches the stop price, as long as the trading price is at a specified limit price or better. This helps protect against the possibility of a stop order triggering a trade at an unwanted price. To use the example above, you could set a stop price for XYZ shares at $48 per share and a limit at $47 a share. The order would execute when the share price falls to $48 but only as long as it remains above $47.
All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.
1
New York Stock Exchange, 2017
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About Financial Management Inc.
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Selecting a financial advisor is one of the most important financial decisions you will ever make. I have included information on the characteristics of highly qualified financial professionals for better clarity. Working with an independent financial advisor who has experience and education backed by professional credentials such as CFP®, ChFC, MBA, or RFC® that they work on a "fee" basis to offer you objective advice.
A "fee-based" advisor works in your best interest because the value of your account affects their compensation.
A credentialed advisor is bound by a "Code of Ethics" and is trained in risk management, investment analysis and allocation, retirement and estate planning, cash flow and debt management, as well as tax issues. The difference is knowledge and expertise to understand how doing something in one part of your financial world, impacts another. This gives you the advantage of comprehensive integration of all your financial information.
Registered investment advisors are registered with their state or the Securities Exchange Commission (SEC).
A registered investment advisor is required by law to provide full disclosure of compensation, education, history of complaints, and conflicts of interest.
All this provides you with comfort of knowing that Financial Management, Inc....Our Solution!
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YAKIMA OFFICE:
115 N 50th Ave
Suite B
Yakima, WA 98908
Phone: (509) 965-5654
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KENNEWICK OFFICE:
7025 W Grandridge Blvd
Suite B
Kennewick, WA 99336
Phone: (509) 735-7526
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SPOKANE OFFICE:
221 West Main Ave
Suite 200
Spokane, WA 99201
Phone: (509) 443-5174
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WENATCHEE OFFICE:
25 N. Wenatchee Ave
#205
Wenatchee, WA 98801
Phone: (509) 888-9499
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Securities offered through LPL Financial, member FINRA/SIPC, A Registered Investment Advisor. Investment advice and financial planning offered through Financial Management Inc., A Registered Investment Advisor and separate entity from LPL Financial.
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