The questions greatly outnumber the answers. What do others know about containing the virus that we don’t? Do we know enough about the virus? Have we settled on a pragmatic policy of morbid acceptance? Are we being too cavalier?

Let’s briefly review the news from other parts of the world and compare them to stories here at home. Pay special attention to the number of new infections referenced below and the starkly contrasting policy responses. Since my professional focus is on money matters, how this all unfolds will have profound implications on financial markets.

May 19, The Guardian – Chinese authorities have sealed off the north-eastern city of Shulan, home to about 700,000 people, after an outbreak of coronavirus, imposing measures similar to those used in Wuhan. At least 34 people have been diagnosed with Covid-19 in Jilin province in the past fortnight.

June 13, Haaretz – “Statistics released Saturday evening by the Education Ministry show that 493 Israelis within the education system have tested positive…Thus far, 177 educational institutions have re-closed.”

June 18, The Guardian – “Beijing ordered all hotels be shut down, as well as restaurants in high-risk areas. On Thursday, Beijing reported 21 new cases of Covid-19…Schools have been closed, flights cancelled, and travel in and out of the city restricted.”

June 18, South Florida Sun Sentinel – “Florida saw a record-breaking 3,207 new coronavirus cases, shattering the previous high mark of infections this week…a trend where there have been at least 2,000 cases logged in five out of the past six days.”

June 18, CNBC – “Arizona health officials reported 2,519 confirmed cases on Thursday, surpassing the previous single-day high. South Carolina officials reported 987 new cases Thursday afternoon…marking another all-time high single-day increase. Texas reported 3,516 new cases Thursday evening, topping the previous record.”

As we now enter the summer months, investors are entirely focused on the economic reopening process. With each passing week, a collective complacency about the virus and its future impact has firmly taken hold in the US. This feels like a mistake.

Some major themes currently dominate financial markets today. Few expect to see any backward steps in the re-opening process. The shutdown is viewed as an overreaction and far too costly. A vaccine will arrive early next year. Game-changing treatments are coming soon. Stocks are viewed as the only game in town. And, finally, the Fed’s got our back. With all humility, each of these themes are worthy of healthy skepticism.

With at least 120,000 virus-related US deaths to date, it’s arguable that we’re only a few innings into this sad healthcare and financial saga. I personally hope that we can not only overcome our juvenile national attention span, but also regain our sense of common purpose.

As I survey the landscape and watch financial markets surprisingly recover, one burning question is quickly rising to the top of my own list of unknowns. Are we different and special?

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

In just over a month’s time the federal government has quilted together a complex patchwork of protection for millions of workers and business owners. Here’s just a portion of the growing highlight reel.

Economic Impact Checks: About 150 million checks from the government will be delivered or deposited soon. For those who qualify based on income, you’ll receive $1,200 plus another $500 for each child under 17.

There is a myth that these payments are only an advance or a loan against your tax refund next year. That is false. If you get a payment, it won’t affect your 2020 tax refund at all. However, if you made too much money in 2018 or 2019 to qualify for an immediate payment, but ultimately qualify based on this year’s income, you will receive your payment as a large tax credit next year.

Enhanced Unemployment Benefits: About 30 million people have already filed for unemployment benefits across the country. The filing process has been frustrating for many. However, it’ll be worth the wait as benefits are paid retroactively and they will be bigger than ever before.

To begin, the maximum regular unemployment benefit in Michigan is about $1,500 per month. This part lasts about 10 months. The federal government added on another flat amount of $2,400 per month. This additional part lasts until the end of July. In my view, there is a high likelihood it will be renewed. Importantly, for the first time, self-employed people who didn’t pay into the unemployment system are also entitled to receive benefits.

Paycheck Protection Program: Many millions of smaller businesses have filed to receive loans to help pay their employees over the next two months. Similar to the frustration felt by those filing for unemployment, this program has been equally cumbersome. The first wave of applications quickly depleted the program’s initial funding. Congress recently replenished it. The verdict is still out if it was enough to meet the demand.

If the loan is used for payroll costs and other qualified expenses, it will be fully or partially forgiven. Otherwise, it’ll just turn into a two-year loan at a very low interest rate. Of course, the loan forgiveness rules are confusing. It’s also important to note, to qualify for this loan you must certify that the money was “necessary” to support your business. The word “necessary” is already subject to a heated debate.

As time passes, we’ll no doubt witness the ramifications of this hastily constructed patchwork of financial support. The post-mortem analysis will be both politically and financially brutal. Until then, however, we should be reminded of Roosevelt’s famous quote, “It’s not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better…the credit belongs to the man who is actually in the arena.”

I certainly do not envy the women and men standing in the arena today.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Like prisoners etching their time served on their cell wall, my family has chosen our kitchen door jam to mark our social distancing efforts. Six weeks is approaching in just a couple of days. I must say, my long-held belief that April has only 30 days is faltering. 

While I’m not an expert on the medical hurdles we’ll need to clear to safely “reopen” the economy, indications are that we’re still many weeks out. It may happen sooner, as a matter of choice, but it won’t necessarily mean we’ve satisfied the safety criteria. Regardless, it’s becoming clear to me our reopening will only feel moderately different than today. In fact, I’m expecting it to resemble a swinging door. 

Unless you’ve successfully adopted the behavior of an ostrich by quickly stuffing your unopened March investment statements in a drawer, the stock market’s huge rebound might be a perfect moment to take a fresh look at your portfolio. Bear markets often provide investors a few short windows of opportunity to make long-neglected adjustments. Let your concern about your financial condition during the heart of last month’s decline be your guide to making possible changes now.  

Financial markets have absorbed this Black Swan event with lightning speed. The market’s reaction has matched the trillions of dollars thrown out as a lifeline to businesses, households and investors. Right or wrong, policymakers’ vast power to save our financial system is seemingly unquestioned. However, the durability and sufficiency of these actions still remains an open question.

The unprecedented government support is likely not enough. Their solution has been a messy patchwork of enhanced unemployment benefits, forgivable loans to small businesses, cheap loans to larger businesses and small “stimulus” checks to millions of households. The money is just now arriving. Clearly, distributing vast sums of money is tough work. In a crisis, it never feels fast enough. The next phases of financial support that I expect to see in the months ahead will go much more smoothly. The templates of the various programs are being battle tested today. 

With their programs, Congress and the Fed have helped to fill the immediate income and funding gaps at all levels. Nonetheless, they’ve realistically only bought the economy about two-to-four months of time. As we continue to grapple with the ongoing public health policy responses, we should expect negative follow-on impacts to the financial picture of hospitals, schools, municipalities and states. I anticipate a trifecta of program extensions, expansions and tweaks in the months ahead.

For a glimpse of our likely future, we should look to Singapore, Japan and South Korea. These countries have been held up as success stories for their ability to squelch their outbreaks. Now, after sustained periods of containment driven by advanced testing, tracking and tracing tools, each has reinitiated or extended their orders for their citizenry to isolate. Given this, even after we choose to reopen, we need to be aware of the swinging door. Otherwise, it just might hit us in the face.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Today’s column is written on trading Day 31 of my internal market timeline that started with the all-time high set in mid-February. A lot has happened in the past two weeks since my last column. It feels longer ago to me. Time is not moving at its normal pace.

It appears the economic impact created by the virus, and the lockdown, will last longer than just a couple months. I expect the recovery will be slow and bumpy. It will likely move from a red light, to a yellow light and then, eventually, to green. And, along the way, we should all expect confusing signal changes. The timing and shape of the economic recovery will be driven entirely by the virus. Given this, the pace and progress will no doubt be frustrating.

We all know how this movie will end. Ironically, that doesn’t make it any less suspenseful. Before a vaccine arrives – which experts continue to project won’t happen for at least a year – our collective efforts to slow the spread of the virus is our only moral choice. Naturally, left in the wake is the economy. The opening salvo to mitigate the economic fallout came in the form of the $2.2 trillion CARES Act signed into law one week ago.

The CARES Act’s main goal is to replace lost income for households and businesses during the lengthy lockdown. It is my view that even more financial support will be needed as we will experience only a slow ramp back to “normal.” This legislation was designed to only help cover lost income until around July. The recovery from a deeper and longer economic hole will require more. If I’m right about the slow pace of things to come, this will become more obvious on or before the end of May.

According to current models, the loss of life in the US will ramp up over the next month before we slowly roll down the curve. I fully expect this to happen in waves as new hot spots pop up across the country. With this, investor sentiment could grow more negative despite the massive financial aid provided. This sentiment shift has already started after last week’s very sudden sense of investor relief.

For now, I will stick with my view that the broader stock market could ultimately decline about 40% to 50% from the all-time high. From today’s levels, now down about 25% as of trading Day 31 on my internal market timeline, it’s very important to either prepare your mind or prepare your portfolio for a sizable additional decline in stocks.

It bears repeating, the discipline of risk management is my total focus. Sanitizing my words through the false prism of being right versus being wrong in hindsight is unimportant. As we all know, there are much bigger things to worry about. For the record, and for the sake of the economy, I do hope I’m wrong.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Let me begin by saying that I’ve never managed investment portfolios through the false prism of being right versus being wrong. Hindsight will always be perfect. To me, it is always about the discipline of risk management. This is especially true during a market crisis. This extraordinary moment in history has my full attention.

Over the last few weeks, I have been assessing and re-assessing the level of risk in my clients’ portfolios. Understandably, my process has tied closely to the news of the spread of the coronavirus and, most importantly, on its impact on our economy.

Remarkably, there have been only 21 trading days since the market high was reached on February 19th.

From Day 1 through Day 7, the stock market had suddenly dropped about 13% off its high. The business news headlines at the time were largely focused on the serious Chinese “supply chain” disruptions experienced by large international companies.

From Day 8 through Day 11, the market went sideways in very violent fashion. The focus over these days had begun to shift from business-related disruptions to the potential seriousness of our own looming public health crisis. It was at this moment that I wrote my first column addressing coronavirus and how investors might handle it. My advice on Day 11 could fairly be described as both conventional and prudent.

From Day 12 through Day 16, the fear of the profound economic impact of the public health measures we might face had begun to firmly set in. The mass cancellations of larger public gatherings began in earnest and the announcements of school closures hit the news. The stock market fell about 18% during this short period, bringing the total market decline to about 27%, as measured by the S&P 500 index of large companies. Smaller public companies who are more domestically focused began to fall even faster.

From Day 17 through Day 21, the forced closure of restaurants and bars, along with the voluntary actions taken by many others has now followed. So, too, has the start of massive employee layoffs. During this current phase, the market’s volatile up-and-down churn has added yet another 3% to the total decline. And, again, smaller company shares have fallen even faster still.

As I write this, the S&P 500 index is down about 29% and smaller company indexes are down about 39% from their all-time highs. The speed of the decline is unprecedented.

On the morning of Day 22, what I feel we know is this. The roiling closure of economic activity that we’ve experienced so far will undoubtedly increase. The fallout for small business owners and employees is profound. The federal government is searching for measures to lessen the blow. At this moment, their proposed solutions are insufficient. Their current inability to more closely match the speed, scope and scale of the economic crisis concerns me.

I am currently assuming the complete market trading timeline for this health crisis will run through Day 100 or early July. Every day now will add both valuable and worthless news to absorb. We are now standing on the edge of just Day 22. Over the next month, we’ll know a lot more. By that time, I feel the vast majority of the market’s losses will be in the books. I’m looking through the chaos to around trading Day 50 or so.

It is my current view the stock market has more room to fall. With the many uncertainties I see, along with the likelihood of worse to come for the economy, my current base case is for a cumulative stock market decline of around 45% to 50%. The decline in particular stocks will not be uniform. Given this, my focus is on how to best position and prepare for the recovery to come. As I wrote on the morning of Day 12, and now again on the morning of Day 22, I am still confident that this too shall pass.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all.

Up 1,000, down 1,000, up 1,000, and then down yet another 1,000. The past week shows the confused state of the stock market. And, that doesn’t even count the 4,500 point decline the week before last. This is the age of coronavirus. And, this too shall eventually pass.

As most people with an opinion should state on this subject, I am not a doctor. I don’t intend to share any profound insights on the virus itself. My focus and expertise is on its effect on money and markets.

Having managed portfolios through the financial crisis of 2008, much of the last two weeks has felt reminiscent. To be clear, the proximate cause of the market volatility during those two periods couldn’t be more different. However, the commonality begins and ends with the effect that fear has on investors’ collective decisions. Like all forms of panic, fear of the unknown has created a self-reinforcing negative feedback loop. I’m optimistic that once this particular fever breaks, the current negative feedback loop will too.

Until then, the pace, breadth and severity of the spread of coronavirus remains largely uncertain. The opinions espoused by medical experts, and the many untrained among us, are built on layers of assumptions. These assumptions relate to both the pathology of the virus and the public policy decisions we’ll choose to make to slow its spread.

The sensationalized headlines that feed off the din of opinions in today’s noisy world naturally adds to investor uncertainty. Filtering out the hard science from the pure conjecture is admittedly difficult. Regardless, it’s highly important to apply a clear filter to your flow of information. This is especially the case if you are trying to make important decisions about your money.

The global economy is slowing. We are more interconnected than ever before and our economy’s complex web of supply chains has been severely stressed. Beyond the negative effects of these bottlenecks, we’re just now starting to see some impacts closer to home. Many companies and some schools and organizers of large gatherings of people are choosing to push pause on their plans.

It’s rational to expect that most business leaders are likely to delay executing on their short- and intermediate-term plans. This entire negative feedback loop has clearly caught the attention of our financial markets and public policymakers.

Here’s a simple message for readers of this column. As it was during the recession scare of late 2018, your investment portfolio and your approach to risk management is being stress tested, yet again. My general advice to you is to only move with methodical moderation.

For those who have been excessively conservative, consider taking some baby-steps back into stocks. Use these 1,000 point declines as your friend. And, for those who failed to prudently rebalance during the longest bull market in modern history, consider reducing your risk as this coronavirus fever breaks. Every 1,000 point rebound should be an easy opportunity to do what you’ve not done before.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all.

Q: My husband and I are in our mid-60s. We are planning to retire very soon. We are having a bit of a disagreement about when we should file for our Social Security benefits. I want to wait and he wants to collect right away! Who is right?

A: Congratulations! Of course, I can’t tell you who is right without all the facts. But, I can tell you that your decision may open up interesting opportunities during the “gap years” marked by the end of your work life and the start of your Social Security. Given that you’re the one who asked the question, I have to give you the preliminary nod!

To start, most people know the advantages of delaying Social Security. The boost in benefits can be big, if you can afford to wait. That decision, of course, depends on good genes, good health and good luck, too!

Delaying Social Security not only boosts your future benefits, but it also widens the length of your “gap years” and, with it, it also opens a nice tax planning window.

First, there’s a little-known wrinkle in the tax law that’s been around for about 15 years. For people who pay tax in the 12% federal bracket, realized capital gains are afforded a special 0% federal tax rate. If you are able to live off of your already-taxed savings during your gap years, you might be able to strategically sell some of your highly-appreciated stock without taking any federal tax hit at all.

To be clear, selling that stock doesn’t mean you aren’t allowed to immediately re-buy it for your portfolio. You are just getting a tax-free shot to effectively “step-up” the cost basis to today’s price. That’s a shot that usually only happens when you die. This way is much more satisfying!

Next, you might consider doing some strategic Roth conversions during your gap years. A Roth conversion is just a fancy term for taking some of your pre-tax, regular IRA money and moving it over into a tax-free, Roth IRA. Of course, the income tax you’ll owe with any Roth conversion should always be paid with money that’s outside your regular IRA.

The main motivator for doing a Roth conversion is when your current tax rate is the same, or preferably less, than your expected future tax rate. During your gap years, when you might choose to draw down your already-taxed savings to cover your needs, you can purposely look much poorer to Uncle Sam and sneakily squeeze Roth conversions into your tax return at a temporarily low tax rate.

While recently traveling around London during a very special visit to my older brother, I got very used to the constant warning to not fall through the absurdly wide crack between the subway and the platform. So, as the English like to say, as you make your Social Security timing decision, be sure to “Mind the Gap!”

Q: I turned 70.5 last year and my wife is going to turn 70.5 this year. I heard that the SECURE Act was signed into law right before the start of 2020. Do we both still have to take our required minimum distributions (RMDs) from our IRAs in 2020?

Just when you thought you understood the magical age of 70.5, you can now add the magical age of 72 to your repertoire! For people born before July 1, 1949, you will still live under the old RMD rule of age 70.5. For everyone else, your first RMD isn’t required until you reach age 72.

So, in your case, while you will still need to take out your RMD in 2020, your wife won’t have to take her first RMD until she turns age 72. Depending on her actual birthday and your tax situation, she might take her first RMD in 2021, 2022, or possibly even 2023.

As a little background, last summer, the House passed the SECURE Act with a nearly unanimous vote of 417-3 and sent it over to the Senate. For over six months, the Senate just sat on the bill. Some began to wonder if it might never become law. At the last minute, the SECURE act was sneakily tacked onto a routine year-end spending bill and signed into law on December 20.

The SECURE Act features a few other things to keep straight. It used to be that people had to stop contributing to their IRA once they reached age 70.5. That silly rule is now gone. And, you can still make charitable donations from your IRA once you reach age 70.5, even if you don’t actually have an RMD to take until age 72.

Q: I recently discovered a major problem with my taxes. My brokerage firm sent me a tax form that completely ignored the charitable donations I made from my IRA. I actually paid taxes on those donations. What are brokerage firms required to report to the IRS when it comes to the donations I make directly from my IRA?

Your question is literally a public service announcement. You are correct, brokerage firms report to the IRS all of the money you’ve taken out of your IRA. And, when I say all, I mean all! Nothing on your Form 1099-R (usually sent in early February) will indicate that you gave some of that money to charity.

As you found out, be sure to tell your tax preparer that you donated some of your IRA distributions directly to qualified charities. The donation you made then should be subtracted from the figures shown on your Form 1099-R.

For interested readers, you might want to review your old tax returns to make sure you got this right. If you find that you’ve made a mistake, remember you still have until April 2020 to amend your 2016, 2017 and 2018 tax returns!

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

What a difference a year makes! At Christmastime a year ago, financial markets were in steep decline and fear was all around. The Fed had stubbornly been raising interest rates and the foreboding inversion of the yield curve was the topic of the day. Yet, after just one quick trip around the sun, financial markets in 2019 turned out to be simply marvelous.

If things stay steady for the final week, the stock market will be up about 25% to 30% for the year. This more than makes up for last year’s moderately negative year. The results rival the fantastic returns of 2017 and 2013; the best years of this current bull market. And, this year even stands toe-to-toe with the recession-recovery years of 2009 and 2003. It was a surprisingly good year.

As we all know, it’s not like things have been all peaches and cream lately. In the face of a slowing economy, the Federal Reserve suddenly reversed course and cut interest rates. The trade war with China was being waged basically all year long. Our largest companies delivered almost zero earnings growth. And, finally, we ended the year with an impeachment vote. With all of this, I don’t think many investors would have predicted such a strong market.

What made 2019 more marvelous was the big return in bonds. For the year, bonds delivered about 6% to 12%. Ironically, the driver that led to the great year in stocks was the same factor that drove up bonds; the Fed’s interest rate cuts in response to the fear of a possible recession. It’s not very often that worry of a recession produces both a rip-roaring move in stocks and bonds. But, it happened!

Politics aside, my current take on the state of the economy is it’s holding its own. The dangerous trade war has now morphed into a trade truce. And, the Fed has signaled that it is standing at the ready on the sidelines as it watches how things will unfold. Perhaps most importantly, the past concerns of an impending recession have all but disappeared.

You might be wondering, how did an investment adviser, like me, manage through a year like 2019 and what’s the game plan for 2020? As markets rose considerably throughout the year, I took two steps to lighten up on stocks and lower overall risk. My latest risk adjustment was done in August. The result is a larger-than-normal current allocation to short-term, safer investments. However, this type of conservative positioning can never be viewed as an endpoint.

After 20 years in the investment business, I’ve come to recognize that the tool that’s needed most to be successful is not a crystal ball. Rather, I rely most on an old-fashioned scale; working to weigh current risk against future reward. With many of the past clouds seemingly parting, I have some work to do in 2020. And, for that, I am thankful.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

As soon as the pile of Thanksgiving dishes had been cleared, we now find ourselves in the fast lane towards New Year’s Eve. To make this mad dash to the end of the year just a little more exciting, let’s pretend we all have a financial planning version of an Advent calendar with only 25 days left to open.

Let’s get started by highlighting a couple of pitfalls to avoid and some tips to consider.

Retired readers recently received their annual letter from Social Security. For the lucky few, some are slated to pay extra monthly premiums for their Medicare Part B and Part D benefits in 2020. This premium surcharge was triggered by making too much money way back in 2018; two tax years ago! The tax planning maneuvers you make in the next 23 days may save you a little financial heartache in 2021.

Medicare’s premium surcharges kick in at different modified adjusted gross income levels. The first surcharge adds about $800 per year more to your Medicare premium and is tripped at income levels of $87,000 for singles and $174,000 for couples. The second surcharge adds yet another $1,200 more per year and is triggered at income levels not much higher; $109,000 for singles and $218,000 for couples.

Avoiding or lowering the impact of these surcharges can take just a little bit of planning. Two common techniques are to deliberately harvest capital losses to offset any capital gains you have or to make charitable donations directly from your IRA to help reduce your required minimum distributions.

Now, moving on from the enviable challenges faced by higher income retirees, this next bit of planning advice is for those who qualify to receive health insurance premium subsidies under the Affordable Care Act.

The basic idea of Obamacare is simple enough. The law first aims to determine the premium level you can afford based on your income. In a nutshell, the law says you shouldn’t be expected to devote more than about 10% of your income to buy a decent health insurance policy. Naturally, the lower your income, the less the government expects you to devote to your health insurance coverage.

After you make your best guess about your income for the year ahead and you are told what you can afford toward the cost of a decent health plan, the government will provide you with an allowance to make up the difference between what can pay and what it actually costs. Once that allowance is set, you can then shop for the plan that’s best for you. You might even choose a plan that’s not quite as decent, such as a lower premium, high-deductible plan. The government allowance might even cover a significant portion of your monthly premium.

But, it’s very important to think of this monthly allowance as a government loan. If your best guess about your income turns out to be spot on, the loan is completely forgiven. If your best guess is too low, the government will want that loan paid back!

However, the Affordable Care Act is downright ruthless to those who make even $1 more than the qualifying income limit set at four times the poverty line. As soon as you cross that income threshold – again, even by $1 – the government says you could have afforded the full cost of your health insurance coverage and they’ll bill you at tax time for the entire loan they gave you.

To avoid this painful surprise, throughout the year you should closely monitor your projected income against the guess you made before the start of the year. If you think you will be close to the edge of becoming completely disqualified and if you did choose a lower premium, high-deductible plan, strongly consider making a contribution to a health savings account to get back below the income threshold. That one small maneuver alone might just save you thousands of dollars.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

To say that today’s jobs picture is one of the best we’ve seen in modern U.S. history is not an exaggeration.

As I write this column, the official unemployment rate is 3.6%. The last time the jobless rate was this low was in the late ‘60s. That was about a half century ago.

It’s hard to argue that the labor market is anything but “tight.” That’s an economist’s way of saying that it’s not too tough to find a job. Of course, the flip side is equally true for businesses searching to fill an opening.

In this tight labor market, keeping talented and productive employees is even more imperative. The investment made in employee training cannot be understated. To watch a talented employee walk out the door for the final time is one of the quickest ways to put a business in reverse.

Beyond competitive wages, one way to retain valuable employees is by providing attractive benefits. Among the lengthy list, near the top sits an employer sponsored retirement plan.

For the small business owners and self-employed among my readers, investment adviser Derek Dall’Olmo of Tremonte Financial Consultants will offer his expertise to the Money Series on December 4th where he’ll discuss in detail Simple IRAs, SEPs, and 401(k)s.

Simple IRAs are, naturally, simple to set up. They also relieve you of many intimidating employer responsibilities. Beyond making contributions of up to 3% of your payroll, each employee can add their own voluntary contributions to their account, up to $13,000 for this tax year. At age 50, they can add another $3,000. To keep it truly simple as the employer, you don’t have to create or monitor an investment menu for them and your employees get to manage their own Simple-IRA accounts.

SEP-IRAs can be viewed as a one trick pony. They are most often used by self-employed people, but that’s not always the case. As the employer, you get to choose the fixed percentage to contribute to each and every employee’s account. The maximum is quite high at about 25% of your payroll. Importantly, there are no voluntary employee contributions in a SEP-IRA plan. Every dollar comes from you, the employer.

The 401(k) is definitely more complex than other retirement plan types. It comes with added employer responsibilities and it is more expensive to create and manage. In exchange, however, 401(k)s offer greater flexibility in their design and allow for larger employee contributions. While they are typically used by more mature businesses, their single-employee version, called a Solo or Individual 401(k), is an especially attractive solution for high earners or super savers.

To help kickstart your business planning, please join us for the Money Series on Dec. 4th at 6:30 pm in the McGuire Room at the Traverse Area District Library. The non-profit Money Series provides open-access to financial education, for all. Register at MoneySeries.org or call (231) 668-6894.

There isn’t much time left until New Year’s. It’s only 69 days away. For me, this has been my quickest year on record. That’s a function of age. But, in all honesty, it’s also a result of not pausing long enough to smell a few roses along the way. For this, I’ll blame my mom for her repeated reminders to act like a duck. Stay calm on the surface and paddle like mad underneath!

In the spirit of lost time and important reminders, this is the time of year to remember to take your required minimum distribution – your RMD – from your IRA. After you reach that odd age of 70 ½, it’s time to pay the taxman. Thankfully, paying the taxes you owe on your retirement savings only happens little by little.

The IRS publishes two tables to determine how much of your IRA you’ll need to include as taxable income each year. One is for you and your spouse, if you happen to pass away first. The other table will be used if you are a non-spousal beneficiary. These tables are designed to slowly push your IRA’s untaxed money onto your tax return. The idea is to allow you to stretch out your IRA’s tax deferral over the rest of your life.

Fortunately, after your first RMD is initiated, you can have your subsequent required distributions done for you automatically. However, if you happen to inherit an IRA and you weren’t the spouse, you’ll need to remember to take your annual distributions each year. If you forget, the penalty is a whopping 50% of your distribution amount.

Now, just as you get comfortable with these rules, our esteemed politicians in Washington DC are chomping at the bit to change them. Even with total gridlock, a bill called the SECURE Act amazingly passed the House earlier this year by a near unanimous vote of 417-3.

Naturally, most thought a Senate vote would then quickly follow and make it law. Not so fast. Under the Senate’s rules, it only takes one member to put the bill on a very slow track. True to form, three Senators pushed pause for political purposes and it sits in limbo.

Assuming the delay ends, the SECURE Act resets the start date of your RMDs to age 72 from age 70 ½ and your non-spousal beneficiaries won’t be allowed to stretch out their inherited IRA over their remaining lifetime. For them, it will all get taxed within ten years. Even their inherited Roth IRA will need to be liquidated over a decade. Finally, among many changes to small business retirement plans, the SECURE Act also ends the current 70 ½ age restriction on making IRA contributions.

To learn more about how RMDs work and the changes that might be coming, attend the Money Series on Wed., November 6 at 3pm at the Leland Township Library. Go online to MoneySeries.org or call (231) 668-6894 to register.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all.

Sunshine is often the best disinfectant. That couldn’t be more true as we launched our fourth season of the Money Series last week. For our season opener, I am proud to have revisited a topic that I believe is one of the most important we’ve ever covered; the prevention of financial scams perpetrated against senior citizens.

The best defense against this scourge is education and awareness. Too often financial scams go unreported due to embarrassment and fear. According to some studies, only one out of 44 cases of elder financial exploitation get reported. In other words, what we read in the paper is just the tip of an iceberg.

Despite the unreported nature of these crimes, I can say with total confidence that our public officials have upped their game since the Money Series first presented on the topic back in 2016.

Today, senior organizations and government departments have marshaled significant resources to both train fraud prevention specialists and encourage the reporting of these crimes. For example, AARP launched their Fraud Watch Network with a hotline at (877) 908-3360. Their hotline is staffed by volunteers who work with victims to file a complaint with the Federal Trade Commission that supports further prevention efforts.

Right here in our backyard, Grand Traverse County’s efforts are also commendable. They have a scam alert system that broadcasts warnings, by phone and by email, to our region’s seniors and caregivers. Signing up for the alert is easy, just visit GrandTraverse.org and follow the link to the No Scam Zone.

For our kick-off at the Money Series, we covered five of the most common scams to avoid. I’ll highlight one of them here and invite you to watch the full video replay posted on MoneySeries.org.

The “family emergency” scam is near and dear to my heart as it affected my wife’s grandmother a few years ago. This scam preys off of an inherent desire of many seniors to help those in need. It usually begins with an urgent call from an imposter, often posing as a grandchild, who is supposedly in need of help after an accident or an arrest. The scammer’s aim is always to get your money, and do it quick!

The surefire way to prevent financial fraud targeting seniors is to keep our lines of communication wide open. This is a perfect example of it taking a village to care for one another. By encouraging our area’s growing population of seniors to develop and maintain a vibrant connection to our community, we can not only prevent financial abuse but also meet a whole host of other vital needs.

Now, I cannot think of a more compelling reason to support the effort to replace our inadequate Senior Center in Traverse City with an intentionally-designed facility right in the heart of our community! Our Senior Center network is a public asset like none other and their effort for a new building sincerely deserves our county-wide, public support.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

As has been our family’s tradition for nearly two decades, we spent last weekend on Mackinac Island. It was certainly a very busy place to relax, thanks to the invasion of the Republicans, their famous dignitary, and his Secret Service detail.

Our main event is a family bike ride around the island. And, since we’ve always had a young child (or three or four) along for the ride, a stop at the half-way point for an ice cream cone is required. Denying them, for any reason, just doesn’t feel like an option!

This year’s ride struck me as especially relevant to today’s economic situation. Our whole weekend felt under threat of rain, but enough pockets of sun peeked through to keep us optimistic. It felt a bit like watching the global economy stumble while ours grinds forward.

Our weekend plans, similar to the way business leaders, consumers and central bankers feel today, were somewhat impacted by the weather forecast. Just like the Fed did last week with their second straight interest rate cut, we decided to plow ahead with our predetermined plans and mounted our bikes.

A debate has been going on for years about how the Fed and other global central bankers will deal with the next recession. In a world of super-low interest rates and super-large budget deficits, the fear is the traditional tools of interest rate cuts and fiscal stimulus will be unavailable next time around. All that would remain would be the unconventional tool of quantitative easing and, possibly, even the untested tool of negative interest rates.

While the forecast is still uncertain, the future is fast approaching and the debate is growing more intense. Like children with thoughts of ice cream dancing in their heads, investors don’t typically sit around waiting for rate cuts. They often act up and force the action. So, the Fed is now pedaling around the island, too, and investors have a strong hunch about where they are going to stop.

As we approached the halfway point, our youngest knew we’d stop. It’s what we always do. We placed our ice cream orders just as we heard the thunder in the distance. Moments after we took our first licks, the rest of our family didn’t even hesitate and hopped back on their bikes.

After our ice cream bliss, and as the dark clouds grew closer, we finally headed back. Of course, the rain arrived immediately, and the cold wind began to really hit us in the face. As the Fed likely feels today, we weren’t at all dressed appropriately. And, just as the Fed so obviously wants for investors, even if it’s not their mandated purpose, all I wanted was to be a hero for my kid!

Wet and cold and pedaling uncomfortably fast, it was then that my daughter delivered her piercing wisdom, “Hey Dad, sometimes ice cream isn’t worth it!” It really made me wonder if the Fed was listening.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

“But I don’t want to go among mad people,” Alice remarked. “Oh, you can’t help that,” said the Cat: “we’re all mad here. I’m mad. You’re mad.” “How do you know I’m mad?” said Alice. “You must be,” said the Cat, “or you wouldn’t have come here.”

Just as Alice ventured deeper into Wonderland, investors across the world are now entering a period of implausible madness as it relates to negative interest rates.

What once seemed utterly foreign to savers has now become a reality of epic proportions. My first mention of negative interest rates in this column was made in late June. Back then, about $13 trillion of debt around the globe was priced to produce less-than-zero return. Yes, we’re talking about a guaranteed loss to investors. Now, less than a few months later, yet another $4 trillion has been piled onto the mountain of negative-yielding government debt.

And, just as the Cat informed Alice that she’s as crazy as the others, the US now appears to be moving ever-closer to the same bizarre financial conditions we see throughout Europe and Japan. In less than a year’s time, the 10-year US Treasury yield has plunged from near 3.25% to under 1.5%. Sudden downward moves in interest rates like this are truly rare, and when coupled with an inverted yield curve typically indicates major economic weakness is on the horizon. However, this time, and for now, the stock market has simultaneously and substantially risen in 2019. This conundrum is quite palpable for students of market history.

As I’ve dug more deeply into the rationale of investors’ mysterious acceptance of negative yields, the understanding I’ve sought has not yet emerged. As Alice experienced first-hand, when faced with something you know to be crazy, others will work very hard to convince you, and themselves, otherwise!

For example, here is a fun way to convince you that negative interest rates are not so nutty. Faced with a negative interest rate in their savings account, a rational person would simply refuse to accept the slow and steady confiscation of their wealth by their bank and would instead withdraw their cash in order to bury it in their back yard or hide it under their mattress.

Of course, to truly safeguard your pile of cash – or your preferred store of value, such as gold bars or gems – you would incur some ongoing expenses to keep it secure. That expense could take the form of guns, building a tall fence, installing an elaborate security system or even hiring private security guards. Using the power of this logic, why is it so odd to think that you’d willingly pay your bank to hold your money in safekeeping?

And so, as Alice aptly noted, it appears things may keep getting “Curiouser and curiouser!” until investors eventually wake up.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

We certainly live in peculiar and complex times. Today’s column offers two money tips. One involves a huge consumer privacy breach and the other involves the inexplicable plunge in interest rates.

Remember the highly publicized Equifax privacy breach back in late 2017? Equifax failed to protect the personal data of nearly 150 million people. To put that into perspective, that represents about half of the population of the United States. For a credit bureau entrusted with personal data on almost every consumer around, it’s safe to say it was a big deal.

Now almost two years later, Equifax has reached a settlement with both the federal government and all 50 states. As part of the settlement, Equifax has agreed to provide multiple benefits to affected people.

The most attractive benefit of the settlement is the offer to provide – for free – up to 10 years of credit monitoring. This is equivalent to about $1,200 to $1,800 of value. The government forced Equifax to pay their competitor, Experian, to provide the monitoring service for the first four years. And, among other offered benefits, those affected by the breach will also qualify for free identity theft insurance protection of $1 million.

To find out if you are eligible, go to EquifaxBreachSettlement.com. It takes mere seconds to check and only a few more minutes to file a claim for your benefits.

Speaking of free money, this brings me to my second tip.

Have you noticed what has happened to interest rates lately? If you haven’t, now is the time to take notice of today’s rock bottom mortgage rates. It might make financial sense to consider refinancing. This is especially the case for those who bought their home around 2010, 2013 and even in late 2017 when mortgage rates were much higher.

Here’s an easy example of the possible merits of today’s refinancing opportunity. Imagine you originally took out a $200,000 mortgage back in 2010 with a 30-year fixed rate mortgage of 5%. In this case, your monthly principal and interest payment is about $1,075.

After diligently making the last 10 years of mortgage payments, you’d still owe about $165,000 with 20 years left to pay. That’s just the perverse math of a mortgage during the early years. Fortunately, the principal paydown really accelerates in the later years.

Now, with the very recent plunge in interest rates, today it’s possible you could be offered a new 20-year mortgage rate of close to 3.5%. At this lower level, you could reset your mortgage payment to around $950 per month and save about $1,500 per year.

Keep in mind that banks won’t refinance a mortgage for free. The closing costs need to be closely reviewed and evaluated against your expected savings. Of course, be sure to shop around. And, remember the longer you plan to stay in your home the more compelling a refinancing becomes.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

It’s that time of year when students start to pack their bags and head back to college. I remember the feeling, even if only vaguely. What I don’t remember, however, is the cost of college being so prohibitive for so many. It’s become a financial epidemic.

I must admit, I was incredibly lucky to earn my degree without being saddled with debt. Today, about 50 million people owe a collective $1.5 trillion in student loans. To put this into perspective, approximately one in three between the ages of 25 and 35 are grappling with student debt. Predictably, student loan default rates are expected to rise as the problem has grown over the decades.

Student loan debt and the cost of college looks destined to be a top issue in the 2020 presidential campaign. Most Democratic contenders support some form of student debt relief, if not outright debt forgiveness. Similarly, the leading candidates are also in favor of more affordable, if not outright free, college.

Today, about 20 million people attend public colleges and universities. Very roughly, the average cost of tuition and books is around $8,000 to $10,000 per year. This brings our nation’s annual tuition bill to about $150 billion to $200 billion. After counting the tens of billions of dollars in tuition support already provided by federal grants and many state and local initiatives, the price tag of a national free college plan represents less than 5% of annual federal tax revenues.

Further, if the currently outstanding balance of $1.5 trillion in student debt were wiped away, the one-time cost would be equivalent to absorbing just 18 more months of our federal government’s deficit spending at the current rate.

However, even these estimates don’t paint an accurate financial picture. The negative economic impacts of the current student loan debt issue are meaningful and have been building over time. Statistics show that more young people now choose to delay marriage, delay starting a family and delay buying their first home. The ripple effects of the student debt crisis on economic growth have been consequential.

I suspect if one were to properly model the economic boost provided by both a student loan forgiveness plan and a free college plan, the overall cost would likely be far less than feared. According to the Census Bureau, over a full lifetime, people with a college degree earn about 1.6 times more than those with only a high school diploma. The lifetime boost in income tax receipts would lower the projected price tag of these plans, even after ignoring the clear benefits that result from a more highly-educated workforce and society.

As we listen over the coming months to politicians argue over the fiscal and political feasibility of their many plans, my hope as a voter is we rely on robust economic analysis when evaluating these proposals. And, perhaps more importantly, I hope we work to remember a time when college was far more financially accessible. Amazingly, it really wasn’t that long ago.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

I grew up in a big family. As one of the middle children of six, there wasn’t a moment of quiet in my formative years, let alone clear memories of outright peace. Don’t get me wrong; it wasn’t war either. It felt more like a long-term truce.

Now as adults, my siblings and their families converge upon Traverse City each summer. My formerly big family has become huge. The original six have multiplied into 23. The complexity of it all seems exponential.

We’ve now got kids under five, all the way up to age 20. We’ve also got vegans and meat lovers, too. Just like my parents, my siblings were also cursed with a very opinionated lot. The many elements that determine the overall outcome of our reunions are incalculable. And, yet, the contained chaos works.

It reminds me of the way times have changed in financial markets. Information now flows faster and conflicting opinions pop up on our devices every second. Today, the opinions on the current state of the economy and the path of the markets are fast and furious.

Some are warning of an imminent recession and others call for continued growth even as we’ve reached one of the longest economic expansions in modern times. Bonds are clearly signaling a slowdown and stocks keep hitting all-time highs. Just like my family gatherings, the environment is a cacophony of conflicting opinions. You simply have to know what you can and cannot control.

When it comes to building and managing investment portfolios, there are three elements that matter most, in my view.

To start, you can control the asset allocation. That’s simply about finding the appropriate mix of stocks and bonds. Studies show that your portfolio’s asset allocation is the factor that most affects portfolio returns and overall risk.

Next, you can control the level of diversification inside your portfolios. Diversification is about finding the right mix within your asset allocation. As I remind new clients when setting our formal investment management guidelines, a portfolio with 60% in stocks isn’t balanced at all if that exposure is represented by just one stock. Sorry Warren Buffett, I really don’t care if it is Berkshire Hathaway. One stock simply isn’t enough for us mere mortals!

Last, we have control over our investment selection process. Whether it’s picking Visa over AT&T or choosing a low-cost index fund over an actively-managed mutual fund, the specific investments in a portfolio really do matter. For example, the rising tide of a bull market tends to lift all boats. However, in a recession, AT&T will likely provide portfolio protection that Visa will not.

Just like my family gatherings, both the speed and volume of market opinions has picked up exponentially. Today, the near-term outcome seems less predictable than usual. My advice is to focus on what can be controlled and what cannot is best handled with a healthy sense of acceptance. As I’ve learned at my family reunions, pouring yourself an extra glass of wine really can’t hurt either!

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Like the stock market, political partisanship is at an all-time high. Case in point; it recently took the Securities and Exchange Commission (SEC), our nation’s protector of investors, 1,363 pages to barely tweak the rules of the road for how financial professionals should treat their clients. That’s about the same length as War and Peace, folks!

After a decades-long industry battle, with one camp laser-focused on the goal of imposing a true fiduciary duty on all financial pros, of all stripes, to place their clients’ interests ahead of their own, the big brokerage firms successfully watered down the regulations. The SEC’s final rule is ironically called “Regulation Best Interest.” The result? Brokers and registered investment advisers will continue to operate under a different set of professional obligations to their clients. And, naturally, the general public will remain unlikely to spot the difference.

The new regulation represents the nail in the coffin for Obama’s high-risk strategy in early 2015 to require brokers to avoid and disclose all conflicts of interest and act as a fiduciary to their clients at all times. After all, registered investment advisers have long-practiced under those rules. Why did Obama try to push this through the Department of Labor and not the SEC? For years, Congress wouldn’t seat enough board members to the SEC, essentially creating complete institutional gridlock.

The epithet on Obama’s attempt was finally written just last month with a partisan vote to not impose an industry-wide, unified fiduciary standard of care. It only took about three years and heavy industry lobbying to quash his attempt.

What the new Regulation Best Interest means for clients is that consumer confusion will continue. Brokers will still be able to imperceptibly switch professional hats; on one hand acting as simple, middle men in a financial transaction and, on the other, acting as true fiduciaries to their clients. Rest assured, the color of their hats will be only shades apart.

Like a Facebook privacy policy consent button, consumers should also get ready for more financial industry disclosure forms with embedded website hyperlinks designed to obfuscate consumers’ true understanding of the nature of their relationship with their financial professional.

The SEC is even making registered investment advisers add two additional pages to their already 20+ page regulatory disclosures. It shouldn’t take 2 pages, let alone 1,363 pages, to state unequivocally that you have a legal fiduciary duty to always place your clients’ interests first. One short sentence will do.

Of course, just as transparency shines a light on the truth, opacity is the lifeblood of a complex sales process. In many ways, that’s precisely what the SEC was created to guard against. Their new Regulation Best Interest simply doesn’t get the job done. Political partisanship certainly did.

It’s once again time for registered investment advisers to take matters into their own hands and loudly beat the drum about their legal fiduciary duty to clients. Now, that is definitely in the public’s best interest!

In my humble opinion, the best-titled financial newsletter around is called “Things That Make You Go Hmmm” Lately, that catchy title has been banging around in my head. Let me just list the reasons, in no particular order of importance.

The Federal Reserve is openly talking about cutting interest rates after finally getting them up to a whopping 2% or so! Even more astonishing, like Pavlov’s dog, the mere mention of this move is causing stocks to once again reach all-time highs. Cutting rates, all-time highs? Hmmm.

We’re on the razor’s edge of taking military action in the ever-volatile Middle East, and investors are appearing to shrug their collective shoulders. Even more bizarre, our president is tweeting about his most inner thoughts on why he ordered strikes and abruptly reversed course in the span of a few minutes. The market’s reaction? Inaudible. Hmmm.

Speaking of tweets, in just the last month or so, a trade deal with China was nearly complete only to see talks suddenly fall apart. And, how did investors learn about it all? Twitter. Clearly believing this was an appropriate way to announce changes in our trade policies, we were soon greeted with deeply threatening tweets about massive tariffs with Mexico. And those threats weren’t even tied to our trade policies. Hmmm.

We’re now over 10 years into our economic expansion with our national unemployment rate near a record-low of about 3.5% and recent inflation readings are just below 2%. Yet our federal deficit is butting right up against $1 trillion. Not long ago, this type of fiscal policy would have sparked outrage, concern and political hand-wringing. Today? Nada. Hmmm.

Speaking of debt, with the recent collapse in interest rates, the global markets now offer over $13 trillion of government debt yielding negative interest. Yes, you did hear that right. Ironically, it makes our own skinny 2% bond yields the envy of the developed world. Hmmm.

As we all know too well, we’re about to embark on another presidential campaign. With now 25 Democrats vying for the presidency, the two leading candidates are soon to turn 77 and 78 years old. That fact actually makes people forget that Trump would be 75 only a few months after his re-election. With all due respect, I haven’t personally met any men well into their 70s who think they should be running a large country, let alone a small one. Hmmm.

This fall marks my 20th year in the investment business and, yes, I do still have plenty of hair on my head and chin to scratch. Let me be clear about one thing, at no time is the world totally orderly. And, rarely are financial markets free of true head scratchers. Still, these are most interesting times and, I must admit, they are making me go, hmmm, a little too often lately!

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

People are starting to worry about a recession. Based on the Federal Reserve’s reaction, they are too. Yet, recessions don’t just happen without warning and economic expansions don’t come with set expiration dates.

Still, recessions are natural. We tend to travel between emotional peaks of euphoria to depression and back again. But, along the way, the pace of economic activity experiences fits-and-starts and the data sends mixed or false signals. This adds to a sense of futility in trying to forecast economic turning points.

When recessions do occur, however, they have a big impact. Our last two recessions produced stock market losses between 50% and 60%. In comparison, the average decline during a recession has been above 30%. Whether severe or pedestrian, it highlights the importance of being both financially and emotionally prepared heading into a recession.

On the employment front, two leading indicators look sound, regardless of the weak jobs report for May. Initial claims for unemployment benefits are still very low and aren’t really moving demonstrably higher. The same steadiness can be seen in the average weekly hours worked by employees in manufacturing. Remember, these are jobs-related data points that tend to show weakness before the onset of a recession.

Next, the latest readings of an index that tracks the mood of the manufacturing sector are down from a year ago but still don’t point to a recession either. Another leading indicator, new orders for durable goods, have also barely seen a downtick. Finally, a measure of the delivery speed of suppliers has weakened slightly but also doesn’t reach recessionary-level readings.

Turning to the housing industry, the number of building permits for new homes has basically been flat for the last couple of years and it is only down a bit from last spring. Incidentally, the current number of building permits now sits at a little more than half the level seen before the financial crisis. So, the housing industry may not have quite the economic impact as it once did. In addition, mortgage rates have recently dropped, probably providing a backstop.

Consumer confidence readings are also still quite high. After the stock market downturn late last year, confidence did fall off some. However, up until the last couple of weeks, we’ve seen a rebound in consumer confidence surveys. It should be said that the tight correlation between consumer confidence surveys and the most recent performance of the stock market tends to make this a chicken-or-the-egg type of indicator.

With the fundamental economic indicators largely in the clear, what remains are the financial market-based indicators. Since these show up on your brokerage statements, they do tend to garner attention, especially in the media.

The most worrisome is the now-inverted yield curve. This just means that longer-term interest rates are now lower than short-term interest rates for government debt. While it is not a fool-proof signal, when a yield curve inversion occurs, the odds of an oncoming recession rise.

The Fed has certainly snapped to attention. It is now strongly signaling interest rate cuts, rather than hikes. Their about-face has been very sudden and this perhaps adds to general nervousness. To quell the impression of panic, the Fed is framing their reversal as simply taking out an “insurance policy” on the economic expansion. Of course, their justification for doing so goes well beyond the shape of the yield curve in the age of Trump tweets that threaten our relationships with our major trading partners.

As I mentioned in my most recent column, the uncertainty created by the threat of trade wars does matter. It is worthy of making some proactive, risk-management portfolio adjustments. Yet, as I read the key economic data that historically behave as leading indicators of an oncoming recession, I don’t currently see obvious red flags flying. My advice is likely as bland as it is wise; keep an eye on the hard data, know your portfolio risks, develop a reaction plan and, most of all, guard against making emotional moves.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Q: It’s been quite a rebound since Christmas Eve, so what’s going on with the stock market, lately?

A: You are very right. The market’s bounce back over the last six weeks has been both sudden and strong. It hasn’t quite clawed back all of the big decline that began last September. But, generally-speaking, it’s more than halfway there.

I’d chalk up the rebound to four factors. First, when the mood gets as dark as it was, you can usually expect a bounce back. It’s pretty typical when markets get so “oversold.” Second, the fear of a looming recession has somewhat faded. Recent economic data have been better than expected, including yet another strong jobs report in January. Third, the potentially damaging trade war with Trump and China appears to have cooled off. Continued spasms should be expected until that issue is resolved, however. Finally, the Fed blinked as Wall Street’s loud whining got their attention.

Of course, none of these factors are irreversible and the concerns of the recent past were not entirely invalid. Given this, my suggestion is to take this rebound as an opportunity to now evaluate your overall portfolio risk. After this big rebound, it feels like a second chance.

Q: With the Federal Reserve having raised rates over the last couple years, what return should I expect on my cash?

A: Cash is no longer trash. But, you need to be vigilant to get the return you deserve. Banks and brokerage firms are perfectly happy paying you far too little. It’s not evil; it’s just economics.

For example, the default money market funds at most brokerage firms pay about 0.25% to 0.5% today. You can easily get more than 2% on your cash, even if it comes with some very minor inconveniences. This difference can add up.

My suggestion is to first review your cash holdings as a percent of your portfolio. If your portfolio has much more than 5% sitting in cash, talk to your adviser about shifting it into a “position-traded” money market fund rather than the default, “sweep” money market fund. Yes, when you need access to your cash, you’ll need to sell (for free) your money market fund, like you do with a normal mutual fund. But, it takes just one day of planning ahead in exchange for getting an extra 2% return on your cash. It’s an easy move!

Join us for our next Money Series presentation this upcoming Wednesday at 6:30pm in the McGuire Room of the Traverse Area District Library. This month’s talk is based on a thought-provoking academic study on the power of working longer to boost your retirement planning. To register, please visit MoneySeries.org or simply call (231) 668-6894. Front Street Foundation, through its commercial-free Money Series programs, is a non-profit committed to providing open-access to financial education, for all.

Financial markets were not friendly in 2018. Over the last few months, the markets were actually just plain mean.

For my clients, I’ve been sticking to a more conservative approach that helped to somewhat lessen the blow. That basically means I chose to invest less-heavily in stocks than I could have been. However, in all honesty, I didn’t position things conservatively enough. Hindsight always appears crystal clear!

I’ve been asked lately if we’re heading into a recession. Here’s why I feel it’s too early to tell.

There are two major types of recession indicators. The first is made up of “betting” indicators. They are a reflection of the shoot-first, question-later collective guesses made by the markets. The second type is comprised of “fundamental” indicators. These include both business and consumer surveys as well as economic releases.

The market-based indicators are often way out in front of the economy’s fundamentals; zigging and zagging and garnering alarming media headlines. Today, the financial markets are currently flashing red.

The stock market recently crossed over the official line that marks a bear market. And, both the yield curve and bond prices for lower-quality companies foreshadow a weakening economy. On the whole, these signs raise concern.

However, financial markets aren’t all-knowing. They often get it wrong. Since 1950, there have been 13 bear markets and nearly half of the time no recession followed. Markets can’t see the future, because (most) people can’t see the future!

The fundamental indicators currently offer a less-concerning picture. Most economist see slower economic and company earnings growth ahead. But, still, positive growth is expected this year. The Fed now appears ready to calm markets by slowing or even pausing its rate hiking plans. And, for different reasons, it’s conceivable that both Trump and China might blink on the trade spat. Overall, the best way to describe the fundamental indicators is they appear to be taking on an unattractive yellow-green tint.

The current split in the indicators forces me to avoid looking to the market to either validate or refute my current game plan.

At the highest level, I rest on the knowledge that my clients’ overall asset allocation is diversified, balanced and appropriate for them. Next, I’m focused on making sure the investments I’ve chosen are both sound and safe. Soundness places a premium on quality investments backed by financial strength. Safety emphasizes value, as measured by price relative to things like earnings or cash flow.

Beyond asset allocation, soundness and safety, the game plan has to remain flexible. To be sure, if the fundamental indicators begin to better align with the market’s signals, taking proactive steps to lower risk is in the cards.

As famed value investor, Ben Graham used to remind his students, including a young Warren Buffett, “Mr. Market” is a fickle man who is prone to bounce between elation and despair. In the face of his emotional roller-coaster, the wisest thing is to be prudent, stay rational, weigh the evidence and think independently. That’s just what I was hired to do!

The turn of a new calendar year holds special appeal. It’s a natural time to reflect. It’s also a moment to set a new course for your personal finances.

For some, seeking the help of a financial pro feels unnecessary. I know people who run circles around some financial advisors! But, most people aren’t comfortable going it alone and do want support.

As I get ready to celebrate my twentieth year in the industry, I’d like to offer up some guidance to help ensure you find a good fit with a financial advisor.

Find a good communicator. Like a good marriage or friendship, communication is number one.

Perhaps using overly-technical terms makes some advisors feel smart or we simply become a bit tone-deaf over the years. The fact is, industry-centric terms hold little meaning for regular people. Help us by asking us to use plain English!

Beyond actually understanding the advice you’re paying for, you should expect to always be kept informed along the way about your money.

Find a seasoned advisor. Like money, knowledge is accumulated over time.

Essentially, a financial advisor’s experience comes from two sources; education and years on the job. The first centers on credentials. And, on behalf of my entire industry, I deeply apologize for the alphabet of letters behind everyone’s names! Even I’ve lost track. To focus you, first look for the letters CFP (financial planning) or CFA (investment management.)

However, a professional designation doesn’t mean much if it’s not backed by years of relevant experience. I used to joke that investment advisors who cut their teeth during the long bull market in the ‘80s and ‘90s accumulated just a few good years of experience – over and over, again. Some stretches are like the movie, Groundhog’s Day. My suggestion is to seek someone who has operated through some market cycles and some volatility.

Find a financially- and ethically-aligned advisor. As the saying goes, form follows function.

Over the years, there’s been a clear movement away from advisors who sell financial products for a commission and toward advisors who provide investment management and planning on a recurring or one-time fee-basis. I feel strongly that a strictly fee-only arrangement ensures advisors will uphold their legal fiduciary duty to place your interests ahead of their own. But, these principles haven’t completely sunk in as evidenced by annuity sales people still offering free dinners just to hear their pitch!

Over the years, I’ve come to recognize that choosing a professional advisor is a daunting task. If the last few months of market turmoil is any indication, ensuring a good fit with your chosen financial advisor may become increasingly important.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm, and the founder of the Money Series, a program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

“To every thing there is a season, and a time to every purpose under the heaven” – Ecclesiastes 3. Like our decade-long economic expansion, nothing lasts forever.

Recession is on the tips of many tongues today. Judging from recent increased market volatility, this possibility is being intensely pondered. What’s driving the conversation? The shape of the yield curve.

To begin, the level of interest you pay on a loan clearly depends on how long you intend to borrow money. Borrowing for just a few months? You’ll pay a different interest rate than if you wanted to borrow for a decade or more. The yield curve is simply a graphical representation of the different interest rates you’ll pay relative to the length of the loan.

In a healthy, growing economy the normal shape of the yield curve is upward sloping. Naturally, a shorter-term loan usually costs less than a longer-term loan.

However, the yield curve isn’t at all rigid. Like all things, it changes a little from day to day. Instead, think of the yield curve as more of a wet noodle. It can shift, twist flop and flip; changing its shape as millions of lenders and borrowers negotiate in real-time.

In early October, I was lucky enough to visit Ireland with my brothers. Even more fortunately, my brother-in-law from New Zealand knew how to drive on the “wrong” side of the road and expertly navigate roundabouts. It seems the Irish love their roundabouts as much as they do their beer! So, in the spirit of the Irish, please follow me (slowly) around my very own “yield curve” roundabout.

As you now know, yield curves are all about interest rates. And, of course, interest rates are all about borrowing and lending. Borrowing and lending activity supercharges our economic booms and busts. And, you guessed it, perceived changes in our economy drive investors to act ahead of the pack. So, coming full circle on my roundabout, the yield curve definitely impacts markets.

But why exactly are investors reacting to the yield curve today?

The once healthy-looking upward sloping yield curve has been slowly flattening for quite a while now. However, this past week, some longer-term interest rates are now actually slightly lower than some shorter-term rates. The shape of the curve has actually started to move from flat-looking to downward sloping. In financial lingo, the yield curve appears to be slowly “inverting.”

An inverted yield curve is an unnatural concept that signals a possible change in the economic cycle; from economic boom to bust. As a matter of fact, each of the past seven recessions were preceded by an inverted yield curve. So you see, the yield curve can strike fear in investors.

While we haven’t seen an officially inverted yield curve just yet, go tell that to those who write the computer algorithms that drive markets today. Based on last week’s wild ride, it’s clear the algorithms, unlike my Kiwi brother-in-law, simply aren’t programmed to drive carefully on the yield curve roundabout!

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a purely independent and strictly fee-only firm located in Traverse City. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

I’ve been a parent now for almost two decades and, yet, I still have a 10-year old daughter who periodically requires me to play act as a nurse. In her mind, I’m woefully deficient. When she’s sick, my wife is obviously her preferred caregiver. Who can blame her. Accurately diagnosing a fever in just seconds with the back of your hand is a true confidence builder!

This weekend, I read a book entitled, Mastering The Market Cycle, by Howard Marks. Mr. Marks is the co-founder of Oaktree Capital and his quarterly client letters are widely-followed by investment professionals. His latest book seemed especially appropriate to read given that we’re closing in on the ten year mark of our current bull market and economic expansion.

His book’s primary theme is to tilt against the crowd; to be the skeptic. For some, like me, this is a natural state of mind. For most, however, adopting this mindset is a challenge. Being agreeable is a social asset, after all. On the contrary, following the crowd doesn’t work that well in investing. Howard Marks actually argues for just the opposite; watch the crowd and act accordingly.

In his book, he referenced a checklist to help investors take the temperature of the markets. Like my wife’s trick with our daughter, it only takes a few seconds.

Marks asks readers to make a qualitative judgment for each item in the checklist; forcing a gut-level choice between an optimistic and a pessimistic descriptor. When your answers tilt heavily in either direction, his advice is to open your eyes for a market inflection point.

His checklist basically covers four main areas; the state of the economy, a review of general lending conditions, the overall market backdrop and a reading of the mindset of investors.

To give you a flavor of his checklist, here are some examples. On the economy; vibrant or sluggish. Its near-term outlook? Positive or negative. On lenders; eager and loose or reticent and tight? How about interest rates? Low or high, rising or falling? On investor attitude; aggressive and eager or cautious and distressed? On investor appetite; own the entire market or invest selectively?

So, you are likely wondering, what’s my back-of-the-hand temperature reading of today’s environment? Things are changing, especially compared to one year ago.

Unlike last year, with the tax cuts imminent, investors are openly nervous. In addition, interest rates have risen and lenders have grown more cautious. As a result, major industries, such as housing and autos, are feeling challenged. Further, while admittedly a recent phenomenon, the investor crowd is tilting toward conservative stocks and fleeing once-loved tech stocks. The broad stock market has completely given up its gains from this summer. And, after its total absence last year, volatility is firmly back.

For my daughter and, importantly, for your portfolio, taking an accurate temperature most certainly provides a confidence boost. However, it’s really just the first step in a true game plan. As a New Year’s resolution, I’d suggest taking a fresh look at your portfolio’s overall risk, be on alert for a sense of complacency and then, as Howard Marks suggests, act accordingly.

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a purely independent and strictly fee-only firm located in Traverse City. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Bonds are behaving badly. This year, the bond market has lost about 2.5%, after factoring in interest payments received and the downward shift in market value. For most investors, a loss is unusual in this typically steady part of their portfolio. Why is this happening?

To begin, visualize a teeter-totter. Like a teeter-totter, when interest rates drop, bond prices rise. This downward movement in interest rates has been the general trend since way back in Ronald Reagan’s first term. But, like a teeter-totter, it also works in reverse. When rates rise, bond prices fall.

Lately, interest rates are rising. I’m not talking short-term rates, though. Those are controlled by the Federal Reserve. Like a steady drumbeat, the Fed has raised rates three times this year, just as they did last year. But, short term rates really don’t directly affect bond prices much. I’m talking about long term rates. That’s where today’s losses in bonds come into play.

At the start of the year, the 10-year US Treasury rate was just under 2.5%. Today, this closely-watched “benchmark” rate is almost 3.2%. This has caused the teeter-totter to swing; rates up, prices down. An upward shift of almost 1% in long term rates is quite big. For those who are familiar with teeter-totters, it’s never fun when your partner jumps off!

With longer-term interest rates having reached a decades-long low not too long ago, the fear of rising rates has been palpable. Yet, it has largely been all bark and no bite. Lately, that fear has been validated.

With this, there are two burning questions. Why have rates risen? And, what should we expect now?

The typical explanation of why long-term rates rise is inflation. This makes sense. After all, when you lend money, you’d like to first keep up with inflation and also make some “real” money to boot.

When you look at investors’ inflation expectations, though, not a lot has changed since the start of the year. Future inflation expectations have held steady at around 2%. No, interest rates have risen because bond investors now demand more of a “real” return on their money. This often happens when the economy looks strong.

If the economy keeps wind in its sails, it’s not inconceivable to expect longer term rates to keep rising, perhaps up another 0.5% or so. If that happens, bonds face some more headwinds. However, I believe the bulk of the pain in bonds is likely over.

If, on the other hand, the economy’s sugar high from the recent tax cuts and deficit spending wears off, the teeter-totter just might swing back in bond investors’ favor again.

With the balance of risk about even, in my view, my generalized advice is to shift your bond portfolio into some shorter-term bonds. This analogous to scooting your bum a little closer to the center of that teeter-totter. If your partner keeps jumping off, the swings won’t be quite as jarring!

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. Comments welcomed by phone at (231) 947-3775, by email at Jason@FrontStreet.com or online at www.FrontStreet.com

At our upcoming Money Series at Traverse Area District Library, I will be speaking about a topic that I now believe is bordering on an obsession; the new tax law.

Perhaps that’s due to its important changes that affect charitable giving. Perhaps it’s due to how it affects families with younger children. Perhaps it’s due to the new law’s effect on business owners. Perhaps still, it may be due to how it has affected the stock market and the federal budget deficits for as far as the eye can see. The fact is, it’s a pretty big deal, worthy of a small professional obsession.

On the evening of November 14th, the Money Series will provide a sweeping overview of what’s changed in the world of taxes for individuals and couples. And, I’ll give proper focus to the wildly impactful and still-misunderstood small business deduction.

According to the Tax Foundation, about 90% of all tax filers will benefit by claiming what’s known as the “standard deduction.” This means most taxpayers will no longer have to gather piles of paperwork to hand to their tax preparer. No more property tax statements. No more investment fee statements. And, no more verification of the deductibility of charitable donations. Instead, the vast majority of people will rely entirely on the new, much higher standard deduction. It’s a big simplification for many.

However, as a result, many people will need to change their charitable habits in order to gain a tax benefit for their generosity. If you don’t, Uncle Sam will cease to be your “partner in giving.” After all, when the federal and state government reimburse you by lowering your tax bill after you donate money, it’s as if they picked up part of the tab.

My presentation will also provide a layman’s perspective on the very important small business tax deduction. Ironically, it’s the opposite of tax simplification. As a result, I expect it will occupy a good amount of time. If you know of anybody who owns a business, they need to know how Congress handed them a big bone and how to use it to their advantage.

I also suspect the Q&A segment will delve into the mind-boggling projections on the federal budget deficit. While I sense that today’s financial markets don’t foresee an issue with our profligate spending as a nation and, in the end, the US has an infinite printing press, Ernest Hemingway’s quote may someday carry the ring of truth, “How did you go bankrupt? Two ways. Gradually and then suddenly!”

Before the upcoming Nov 14th Money Series, there’s also a chance to catch attorney Diane Huff’s talk, “What the Heck is a Trust, Anyway”, to be held on Wed., Nov. 7 at 10:30am at the Senior Center. The Money Series is a program of the Front Street Foundation, a non-profit committed to providing open-access to financial education, for all. To register, go to MoneySeries.org or call (231) 714-6459.

Planning for the possibility of mental decline is not something any of us likes to consider. The fact is, however, it’s critically important. And, if it’s your own decline that requires such a plan, don’t you think you should be the one who develops it?

This reminds me of something I thought about in my early 20s. Back then, I watched Bill Clinton blow up his personal life – and almost his presidency – by having an affair with an intern. At that time, I remember noting how men in their 40s must be unavoidably prone to colossal mid-life crises.

I felt so certain of this that I once remarked to my wife that all of us really should designate another person – call it your “life proxy” – who would have ultimate veto power of all of your major life decisions during that dangerous life stage.

So, you want to quit being an attorney and become a musician? Call in your life proxy to decide! Really? You want to get a divorce and marry your long-lost college girlfriend? Proxy to the rescue!

While I haven’t followed the advice of my younger self, I still think naming a life proxy was a sound idea. The mid-40s is certainly a funny age. Heck, I ran for the school board and I’m quite certain my life proxy, if I had named one, would have likely vetoed my decision!

Yet, even if you missed your opportunity to hand over the keys to your life proxy in your mid-40s, you still have another chance to be proactive during your retirement years.

I have had a recent experience with a wonderful client and her caring children. Her mental faculties have slipped over the years and the decline has sadly accelerated over the past few months. She knew she never wanted to be in this state. Yet, now that she’s there, she predictably and sadly cannot recognize the depth of her decline. For her, and for many others, the time to plan was well before she crossed that blurry threshold of self-recognition.

Fortunately, official recognition of just how vulnerable seniors are to financial fraud has begun to take hold. For example, at the time of opening a new account, brokerage firms have now begun to ask for what’s called a “trusted contact.” A trusted contact is someone who you want notified if the suspicion of financial exploitation or self-harm arises.

As an investment advisor serving a generally older clientele, I am a proponent of this idea. In fact, my firm is going to soon begin to gather our clients’ trusted contacts.

Clearly, designating a trusted contact is a far cry from naming your all-powerful life proxy to make all of the big decisions in your life, but it’s a very good place to start your plan as you advance in your retirement years.

Speaking of life planning, attend our next Money Series presentation by attorney Diane Huff entitled, “What the Heck is a Trust, Anyway”, to be held on Wed., October 17 at 6:30pm in the McGuire Rm. of the Traverse Area District Library. The Money Series is a program of the Front Street Foundation, a non-profit committed to providing open-access to financial education, for all. To register, go to MoneySeries.org or call (231) 714-6459.

After eight months, the IRS finally clarified how the new small business deduction works for LLCs and S-Corporations. Given its complexity, it’s no great surprise it took 184 pages to explain.

Here’s why it’s so important to understand.

If you happen to have lots of kids or pay high property taxes or pay big state income taxes or took out a mortgage that funded something other than home improvements, you’ve likely lost a lot of tax deductions and exemptions. When all is said and done, the new law effectively subjects more of your income to taxation.

However, if you are fortunate enough to own your own business, Congress found a way to make it up to you. You may now qualify for the very large 20% small business income deduction under Section 199A.

Here’s how it works. But, remember, it only applies to pass-through businesses; LLCs or S-Corps. C-Corps got their own tax break, so don’t feel bad for them!

Section 199A’s very first eligibility test is based on your taxable income. If your taxable income is less than $315,000 as a married person (or $157,500, if filing single), you’ll get the tax break.

Importantly, below these income levels, you don’t need to have any employees to qualify for the deduction. And, despite what you may have read, this tax break applies to “service” businesses too. Below these income thresholds, it’s not just for “non-service” businesses. The IRS’ recent guidance made it clear that many service business owners will qualify for the 20% small business tax deduction.

Now, if you make more than $315,000 (or, again, more than half that level, if you’re single), the tax break fades away fast. To be clearer, it fades away fast for service businesses only.

Service businesses are defined as fields that look like paper-pushing, such as investment advisors, accountants, attorneys or catch-all “consultants”, as well as businesses providing health services, like physicians.

For these service businesses, as you make more than the taxable income limit, the deduction begins to decline. Once you reach $415,000, it totally disappears.

Interestingly, no matter how much the business owner makes, this big tax break is never gone for “non-service” businesses. Bizarrely, it also sticks around for certain carved-out paper-pushers; engineers, architects or real estate agents!

For “non-service” business owners, there’s a two-pronged test to determine the level of the small business deduction you’ll get. The tax deduction you’ll get is the smaller of two distinct calculations.

The first calculation is equal to 20% of your business income. The second calculation is the larger of (a) 50% of your employees’ total wages or (b) a combination of 25% of employee wages plus a factor of how much money you invested in your business.

Only Congress, in its infinite wisdom, would think all of this represents tax code simplification. They deserve stacks of love letters from CPAs across the country thanking them for their continued job security!

Speaking of the new tax rules, we’ll be discussing the possible benefits of Donor-Advised Funds at this season’s kick-off Money Series presentation on Wed., Sep. 26 at 3:30pm at the Traverse City Senior Center. Front Street Foundation is a local non-profit whose mission is to provide open-access to financial education, for all. To register, visit www.MoneySeries.org or call (231) 714-6459.

Q: I’ve heard a lot about index fund investing. The funny thing is, I don’t really even know what an index fund is! Can you explain the difference between index funds and regular mutual funds?

It’s always a smart plan to do some learning before committing money! That advice applies to index fund investing too, despite its massive popularity. Since the start of this current bull market, low-cost index fund investing has become much more than just an investment philosophy. It’s almost become an investment religion.

To begin, index funds are types of mutual funds, just like apples and oranges are types of fruit. However, unlike a mutual fund managed by people doing financial research, an index fund’s only goal is to mimic the market.

The index could be designed to track the many hundreds of separate stocks that make up the S&P 500 or it could be made to track the performance of a short list of speculative marijuana companies. In the end, an index fund is nothing more than a low-cost, take-what-the-market-gives-you investment, for better or for worse. You just pick the index to track and the result is essentially written in the stars.

And, since the bull market began almost a decade ago, taking what the market gave you has been a fine result. My consistent advice, however, is for you to periodically assess your risk capacity and to rebalance your portfolio as necessary. There’s always another turn in the cycle.

Q: With interest rates going up, I’ve read that bonds won’t be the place to have my money. What do interest rates rising have to do with how badly or how well bonds will perform?

It always surprises me that investors feel they understand stocks much better than they do bonds. I suppose, like most things, it’s just a matter of familiarity and exposure.

For the record, though, bonds are much simpler than stocks. With stocks, you are a part-owner of a business and you only get what’s leftover after paying everybody else. On the other hand, with bonds, you are simply a lender of money and all that matters is whether or not your interest is paid on time and your principal is paid in full upon maturity.

Now, to visualize the effect that interest rates have on bonds, imagine a teeter-totter. On one side sits a man with a t-shirt labeled “Interest Rates.” On the other side is a woman wearing a shirt that says “Price.” When interest rates go up, the price of bonds swing down.

As it is with teeter-tottering, to lessen the risk of a jarring crash in bond prices if interest rates suddenly rise, the proactive move is to inch your bottom toward the middle! The closer you sit to the center of the teeter-totter – that is, you choose shorter-term bonds over longer-term bonds – the less you’ll experience the up and down swings in your bond portfolio as interest rates rise and fall.

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

As an investment advisor of nearly 20 years, my intuition increasingly acts as an analytical shortcut. While that’s to be expected as experience accumulates, it is always comforting to see that intuition validated. This recently happened after I reviewed an academic study on retirement and the amazing value of working longer.

The math at work behind the retirement decision really isn’t that complex. There are only a small number of levers to pull. First is your savings rate. Second is your investment return on those savings. Third is the proportion of your retirement lifestyle that your savings won’t need to cover after factoring in your Social Security and – if you are lucky – your pension income. And, the final lever to factor into the retirement equation is, of course, your life expectancy.

This final lever is a bit perverse. Strive to live longer and your retirement hurdle grows higher. Choose the opposite and your retirement challenge becomes a cake walk. In the end, however, this is nothing but a Hobson’s choice for most of us. As humans, we don’t really control this lever as our will for a long and healthy life is quite inherent.

Each of the controllable retirement levers have built in sensitivities. A way to measure these sensitivities is to see how much a slight tweak on each lever might affect the level of available financial resources in retirement.

For example, you could choose to save a little more and your sustainable retirement income will obviously go up. Or, you could work to lower the cost of your investment program – which directly boosts the investment returns you get to keep – and, naturally, your retirement resources would rise.

In fact, this academic study showed that a small boost of your annual savings rate by 1% more starting at age 36 might produce a 4% boost in your annual income during your retirement years. The longer you wait to increase your savings rate, the smaller your bang is for the buck. Like the classic advice on voting, you should save early and often!

Now, what happens if you could also get better returns on your savings? The study showed that if you were able to boost your investment returns by 0.5% per year during your working years, your sustainable retirement income might also increase by as similar 4% per year.

Doing both things – as easy as walking and chewing gum at the same time – could boost your retirement lifestyle by closer to 8% per year. Since percentages aren’t all that easy to visualize, let’s just say this would translate into a lot of nice experiences over your retirement years!

Importantly, these basic planning moves – moderately boosting your savings rate and your investment returns – are both time-tested and largely controllable.

But, what about simply working longer? How much longer would you need to keep working to equal the impact of saving 1% more of your income for your entire career and squeezing out 0.5% more return on your investments each and every year? Drumroll, please! The answer is you wouldn’t need to delay your retirement for even one full year!

So, here’s some truly intuitive advice. Be sure to save early and save often, and then, find work you enjoy, with people you enjoy, and keep at it for as long as you can.

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

A trillion dollars is not what it used to be! That impressive figure has revealed itself in two different ways over the past few weeks.

In the first case, it marks a measure of business success that is truly unparalleled in history. In the second case, it highlights a deep and growing concern about official economic policy.

Apple released their latest quarterly report and its stock rose to levels that helped the company pierce the trillion dollar mark.

Investors for many years have been doubting the resilience of Apple. The littered path of hardware makers is both long and storied. Just think of names such as Gateway, Blackberry or Nokia. The primary concern with hardware companies is the intense pace of change they face in both customer tastes, required successful innovation and the inevitability of commoditization. Few have ever navigated it successfully for too long.

Yet, the doubts have begun to fade into the background as Apple has shown itself to have two additional assets that pure hardware makers don’t usually possess.

With an installed base of iPhones and iPads of over 1 billion in use today, the business model of “planned obsolescence” has created a very predictable device upgrade cycle for Apple. Once you get hooked into the Apple-based user experience, few switch to an alternative. As a result, almost like clockwork, a new iPhone finds itself in your palm every two to three years.

And, with almost 25% of its revenues coming from services such as the App Store, Apple Music, Apple Pay and iCloud, Apple is building an enviable level of consumer stickiness; creating a virtuous cycle for future device upgrades. It’s little wonder Apple now sails in the unchartered waters of a trillion dollar company.

While not as celebratory as Apple’s, yet another trillion dollar milestone will soon be reached.

Despite entering our tenth year of an economic expansion, the latest projections from the nonpartisan Congressional Budget Office show soon-to-be $1 trillion deficits for as far as the eye can see. Not surprisingly, the surge in deficit projections has been fueled by a combination of large tax cuts and continued unconstrained federal spending.

What’s sparks my concern is the talk of a new wave of tax cuts to come. The most recent chatter focuses on making the cuts “permanent” and using inflation adjustments as a way to lower taxes on capital gains.

The stated goal, of course, for this unconventional policy – that is, boosting fiscal stimulus deep into an already long-in-the-tooth expansion – is to grow the economic pie. As the old business saying goes, I guess we’re going to try to make it up on volume!

Still, if one wanted to charge that this political agenda imprudently throws caution to the wind while unabashedly favoring the wealthiest among us, it wouldn’t be a totally unfair charge.

We do live in a time of economic and political wonder. All I can say with certainty is a trillion dollars just isn’t what it used to be!

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

With all that’s happening in our trade spat with China, the old saying, “An eye for an eye, a tooth for a tooth”, rings ever louder in my ears with each and every tweet.

To this point, the ongoing US – China trade dispute has not yet escalated to dangerous levels. With only $50 billion of mutual tariffs now in place, just a fraction of our hundreds of billions of dollars of trade with China are affected.

Still, from the standpoint of investors and business leaders, the threat of escalation into a full-blown trade war looms too large. Very few economists – operating outside the White House, that is – are proponents of tariffs. The well-established consensus view on tariffs is they work to raise prices on consumers and ultimately cost us jobs. Using tariffs to resolve disputes is almost indisputably seen as poor economic policy.

That isn’t to say that China is blameless. It’s clear that Chinese authorities do not properly protect the intellectual property of foreign companies. The lure of access to China’s massive market and our addiction to cheap imports literally blinds us to this uncomfortable fact. And, up until now, our response has basically been to turn the other cheek.

I’ve always found it odd that US companies wanting to gain access to China’s market are forced to enter into joint ventures with a domestic Chinese company. Through these mandatory arrangements, foreign companies willfully hand over their trade secrets and industry know-how to China with no legitimate recourse for protection. The short-term profit motive is apparently just too enticing.

In contrast, the US offers nearly unfettered access and full protections to our foreign counterparts. Given the surge in populist politics that propelled Trump into office, it comes as little surprise that his administration is pushing back hard against China. It should also come as little surprise that China will push back equally as hard.

Of course, China has been highly strategic in its responses to Trump’s aggressive statements, threats and trade actions. To begin, China has been extraordinarily careful to never be viewed as the party that initiates or escalates matters. It’s also smartly positioning itself with our major trading partners, such as the European Union, and working to fill the vacuum left behind in Asia by our abrupt withdrawal from negotiations of the Trans-Pacific Partnership. These are calculated and subtle countermoves by China in their long-term aim to gain greater global economic influence.

Not so subtle retaliations by China are possible if a legitimate trade war heats up. It’s always important to recognize that China, as a direct result of their large trade imbalance with the US, is our biggest lender. Selling their US Treasury holdings with indelicate speed could act as a shot across our bow. In other words, tariffs are not the only arrow in their quiver.

Since nobody wins in a brutal, tit-for-tat trade war, my hope is our leaders in Washington and Beijing are reminded of the wise words of Martin Luther King, “An eye for an eye leaves everyone blind!”

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Perhaps a little disturbingly, I’ve had a couple thoughts rattling around in my head and their common thread is none other than the Unabomber. No, I have not been reading his long-winded, half-crazed essay! Instead, I recently binge-watched the Netflix series on the long manhunt to catch him. It was a fascinating tale about both language and technology’s inevitable path.

Language tells us a lot. In the Unabomber’s case, his words acted as a dead giveaway. It was only through the linguistic clues left behind in his 35,000-word manifesto that he was successfully profiled. And, then, only after the Unabomber demanded his manifesto be widely-published did enough clues surface for his own relatives to recognize his ideas and turn him in.

In one particular episode in the series, I was fascinated by the use of linguistics and what it can tell about a person or group.

About 1500 years ago, apparently an ethnic group, known as the Slavs, just suddenly appeared throughout Europe. Historians debated for years about this group’s origins; a place referred to as the true Slavic Homeland.

Linguistic anthropologists finally noticed, through their study of the Slavic language, that they inexplicably didn’t have words for some very basic things all around them, like names for various common trees, plants or foods. Naturally, the Slavs just borrowed words from other languages to fill in their gaps.

This was the key insight in determining the location of their long-lost homeland. All that was required was to look for the only swaths of land that were devoid of these very same trees, plants and foods. It was a very elegant concept.

It made me think a bit about the financial services industry. A similar idea might help consumers discern the key differences among certain financial professionals. Like the ancient Slavs in Europe, there too are missing words in certain financial professionals’ vocabulary, such as fiduciary duty and strictly fee-only, that might offer insightful clues. The only difference between the Slavs and these professionals is they can’t (as easily) borrow these terms as their own.

On an entirely different track, I was also struck by how eerily relevant the Unabomber’s warnings were about society’s adoption of technology. His violent remedy to combat its advance was, of course, beyond perverse. That’s what made him wild-eyed crazy, after all. However, his generalized conclusion about how technology would lead to our loss of control, privacy, security and dignity now feels ahead of its time.

Robotics, automation and artificial intelligence are rapidly creeping into mainstream use. One could easily argue we’re experiencing an accelerating pace of change. No doubt, these technologies will produce amazing and magical things. But, without thinking ahead, it’s also clear it won’t all be for the good.

Capitalism, if allowed in its most unregulated form, will hungrily gobble up these tools and put them to use. Inevitably, however, we will also see a massive loss of many traditional jobs that depend on real people today.

If we simply hurl ourselves down technology’s inevitable path, without a real plan, we might deeply regret it. It certainly wouldn’t hurt to start thinking about it now.

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

As I write this, I’m enjoying a short, but stark, change of scenery. Without a doubt, there’s a serious contrast between the hustle and bustle of Brooklyn and Manhattan and the tranquility of Traverse City.

On one of our daily treks from our Airbnb to the nearest subway station, I overheard our 10-year old say to my wife that our hometown is far simpler. I totally agree. And, I must say, most of the time, simple is nice!

Unfortunately, I’d describe the backdrop of today’s financial markets as not so simple. Yes, stocks and bonds have been a bit boring this year in terms of investment returns. But, let’s not confuse boring with simple.

The fundamentals do look reasonably sound. Corporate earnings are growing nicely; largely boosted by the significant corporate tax cut this year. Job growth has been remarkably steady; in line with what we’ve seen for many years now. And, consumer spending has been consistent and inflation remains tame.

When viewed over time, rather than quarter to quarter, there doesn’t appear to be a noticeable acceleration n the growth rate of the economy. We’ve basically been living in a 2% economy, give or take, along with sub-2% inflation. Not too hot, not too cold.

The Fed also sees this Goldilocks backdrop and considers it an open window to methodically raise interest rates. They’ve long-desired a pathway out of their decade long zero interest rate policy. They’re getting awfully lucky and they aren’t squandering their chance.

The Fed has now raised interest rates twice this year and has raised rates seven times since late 2015. If things go as investors expect, we’ll likely see two more hikes before the end of the year. That would bring us closer to a 2.25% to 2.5% yield on money market funds. With each hike, cash and shorter-term bonds are becoming increasingly more competitive. For investors, things aren’t quite as simple as when cash paid zero.

In addition, the departure from simple might leave early if Trump and his advisors continue to play hardball with our major trading partners. These partners would include our allies to our north, to our south, to our east and to our west. As you can see, the implications for the global economy are unusually large!

While one could wisely adopt the sanguine view of Warren Buffett that we would never be so reckless as to start a full-blown trade war, what we’ve heard from official sources – a.k.a., Twitter – must give one serious pause before quickly discounting less-optimistic scenarios.

For now, despite the lack of simplicity all around us – and that also applies to our last few subway rides – the only rational response for a thoughtful investor is to manage risk through prudent asset allocation, to diversify properly, to remain price conscious and to tilt toward owning high-quality companies. Sounds pretty simple, doesn’t it?

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

If even one person is persuaded to call their insurance agent as a result of this column, it’ll be a big success! To help accomplish this, I encourage you to discuss this topic with your loved ones as soon as possible.

Life insurance is designed to fill an economic shortfall. As a young person with financial responsibilities, your untimely exit may leave a very, very large hole. Doing an insurance review is imperative.

The first step in this review is to imagine the unpleasantly unimaginable; your own death. You need to honestly ask yourself a simple question, what am I leaving behind for others to shoulder?

For example, if you have children, the cost of their higher education is substantial. A four-year, in-state college education could run about $100,000. Multiply that by two or three kids and it adds up.

Next, if you have a mortgage, imagine your spouse facing an income cut of 50% or more and struggling to keep the house. Remember, too, beyond the mortgage, utilities, property taxes, hazard insurance and upkeep costs will also continue unabated.

Lastly, don’t forget that your complete 40 to 50 year work life is needed to fund your 20 to 30 years in retirement. If your life is cut short, so too is your surviving spouse’s retirement plan!

My default advice is to buy low-cost, term life insurance. It’s made to last for a set period of time. After the term expires, the insurance coverage and its cost ends. For those in their 20s, 30s and 40s, it’s dirt cheap. In fact, it’s so affordable – and so important – no legitimate excuse holds up under scrutiny.

Let’s say you are a married 37 year old with two kids. Your youngest is 2 years old and your oldest is 6. You own a home with an outstanding mortgage of around $200,000. Finally, you and your husband depend on each other, have similar paying jobs and you hope to save enough to retire together at age 67.

Without getting into the detailed math, let’s just assume you’d have no chance to build your retirement savings in the event of either of your deaths. Let’s further assume no college savings would happen either. And, yes, the weight of the house, with its mortgage payment and more, would feel much heavier too. The three economic holes become pretty obvious.

In this example, I’d want to see two term life policies – one for each spouse – to fund the kids’ college and to eliminate the mortgage. I’d also like to see enough to replace a good amount of the lost income and to ensure the lost retirement savings. While an insurance benefit of $1 million might seem like a large amount, it would roughly cover what’s been lost.

Trust me, when you are healthy and young, the peace of mind you’ll gain by making the call to your insurance agent will feel like a true bargain. So, dump your cable and cook an extra meal at home each month and call an insurance agent today!

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Watch Jason P. Tank, CFA, contributing speaker for the Front Street Foundation’s Money Series, to learn about the factors that affect your withdrawal strategy in retirement.

Many readers have spent decades socking away money for retirement. Naturally, the accumulation phase is very familiar ground. However, it is during the second phase, better known as the distribution phase, where the process becomes a bit unfamiliar.

Based on my experience, there are three primary concerns most people have as they near the transition from accumulation to distribution.

First, people want to know how much is safe to spend annually from their nest egg.

The number of rules of thumb promoted out there most certainly outnumber the number of thumbs at my disposal! The most famous guide is known simply as the 4% rule.

Based on the level of today’s stock market – high – and the level of interest rates – low – I tend to err on the side of conservatism. For those who know me best, that’s not a big surprise! Given today’s market setup, my comfort zone is to limit your annual draw to around 3% to 4%.

Yet, we all know life is never as simple as a rule of thumb. Overall objectives and personal circumstances will definitely influence the level of spending in retirement that is both sustainable and safe.

For example, if a retiree is determined to die broke, it leads to advice that differs greatly from the advice given to a retiree who is committed to leaving behind a big inheritance to their children. Another factor that influences the sustainable draw rate is simply time. For those facing the possibility of a 25 to 30 year retirement period, expecting the unexpected is wise.

Once the level of sustainable spending is set, the next concern often centers on taxes.

For many, there are three pots of money with differing levels of tax obligations attached. There are yet-to-be taxed IRAs an 401(k)s. There are never-to-be taxed Roth IRAs. And, finally, there are always-taxed pots of money such as investment and savings accounts.

Tax minimization is a complex and important part of the retirement income game, for sure. Take Social Security, long-term capital gains and dividend income as examples. Depending on the size of your other sources of income, either some or none of this income is taxed.

Related to tax planning, the last concern is deciding which of the above-mentioned pots of money should be tapped and in what order.

For those who have most of their savings in yet-to-be taxed retirement vehicles, like IRAs and 401(k)s, there is not really much choice. But, for those who have spread their retirement resources among the three tax-buckets above, the planning options open up. This is especially the case before you reach the magical age of 70 ½!

We’ll be discussing in more detail the considerations and process of creating your own withdrawal strategy in retirement at the next Money Series on Wed., April 18 in the McGuire Rm. at the Traverse Area District Library. Front Street Foundation is a local non-profit whose mission is to provide open-access to financial education, for all. To register, visit www.FrontStreetFoundation.org or call (231) 714-6459.