Fresh starts are nice. That largely explains our natural drive to celebrate the New Year with such hope and joy. After a year like 2022, and especially for retired investors, I’d say a fresh start is well deserved!

Before looking forward, let’s first run the numbers for 2022. With stocks declining about 20% and with bonds dropping about 13% for the year, there were very few places to hide. Given the dual decline in both stocks and bonds, the primary risk management tool of asset allocation failed to deliver. The end result? Last year was one of the worst on record for conservative investors with balanced portfolios.

Today, on the other hand, a broadly diversified bond portfolio made up of a combination of US Treasuries, mortgages and corporate bonds now sports a yield-to-maturity of about 5%. From an income perspective, bonds are now putting up a real fight against stocks. With interest rates having been pinned down by the Federal Reserve for much of the last 15 years, this hasn’t been the case in a long, long time. 

For those sitting with a lot of cash in the bank or parked in a money market fund, it might be enticing to just do nothing and keep that money safe. That’s especially true with short-term cash now earning around 4%. But, remember, if the economy slows next year as expected, short-term rates could just as easily decline once again. In other words, that 4% yield on cash could be short-lived. Looking at following a careful process of investing some of your excess cash in bonds is worthy of consideration.

The last two months of inflation reports are showing a breaking of the inflation fever. While inflation will be slow to fully recede, a careful reading of the tea leaves points to the Fed now starting to shift their focus to the economy. It’s about time, because many investors worry that the Fed has already raised interest rates too high and too fast. Their big fear? A recession. In fact, this might be the most widely-anticipated recession ever. 

Nothing in financial markets is certain, of course. Even with bonds finally showing promise, the Fed has not yet fully vanquished inflation. If inflation so much as ticks higher, expect talk of more rate hikes than currently anticipated. And, even with so many investors openly predicting a recession, stock prices haven’t fully baked in that scenario. We’re not yet out of the woods.

Without sounding too mealy-mouthed, we’re still in a moment that calls for careful, but not crazy, risk taking. The ironic solution? Do what most absolutely didn’t work last year; try to embrace a balanced portfolio in 2023!

Jason P. Tank, CFA, CFP® 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 simply wouldn’t be Christmas without a legislative gift from Congress. As I write this, one such bill is grinding its way through the House and Senate and is expected to land on the President’s desk for his signature before we ring in the new year. Weighing in at over 4,000 pages, it will most certainly land with an audible thud.

Professionally, my focus is on the key elements that affect near-term and current retirees. Starting on page 2,047 of this “all, but the kitchen sink” omnibus bill are the provisions known as the SECURE Act 2.0.

Similar to the original SECURE Act that became law a few years ago, SECURE Act 2.0 contains about a hundred provisions designed to enhance retirement saving. Key changes range from increasing the required minimum distribution age for IRA owners, to boosting the “catch-up” retirement plan contributions for near-term retirees, and requiring employers to automatically enroll employees into their retirement plans.

Beginning next year, the new age that triggers a required minimum distribution (RMD) from IRAs or other tax-deferred retirement accounts is increasing. It’s moving up in two stages. The new RMD age is increasing from age 72 to the magic age of 73. This new age milestone will stay in place for a decade. Eventually, starting in 2033, it’ll jump up again to age 75.

In addition, the penalty for failing to take out your RMD will finally be reduced from its currently massive level of 50% of your missed amount. Starting in 2023, the new penalty is set at a still very painful level of 25%. But, if you are able to fix your mistake quickly enough, the penalty could be further reduced to 10%. This is a welcome change.

Further, if you are fortunate enough to be able to support yourself for at least a little while with your non-Social Security and non-IRA income sources, this new RMD age of 73 now adds another year to your retirement “gap years” planning toolbox. The retirement “gap years” is the period of time between the end of your work life and the start of your Social Security and drawing from your IRAs. With SECURE Act 2.0, Congress has now added one additional planning year to analyze the possible tax benefits of both Roth conversions and realizing long-term capital gains at no federal tax.

As a wealth manager, I have to admit that Congress is truly the gift that keeps on giving in the form of job security!

Life is complex enough. With so many demands on your time and attention, finding ways to simplify things is both a goal and a never-ending struggle. To help, let me give you two ways to make your financial life just a little bit easier.

For retirees who have reached age 72 – the age where required minimum distributions or RMDs enter the scene – there’s a little known trick that will help eliminate the need for having to make administratively burdensome estimated tax payments each quarter.

Just like when taxes were withheld from your paycheck during your working years, any taxes withheld directly from your IRA distribution are considered by the IRS as if they were paid evenly throughout the year. That’s the case, even if they were withheld on the very last day of the year.

This treatment turns your IRA into a convenient tax planning tool at the end of each year. In other words, if you are able to target the right tax withholding percentage for the US Treasury and State of Michigan, you can safely forget about estimated tax payments. That means you can forget writing out eight checks, rummaging through your files for eight tax vouchers, addressing eight envelopes, licking eight stamps and stop worrying about the deadlines of April 15, June 15, September 15 and January 15.

Speaking of required minimum distributions, or RMDs, another simplification move you might consider is to finally consolidate your IRAs. I’m always surprised by the number of people who have multiple IRA accounts spread across multiple brokerage firms.

While it’s a natural instinct to not put all of your proverbial eggs in one basket, the most common reason for having too many accounts in too many places is purely administrative inertia. However, that inertia results in wasteful, extra effort and risk in the long run. If you ever fail to take out your annual RMD, there is an unbelievably onerous 50% excise tax waiting in the wings.

Beyond that worry, having too many separate IRA accounts complicates your tax preparation, too. For every additional IRA you have, there is one more Form 1099-R to remember, to gather and to report to your tax preparer. And, if you use your IRA as a charitable tool, as you should, you’ll also need to track and tally up your donations from each separate IRA. Why? Because your brokerage firms won’t automatically subtract them from your Form 1099-R. That bookkeeping duty is yours.

From my experience, each added element of complexity creates the possibility of making costly mistakes. The longer I’ve been in this business, the more I seem to embrace simplicity.

We’re now barreling into the end of 2022. After obsessing about your long list of things to buy for the upcoming holiday season, take a little bit of time to check-off entries on your financial planning to-do list! Here are some simple ones.

IRA Donations: The holidays are a natural time to think about your charitable giving. Consider donating directly from your IRA rather than from your regular checkbook. As long as you’ve reached age 70.5, this tax management tool is in your toolbox.

When you give from your IRA it won’t count as taxable income. Yes, those IRA donations will show up on your tax return as a distribution, but if done correctly they will then immediately get subtracted. Since you’ve never paid any tax on your IRA balance to begin with, your IRA donations are just like getting a tax deduction. If you’re like most people today who use the standard deduction, donations made out of your regular bank account won’t result in any tax benefits.

Additionally, if you are age 72 and subject to required minimum distributions (RMDs), it’s possible your IRA donations will help to lower the taxation of your Social Security benefit. This double tax benefit of IRA donations counting toward your RMD and possibly also reducing the taxation of your Social Security benefits could add up to some nice tax savings.

Check Beneficiaries: Given that this is a time for family, it’s an obvious moment to review all of your beneficiary designations on your retirement accounts and life insurance policies.

This is especially important if you’ve moved any of your accounts in 2022. Too often when people are filling out account paperwork, they’re simply unable to recall all of their beneficiaries’ information on the fly. To move things forward, they send in the paperwork anyway and swear they’ll later go back to fix it. Unfortunately, as we all know, later never arrives. Doing a routine beneficiary review will catch these long-overdue tasks.

Tax Gathering: Speaking of moving money around, if you transferred any accounts or insurance policies in 2022, you should immediately pull out your tax file and jot down that old account information. When tax time arrives in a few short months, you might need to reach out to that brokerage firm or insurance company to gather your 2022 tax information.

There is nothing fun about failing to include something easy on your tax return and getting a love letter from the IRS when their computers finally notice your oversight. Worse yet, this IRS notice will arrive well past your ability to remember any details. Avoid the stress now and make a log of your closed account information.  

One of my favorite lines came from the movie, A League of Their Own. In the film, Tom Hanks plays the role of a reluctant manager of a women’s baseball team during WWII. In a totally sexist scene, one of his players expressed emotional vulnerability on the field. Dumbfounded, Hanks popped out of the dugout declaring that “There’s no crying in baseball! There’s no crying in baseball!” 

Having worked with retirees for over two decades now, I feel similarly about retirement. While I’m hopefully more empathetic in my delivery, there really is no failure in retirement, either. It’s just not how it works in reality. 

Over the years, financial planners have been given some pretty good retirement modeling software to help clients map out their future. While the mathematical basis of a client’s future income and investment returns has been pretty solid, the modeling of how they actually spend money in retirement has always left something to be desired. 

For anyone who has ever had the pleasure of reviewing a typical retirement model produced by financial planning software, the language of “success” and “failure” has likely struck you as both alarming and silly. When most retirees face particularly difficult future scenarios, such as a deep bear market or an unfortunate stretch of lower-than-expected investment returns, they don’t just blindly spend themselves off a cliff. They actually talk, think, prioritize and adjust. 

Worse yet, the sophisticated modeling of thousands of future outcomes of your retirement years, known as a Monte Carlo simulation, often shows an absurdly wide variation of possible outcomes. These outcomes range from you running out of money to watching your portfolio grow into the stratosphere! At both extremes, you are assumed to spend more and more each year in retirement, as if you are an unthinking robot. 

Then, in an unhelpful summary, the final report shows that your retirement dreams have a 75% chance of “success” along with a heart-stopping 25% chance of “failure.” Ready to hang it up, and with the odds seemingly in your favor, you cross your fingers and decide to retire.

Of course, it’s a known fact that real retirees aren’t robots at all. I’m pretty sure I haven’t met one! In reality, the description of success and failure in retirement is more accurately about accepting the possibility of needing to make some spending adjustments as your future actually unfolds. 

So, rather than modeling the impossibility of blindly driving off the cliff, the more helpful plan is to establish and monitor portfolio-level guardrails and then use them to proactively nudge things safely back on the road to the goal. Based on my experience working with living, breathing human beings, that’s exactly how retirement looks in the real world. 

Social Security is set to give out the biggest hike in benefit payments since 1981 and it’s going to be even larger than last year’s 5.9% raise. Drumroll please. Starting in January, benefits will rise a whopping 8.7%.

Hands down, inflation has been the financial focus of the past year. It has impacted both stocks and bonds in a severe way. With bonds failing to provide stability for investment portfolios, it’s not uncommon for conservative investors to see their portfolio down about 20% for the year. It’s been ugly and any good news is welcome.

Thankfully, for retirees, there is a silver lining. Since 1975, Social Security has been automatically and annually adjusting benefit payments to offset inflation’s bite. Not surprisingly, this policy was put in place at a time of high inflation. Clearly the political pressure of giving discretionary raises to voters (I mean, retirees!) was too much to bear. The solution? Automatic adjustments, by law.

The 8.7% inflation hike in Social Security benefits translates into a raise of $160 per month for the average beneficiary. Adding to the good news, for the first time since 2012, the monthly Medicare Part B premium that is deducted from Social Security checks will decrease by about $5 per month. Bottom line, there’s soon going to be more money in the pockets of retirees.

A common question for those not yet collecting Social Security is whether they, too, will benefit from this 8.7% inflation adjustment. It depends.

If you are over the age of 62, the answer is, yes. This is true for those who are receiving benefits and for those who are eligible, but choosing to delay their filing in return for a higher benefit later on. For this group, the annual inflation adjustment is built directly into their benefit formula.

If you have not yet reached age 62, things are more complicated. For this group, your benefits are based on your earnings history. After ranking the best 35 years of your earnings, Social Security does adjust each year using a different time of inflation adjustment. Specifically, they use a national average wage index. To properly calculate a person’s average earnings over an entire career, those earnings way back in 1985 must be put “on par” with today’s average prevailing wage level.

Now, historically the national average wage index has grown faster than the inflation rate used by Social Security in setting current benefits. But, you guessed it, not this year! So, for those under age 62, your projected Social Security benefit will not quite see the 8.7% bump. Life’s not entirely fair, I suppose.

To learn more about Social Security, plan to attend the Money Series at Leland Township Library on Tuesday, November 15 at 3pm. Register at MoneySeries.org.

Jason P. Tank, CFA, CFP® 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’m getting that “deja vu” kind of feeling. In May, June and July, I wrote about the increasingly ugly state of the investment markets. After the short-lived summer rally, things now look uglier. My underlying message, nonetheless, remains consistent.

In my June 26th column, I highlighted the return of the “ballast of bonds.” Over the past decade, like a frog in a hot pot, a false sense of complacency crept in. Low interest rates and ultra-tame inflation became a fixture in all financial calculations, including bond prices. After years of this status quo, things have now shifted on a dime following the post-Covid surge of demand and inflation. It caught almost every investor, and the Fed, by surprise.

With each version of the Fed’s promise to fight inflation, the bond market’s guesses about the path and plateau of interest rates have ratcheted higher and higher. The series of hits this has been delivered to the bond segment of balanced portfolios has felt like Chinese water torture.

We’ve now seen an historic decline of 14% in broad bond market indexes. Bonds now offer far more ballast and the most attractive yields in over a decade. I view bonds more favorably for two reasons; (a) Inflation is likely to peak soon and (b) bonds will likely re-assume their traditional role as a counterweight to stocks. While I’ve said it before, in my view, the pain in bonds is nearly done.

Turning to stocks, it’s becoming clear the Fed has accepted a recession as the necessary price of vanquishing inflation. Once hopeful of a soft landing, investors in stocks are now also anticipating something bumpier.

To set expectations then and now, in late-May I wrote a retrospective on the “anatomy” of past bear markets. Right after I wrote those words, stocks officially fell into bear market territory. And, after the big summer rally, they are once again down around 25%. Today, I’ll reiterate my message of early July; now is once again the time to prepare portfolios for the recovery.

Reviewing history, the typical bear market’s average decline is 30% to 35%. If this bear market follows suit, another 10% to 15% decline and more volatility should be expected. The average bear market over the last 50 years took about a year to reach the bottom. We are now sitting at about the 10 month mark. Like bonds, I think most (but not all) of the pain in stocks is done.

With both known and unknown uncertainties swirling around, the table is set for an emotionally challenging three-to-six months for investors. We all know that history doesn’t exactly repeat. But, much like a deja vu moment, it does often have a vague rhyme to it.

Q: Our brokerage firm has asked us to name a “Trusted Contact” on our investment accounts. Should we put this in place?

A: Having designated “trusted contacts” on file with your brokerage firm is a good idea.

Among other reasons, a trusted contact is a person your brokerage firm or investment advisor can reach out to in the event they suspect possible fraud or financial exploitation. In an environment of increasingly sophisticated cybersecurity threats, too often involving vulnerable seniors, having a trusted contact on file may just be the saving grace that stops a crime in its tracks.

It’s important to know what a trusted contact can and cannot do. A trusted contact is not given any special authorities or power over your accounts. They cannot trade or conduct any business on your behalf. And, they cannot gain access to your financial information. They are just a person that your brokerage firm or advisor can talk to under certain circumstances, including confirming your current contact information, inquiring about your health status, as well as learning the identity of key people named within your estate plan.

Q: I’ve been hearing that doing a Roth conversion in a bear market is tax smart. Why is it more attractive at this particular time?

A: Let me first set the scene. You’ve got an IRA funded with pre-tax contributions. Of course, the flipside of getting that tax break is that someday, when you finally decide to draw from your IRA, you’ll eventually have to pay the taxes. It seems Uncle Sam is always waiting in the wings!

In a bear market, however, your IRA’s balance is temporarily depressed. It’s better to convert part of your regular IRA to a Roth when it’s down in value. After all, you’ll pay less tax on the portion you choose to convert before your investments recover.

However, the benefits of doing a Roth conversion are not quite so clear cut. When done correctly, it takes careful tax analysis and, often, a crystal ball.

For example, if you get too excited and convert too much of your IRA to a Roth, you could accidentally push yourself into a higher tax bracket. This easy-to-make mistake defeats the purpose of legally taking advantage of the IRS. Ideally, you want to do a Roth conversion in a lower tax bracket than you’ll experience in the future (cue the crystal ball!)

Additionally, if you are already collecting Social Security, a Roth conversion could also push more of your Social Security into the taxable column. You really don’t want the IRS to collect taxes on your Roth conversion only to find out a larger portion of your Social Security ends up getting taxed.

Benjamin Franklin was a wise guy. He’s the one behind “Don’t throw stones at your neighbors, if your own windows are glass.” He also came up with “No pain, no gain.“ Amazingly, he shared this nugget about 250 years before the internet was even invented, “An ounce of prevention is worth a pound of cure.”

Online security is a growing problem that needs attention. This is especially true for seniors. I was recently reminded of this working with a client who experienced financial fraud. Thankfully, my client was made whole. But, it certainly didn’t come without worry and stress. In the spirit of prevention, here are some easy things you can do.

Two-Factor Authentication: This is the Holy Grail for your online financial accounts. Whenever you log in, a text message should be sent to you with a unique code to gain access to your accounts. Almost every reputable financial institution has this safety measure available. If you can log in, without going through a two-factor authentication process, please stop reading this article immediately and contact your bank, credit card and financial advisor.

Use a Password Manager: Every single person I know struggles to remember all of their usernames and passwords. Naturally, the easiest thing is to use the same login information for every website. Unfortunately, that happens to be the best way to let fraudsters gain access to every one of your accounts! So, what can you do? Use a password manager, such as LastPass or 1Password. These applications will allow you to establish unique passwords and, most importantly, securely store them all in one place.

Set Up Activity Alerts: If some crook does gain access to your accounts, there are things you can do to limit the damage. For example, many financial institutions allow you to establish text, email or phone alerts for large purchases or possible fraudulent transactions. If you cannot figure out how to set up these account alerts, once again just call your bank, credit cards or financial advisor for help.

Hobble Your Accounts: I have to admit, this suggestion might sound a bit weird. For my clients, I’ve purposely limited what they can do online in their investment accounts. Unless I’m told otherwise, they cannot just log in and proceed to buy or sell securities or move money out of their investment accounts. Of course, the same applies to every bad guy who might happen to gain access, too!

While going completely offline is always an option, it’s increasingly cumbersome. Remember, fraudsters don’t like to work that hard. They seek easy targets. When they hit a brick wall, they tend to move on. With a few easy steps, you can make it a lot harder on them while still enjoying the conveniences of our connected world.

Jason P. Tank, CFA, CFP® 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

Q: What’s going on with interest rates lately? I know the Federal Reserve is still raising interest rates. But, now I read that mortgage rates are falling and my bond portfolio is also recovering. Can you explain?

A: As we all know, the Fed is deep in the midst of a serious rate hiking campaign. Since March, short-term interest rates have been raised from zero to about 2.25% to 2.5%. The Fed started out slowly this spring and then really picked up speed by this summer. It’s been one of the fastest “monetary tightening” phases in modern history.

Given the Fed’s inaction last year in the face of a sudden surge in inflation, they went into catch-up mode. In unprecedented fashion, they raised rates 0.75% at both their June and July meetings. The Fed basically carried out a policy of shock-and-awe. By mid-June, the major bond market index was down well over 10% as compared to the start of the year.

Thankfully, I believe the Fed has now shifted into a more gentle phase. They have three more scheduled meetings in 2022 and have signaled an additional 1% in cumulative rate hikes by Christmas. Current expectations are for a 0.5% hike at their late-September meeting followed by two smaller 0.25% bumps at the November and December meeting. After that, they’ll likely enter a wait-and-see phase to see how the dust has settled on inflation and the economy.

Investors have more-or-less factored all of this into their calculations. They are already looking “over the valley”, so to speak. And, what do they see on the other side? A break in the inflation fever, for starters. But, to accomplish that feat, they also see the Fed having pushed the economy to the very edge of a recession. And, what happens in a recession? The Fed shifts into reverse and starts to cut interest rates!

So, when you read headlines about mortgage rates falling and when you notice your bonds are starting to recover, try to focus on the direction of longer-term rates rather than short-term rates. The fact is, the Fed can really only control short-term interest rates while longer-term rates are largely set by the market.

To fully exorcise the demon of inflation, the Fed is hell-bent on ignoring hockey legend Wayne Gretzky’s famous advice, “Skate to where the puck is going to be, not to where it has been.” Based on current market signals, investors are busy placing bets that the Fed will take things too far. We’ll see where the puck goes next.

As January goes, so goes the year. If that old market saying holds any weight, investors’ worry may be justified. The start of 2022 has certainly been rough.

Along with stock indexes falling between 5% to 10% in January, bonds have also added to the pain with a decline of around 2%. It’s safe to say that few investors have been spared from losses to start the year.

It’s commonplace to blame the Fed for all of this negativity. In their defense, the pandemic has presented a significant challenge. With their now-$9 trillion balance sheet, almost double its pre-Covid size, they have grown visibly uncomfortable in their unorthodox policies. They seem to be looking for the escape hatch from their homemade trap of zero interest rates. Increasingly, it’s not at all clear they actually built one.

Since their grand monetary experiment began in response to the Great Financial Crisis in 2008, the Fed did finally start to baby-step its way toward higher rates by early 2017. Covid suddenly arrived and the Fed pinned interest rates right back down to the floor. And, with that not seemingly enough to cushion the economy, they further juiced financial market sentiment by purchasing yet another $4 trillion of bonds. It worked.

Similar to a game of hot potato, their bond purchases sent investors seeking other, riskier assets; namely increasing demand for both stocks and real estate. This hot-potato effect may be the true magic behind their zero-rate monetary policy. It not-so-subtly shifts the mentality of the herd and sends them thundering off in riskier directions; pushing up the prices of riskier assets in hopes of feeding a sense of consumer and investor confidence.

What’s been happening since the start of 2022 is an example of the jittery herd deciding on its direction. With Covid’s final wave clearly cresting (we all hope) and with both unemployment way down and inflation way up, the Fed has telegraphed that a policy change is just ahead. They’ve penciled at least three 0.25% rate hikes throughout 2022, about a year earlier than expected. In addition, they’ve also sent the message that their business of buying bonds is soon coming to an end.

However, it’s important to note that the Fed’s shift is just one element of the current backdrop. Regardless of how it might seem, there are other factors to consider. We seem to be in the midst of a peculiar game of tug-of-war.

Holding on to the opposite side of the rope stands our post-Covid economy. The economy is quite strong and, in my opinion, it’s likely to both broaden and deepen its strength in the year ahead. As if churning just below the surface, there is a pending sense of a post-pandemic release of optimism and pent up activity. Even with elevated stock market valuations, the economy’s strength may not result in a match that ends with the financial markets facedown in the mud.

Keep in mind the irony of the current situation. If the Fed senses the economy’s footing is slipping, it’s likely to lighten up on its own effort. As it should be, the Fed’s true desired outcome is a healthy stalemate. Unlike most games of tug-of-war, a boring stalemate in this peculiar match is a win-win outcome. So far, the start of 2022 has been anything but boring! It’s likely to be an interesting year.

Jason P. Tank, CFA, CFP® 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

Q: I’d love to settle my mind. Most of my friends have already filed for Social Security benefits. They were worried it’ll eventually go away. But, my financial advisor continues to recommend that I keep waiting to file for mine. What are your thoughts?

I’d really like to give you a short-and-sweet answer. Unfortunately, without knowing your personal circumstances, that’s simply impossible. But, here are a few things to help guide your thinking.

Social Security isn’t going away anytime soon, in my view. For those over 55, the promised benefit shown on your latest Social Security statement is very, very, very likely to arrive in your bank account soon enough. Yes, that’s three “verys.”

How can I sound so certain? First, no politician wants to pull the rug out from under your planning that’s already in its later stages. Second, no politician wants to lose the votes of those who actually vote.

As your advisor likely explained, for every year you delay, you get an 8% lifetime benefit hike. Importantly, if your benefit is larger than your spouse’s, your surviving spouse will also enjoy your boosted benefit amount upon your death. As long as one of you lives for about 14 more years, each one-year delay is likely worth it. Naturally, this is a mortality question that only you can answer.

In addition, delaying your filing might open up tax planning opportunities while you wait. Uncovering them takes some detailed financial modeling. To name a couple, strategic Roth conversions and harvesting long-term capital gains come to mind.

Finally, to settle your mind, don’t forget that your friends may have very different financial circumstances from you. It’s never really safe to assume we’re all alike.

Q: Everywhere I look, I see more and more about investing in Bitcoin and other cryptocurrencies. It seems a lot of younger people now view them as legit investments. Yet, I don’t own any cryptocurrencies in my portfolio. Should I?

Over the past year, interest in cryptocurrency has certainly grown. If you ever tune into CNBC or read a financial publication, I’d bet real money that you’d hear about the latest wild moves of Bitcoin or Ethereum or whatever other crypto that sprouted up. It’s like crack cocaine for the financial media!

You can definitely put me in the camp of skeptics. It’s just far too volatile to be categorized as a reputable investment.

Bitcoin’s price fell about 40% in a span of months earlier in 2021. That drop was followed up with a price spike of 70% just a few months ago. Back in 2018, Bitcoin fell about 70% only to be followed by a quadrupling in early 2019.

As math geeks already know, while price surges of 70% and 400% seem exciting and lucrative, these moves only just recovered the 40% and 70% declines that came before them. It takes bigger gains to make up for losses. My advice is to turn down the volume on CNBC and think about something else.

Jason P. Tank, CFA, CFP® 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’m in the mood for a little math. Perhaps memories of college are flooding into my mind as I watch two of my kids gear up for this semester’s finals. Once a math major, always a math major, I suppose!

Let’s start with the electric-vehicle maker, Rivian Automotive. Regarding Rivian, here are three numbers to ponder. One hundred eighty. One billion. One hundred billion.

One hundred eighty is the number of vehicles Rivian Automotive produced through October of this year. In comparison, General Motors sold 4.7 million vehicles in the first nine months of 2021. Ford Motor sold 2.8 million vehicles over that same period.

One billion is the loss posted by Rivian in the first half of this year. Through September, General Motors logged a profit of $8.1 billion and Ford earned $5.6 billion.

One hundred billion is the current market value of Rivian, just following its initial public offering this past month. In comparison, General Motors’ market value is only around $90 billion and Ford’s is near $80 billion.

To be fair, Rivian Automotive is just a start-up. And, clearly, investors are hoping it turns into the next Tesla with its wildly overvalued stock worth over $1 trillion. But, remember, we’re talking about a company that’s made one hundred eighty vehicles and already has a one hundred billion dollar market value? It’s good to do some math.

Shifting gears, here is another number to contemplate. Eight and a half percent.

We are now in the open enrollment period for gaining health insurance coverage through the Affordable Care Act (ACA) marketplace. Just like this year, the formula for calculating health insurance premium subsidies is more generous than in years past.

Prior to 2021, you didn’t get any premium support or subsidy under the ACA if you made more than four times the official poverty line. For example, as a family of four, you’d lose all premium subsidies if your household income exceeded about $106,000, even if only by one single dollar.

At that level of income, it implied that a family of four could really afford a health insurance plan that currently costs about $20,000 per year and sports a $5,000 deductible to boot. Good luck with that, of course. In a demonstration of bad policy, if this family’s income came in just one dollar under the qualifying income threshold, they were provided a hefty premium subsidy of about $10,000. The program was designed with a truly steep “income cliff.”

For 2022, as it was in 2021, this income cliff will once again be waived. As a result, there are no income thresholds to consider with regard to receiving health insurance premium subsidies through the ACA marketplace. And, just like last year, the official “affordable” amount for health insurance is now set at a maximum of 8.5% of your family income. For lower income families, the maximum affordable premium is even less.

For a family of four, this 8.5% figure caps their health insurance premium at about $750 per month, instead of having them pay the full $1,500 monthly cost for the ACA Marketplace’s “benchmark” silver health plan. And, with their subsidy in hand, if they chose to buy a bronze plan, they could likely cut their monthly premium nearly in half again. With this premium savings, they could then contribute to a health savings account (HSA) for later use and additional tax benefits.

All around, it seems like a good idea to do some math as you head into 2022. I’m just glad I don’t have finals to stress over in the next few weeks. I promise I’ll try really hard not to gloat to my kids!

Jason P. Tank, CFA, CFP® 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 the real world, stretching hurts. Since I’m only about six months away from turning 50, I know this firsthand. Fortunately, I hear it’s not too late to work on it. In the world of money, however, it is in fact too late to stretch.

Prior to the start of 2020, people who inherited an IRA were allowed to slowly pay tax on the money. They could spread out their annual required minimum distributions from an inherited IRA over their lifetime. In some cases, beneficiaries were able to “stretch” the tax they owed over many, many decades.

However, starting on January 1, 2020, the rules for many IRA beneficiaries changed dramatically. To be precise, things changed for people who are not considered to be an “eligible designated beneficiary.” So, what does that mean, exactly?

You are not an eligible designated beneficiary, unless you fall into one of the following special categories.

First, the rules didn’t change for surviving spouses. Second, beneficiaries who happen to be within ten years of the age of the deceased IRA owner still get to use the stretch option. Next, the old rules still apply for beneficiaries who are disabled or chronically-ill. And, finally, beneficiaries who are still minors get the stretch option until they reach adulthood.

However, if you don’t fit the definition of an eligible designated beneficiary, your ability to do a lifetime stretch has been lost.

As background, Congress passed the SECURE Act in very late 2019. Incredibly, it passed in a bipartisan manner with 71% of the vote in both the House and the Senate!

The SECURE Act stipulated that new, non-eligible designated beneficiaries must distribute their entire inherited IRA within a ten year period. The clock starts ticking at the start of the year following the passing of the old IRA owner.

And with the death of the stretch option for so many beneficiaries, a new world of tax planning was born. To illustrate why proactive tax planning matters, let’s go through an example.

Samantha, age 48, inherits a sizable $1.5 million IRA from her father. Naturally, she leads a full and busy life. She doesn’t really like to talk about money all that much. Worse yet, she procrastinates on things she doesn’t like. In short, she’s not all that different from most people!

Samantha decides to invest the $1.5 million on her own. Things go along just fine for about seven years and, at age 55, she decides it’s time to really start planning for her eventual retirement. During her initial meeting with her new financial advisor, she hands over her big pile of investment statements and a couple of recent tax returns.

After some study, her advisor realizes she needs to break some difficult news to Samantha. While the good news is Samantha’s inherited IRA has grown to over $2 million, the truly terrible news is that it now needs to be fully distributed – and fully taxed – within three short years. Samantha’s ten year clock was ticking away like a tax bomb and she simply didn’t know it.

Of course, I’m certain Congress didn’t intend for this to happen to people. But, perhaps we can now see why there was such bipartisan support for the elimination of the IRA “stretch” option for many beneficiaries. After all, there are trillions of dollars currently held inside IRAs that are just waiting to be passed to the next generation. As you can see, there is some real planning to be done!

Jason P. Tank, CFA, CFP® 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

Democrats and President Biden are knee-deep in the political act of horse-trading and arm-twisting. It’s sausage-making at its worst. In the end, most Americans will find the result downright tasty. For the wealthiest among us, it’ll no doubt cause some financial indigestion.

In exchange for the extension of the new bulked up child tax credits, a broadening of childcare tax benefits, the expansion of Medicare benefits along with the introduction of free community college, paid sick leave and universal pre-K, a slew of tax changes are on the table.

In keeping with Biden’s election promise, most of the proposed tax hikes for individuals will only affect people who make more than $400,000 to $500,000 per year. To loosely paraphrase the famous bank robber, Willie Sutton, this is where a lot of the money is and, conveniently, where most of the voters aren’t.

To start, the top tax bracket would be about 3% higher than it is today, returning it to the familiar 39.6% level. This proposal not only increases the top tax rate, it would kick in at a lower income threshold.

Next, high-earning business owners who use S-Corps to split their earnings as partly “wage income” and partly “business profit” may face an extra 3.8% tax on the portion they choose to classify as business profit. This proposed change partially closes a loophole that helps them avoid paying Medicare taxes.

Also on the docket is a tax hike on long-term capital gains. The proposal would raise this tax to 25% from the current level of 20%. Once again, this would only affect those making over about $500,000 per year. An earlier proposal to capture capital gains taxes on inherited assets appears to have been abandoned, for now.

Rounding out the tax changes for high earners is a new 3% “surcharge” on income that exceeds $5 million as well as a slew of limitations placed on massive IRA balances above $10 million. Finally, certain Roth conversion strategies may also be a thing of the past (although some come after a 10 year delay!)

Beyond these proposed tax changes for individuals, Congress is also focused on reversing some of the corporate tax cuts introduced in 2018.

Under current proposals, the top corporate tax rate for businesses structured as C-Corps would rise from the 21% rate to around 26%. Prior to the Trump tax cuts, the top rate for big businesses was once 35%, so this change only represents a partial reversal of tax policy.

Finally, for certain business owners who conduct their activities through pass-through entities – such as S-Corps or LLCs – the lucrative 20% business income deduction will fade away if they make more than $5 million in profits.

Just as sausage-making is a notoriously unappetizing thing to watch, over the coming weeks Congress looks poised to grind out an ugly legislative process. Frankly, if it wasn’t my job to watch it all closely, I’d simply choose to avert my eyes!

Jason P. Tank, CFA, CFP® 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

Investors are experiencing an unnaturally profitable period. The S&P 500 index has gained about 18% so far in 2021. And, as a reminder, this follows a similar 18% return in 2020 and the 30% surge in 2019. That’s over 80% in less than three years. After such a run, prudence really should be the order of the day.

With this run in stocks – and, let’s be honest, it feels inexplicable amidst such economic upheaval – now is a wise time to review your investment portfolio within the context of your longer-term plan. Every so often, it’s smart to take a step back and formally assess where things currently stand relative to your original plan.

There are only a few truly important rules to follow in investing. Beyond proper diversification and sticking with low-cost investments, the most important factor is your portfolio’s asset allocation.

To review, the concept of asset allocation is about finding the right mix between riskier and steadier investments. Studies have shown that your portfolio’s allocation between stocks and bonds, not your individual selections, explains the vast majority of your portfolio’s return.

Do you know your portfolio’s current asset allocation? If not, that’s a good place to start your review. You might be surprised by how much your portfolio has drifted away from your original asset allocation target. Admittedly, rebalancing in the face of possible capital gains taxes can be a difficult and delicate task. But, it’s always best to focus on the dog (your portfolio), not the tail (your tax bill.)

Next is really knowing your life’s costs. If you want, you can call this your budget. I prefer to refer to it as your living cost summary. The word, budget, just has such a restrictive ring to it. On the other hand, your living cost summary is a comprehensive tally of where you’re choosing to spend your money. That sounds much easier to stomach.

Do you know the cost of your lifestyle? Having created retirement-readiness models for over two decades, I can assure you that your spending habits will make or break your plan. Of course, as opposed to banking on a higher level of investment returns, your spending is the far more controllable and predictable piece of the puzzle.

Developing a formal retirement income model shouldn’t be seen as rocket science or feel overly painful. Thanks to today’s sophisticated financial planning software, these models have become more robust, flexible and useful over the years. At its very core, though, it’s still all about comparing your income and expenses, year-by-year, and then projecting things out over many decades and over many possible future scenarios.

Your formal financial plan really is the baseline against which all things should be measured. It’s at times like these, when markets seem almost too good to last, recalibrating both your portfolio’s asset allocation and assessing your spending against your original plan should move up your list of priorities. It might even allow you to overcome your natural sense of complacency just when things appear so unnaturally easy!

Jason P. Tank, CFA, CFP® 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

Q: We have two children (ages 3 and 5) and we’d really like to plan for the cost of college. Unlike us, our hope is to leave them with as little debt as possible. What would you recommend in terms of the amount to save and the type of account to use?

A: Your children are lucky to have parents who want to plan for their future. That’s not something they’ll recognize immediately. They will someday, probably!

Addressing the “how much” question is different for every family. Some parents hope to just pay for the cost of tuition, fees and books. Some want to provide for an in-state public university. And, others hope to pay the full cost of a private college or out-of-state university. Defining the exact goal is obviously the first step.

For an in-state, public university, the cost of tuition and books are about $15,000 per year. Room and board will run you another $10,000 per year, as a very rough estimate. So, for a four-year degree, that adds up to over $100,000. And, remember, these figures are measured in today’s dollars. Keeping pace with college cost inflation is a great reason to put away money early.

In your case, with about 14 short years until college starts, providing them with four years of college might require you to save about $8,000 to $10,000 per year for each child. If this level of saving isn’t possible within your budget – and, let’s be honest, it is not for most people – it’s fine to scale back your goals. Remember, scholarships, grants and student loans are all viable financing tools. We also have a very good community college here, too.

Now, once you’ve decided on the amount you can actually save, my recommendation is to use a 529 plan for each child. The State of Michigan’s plan is called the Michigan Education Savings Program. Go to www.misaves.com to read about it.

The investment earnings inside a 529 plan are not subject to any taxes as long as the money is eventually used for “qualified” education expenses. On top of this tax benefit, your savings can result in an immediate state tax break of up to $425 per year.

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 I wrote a few months ago, July 15th marks the start of something new. Automatic monthly government checks are coming to the bank accounts of millions of families with kids. But, without some deeper understanding of the new child tax credit, some may be in for an unpleasant surprise at tax time next year.

With Biden’s signing of the American Rescue Plan in early March, major changes were made to the tax credit families receive for having children. To put this into perspective, child tax credits are provided to about 90% of families with kids. It’s a truly far-reaching feature of our tax code.

Unless you really inspected your tax returns, the child tax credit used to operate silently in the background. The new child tax credit now has a much more visible role.

Prior to the American Rescue Plan, the child tax credit was $2,000 for each child under age 17 and $500 for full-time college students. Married filers with modified adjusted gross income below $400,000 received these tax discounts. For single and head-of-household filers, the eligible income threshold is cut in half.

Under the American Rescue Plan, there are two major changes.

First, the law introduced a new intermediate income threshold of $150,000 for married filers with kids. This first income threshold now operates alongside the higher $400,000 threshold. For people who make less than this lower threshold, the tax credit was also boosted to $3,000 for kids between age 6 and 17 and $3,600 for kids under age 6. For those earning between the first and second income threshold, the smaller $2,000 per kid tax credit still applies.

Second, the law introduced the concept of monthly checks. Starting on July 15, parents are going to receive automatic, monthly deposits into their bank account or mailbox. For families below the first, lower income threshold, they will now get monthly deposits of $250 to $300 for each of their children. Smaller monthly deposits will also arrive for those making between the first and second income thresholds.

Now, here’s the catch.

Unless Congress steps in, these monthly deposits will stop in January. And, perhaps more importantly, these are actually “advance payments” of the child tax credits. This part deserves a little more explanation.

In the past, child tax credits were received only at tax time. For many, they help to create big tax refunds. Many households plan on their tax refund to help pay for upcoming vacations or pay off old Christmas bills. Without the windfall created by the “all-at-once” child tax credits, tax refunds might look considerably smaller at tax time next year. In other words, the already-spent monthly deposits might result in an unpleasant cash flow surprise for millions of families.

Once started, automatic monthly checks are a tough thing to take away. I expect Congress to act soon to continue them into 2022 and beyond. If they don’t, millions of families might have to develop a plan to save some of the monthly checks to blunt the impact of next year’s smaller-than-usual tax refund.

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

Q: With inflation readings spiking in recent months, we’re starting to worry about its long-term effects on our portfolio. We remember the 70’s and runaway inflation has been a concern of ours for some time. Should we be this worried?

A: Inflation’s impact on your wealth is not unimportant. In the end, wealth is defined by how much you can buy with your money. Inflation can be an invisible threat. Sometimes, like the 1970’s, it can feel more than obvious. Lately, the recent attention-grabbing headlines reflect the fact that inflation has been on the rise.

But, I think it’s very important to note that today’s inflation readings are a direct result of a drop in prices from March to July of last year. The effects of the shutdown during the pandemic’s early days has thrown the inflation data for a serious loop.

While not a perfect analogy, it’s a lot like comparing the weather last June to the sweltering heat we’ve experienced this year. For the first ten days of June in 2020, the average high was about 67 degrees. In comparison, this June has averaged a high temperature of about 86. I wouldn’t read a lot into that trend when trying to guess about the weather for the rest of this summer.

To smooth out the pandemic’s impact on prices from last spring, it might help to compare today’s prices to 2019 or even 2018. Instead of seeing inflation rate readings of 4% and 5%, the annualized inflation rate over the past two or three years is sitting at about 2% or so. The dip in prices last year, like the cooler start of June of 2020, is undoubtedly distorting today’s inflation data.

Like the Fed, I think the next six-to-twelve months will smooth out the pandemic’s unusual effects and there certainly have been a few!

Q: I couldn’t help but notice that Bitcoin and other crypto-currencies have declined a lot in just the last few weeks. Do you think they are “ready for primetime” as a true investment vehicle for regular people, like me?

A: You’re right, Bitcoin took a 40% nosedive from mid-April to late-May. Ethereum, the other major crypto-currency of note, also crashed about 50% over just twelve days from mid- to late-May. Those are some wild swings.

In my view, crypto-currencies are not even close to being “investable” assets for regular people. They’ve become trading vehicles for those willing to gamble with their money. For those who choose investments based on some measure of fundamental value, this digital currency game is something to safely ignore.

Frankly, I’d lump the current obsession with crypto-currencies with the equally crazy trading of “meme” stocks like Gamestop, AMC Entertainment, and now, Clover Health. The financial media loves to talk about this stuff, that’s for sure. It catches eyeballs. Ultimately, advertising revenue follows. While it might be fun to gawk at it all, it shouldn’t be confused with investing in any traditional sense.

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

Tax time has come and gone. Even with the delayed tax deadline, I suspect procrastination was still the order of the day. Understandable? Yes. Costly? Maybe.

With my normal review of tax returns for clients, I spot an error every so often. But, I can tell you tax preparers do their best in the very limited time they’re given. Imagine having a client drop a pile of papers on your desk with their half-completed tax organizer sitting on top. From my vantage point, it’s not an easy job.

Now, imagine if the government adds to the complexity and confusion? Let me highlight one example.

When you reach 70 ½, you can start using your IRA as a tax-smart charitable tool. When you donate to charities out of your IRA, those distributions aren’t considered taxable income. This stands in stark contrast to IRA withdrawals that you use for your normal life expenses.

Remember, your IRA money has never been taxed. You were given a tax break when you contributed to your IRA. You then invested that money, possibly for decades, without paying any tax on the income you earned. When you do eventually withdraw money from your IRA, you finally have to pay tax on it. That is, except when you give money directly to charity. Those donated distributions don’t count as taxable income.

Even better, the amount you give to charity from your IRA helps to satisfy your required minimum distribution (RMD) for the year. In other words, what you give to charity from your IRA can help to lower your taxable income. Doesn’t that sound suspiciously similar to getting a charitable deduction? It certainly does and it’s a very nice tax break (for those age 70 ½ or older) who take the standard deduction and would otherwise lose out on deducting their charitable donations.

Unfortunately, things can and do go wrong with this tool.

Brokerage firms, such as Schwab, Fidelity and Vanguard, are tasked with sending out a tax report – called Form 1099-R – to both you and to the IRS. Form 1099-R lets everyone know how much you took out of your IRA. However, there is no breakdown of the amount you used for yourself and the money you gave to charity. Instead, they just report to the IRS the full amount that exited your IRA. The IRS doesn’t even require brokerage firms to remind everyone that some of your withdrawals possibly went to charities and, therefore, shouldn’t be considered taxable income.

Unwittingly, many taxpayers who wisely make charitable donations directly from their IRA may be paying tax on the money they’ve given to charities. So, if you only do one thing today, pull out your old tax returns to see if an amended tax return is in your future. Just when you thought tax season was over!

Like clockwork, I once again spent a good chunk of this past weekend watching the Berkshire Hathaway annual meeting. It might sound terribly boring to some, I know. Since my first father-and-son trip to Omaha over twenty years ago, Warren Buffett and his long-time sidekick, Charlie Munger, manage to get my attention during the first week of May. At age 90 and age 97, respectively, I suspect this tradition will only last a few more years.

In a world infatuated with shiny objects, the annual Buffett and Munger show has surprisingly maintained its relevance. We should all be so lucky to have such command of our wits at their age. Remarkably, they manage to match their wits with more than a dollop of wisdom. Right along with their billions, after nearly seven decades of investing, their collective wisdom is still piling up. They’ve seen it all. Well, almost.

Throughout the years, the Berkshire Hathaway meeting has offered an annual check-up on the ever-changing investment environment. Back in 2000, the tech-stock bubble was finally bursting. In 2006, the crazed housing market was starting to roll over. By 2009, the Fed dove headfirst into its zero interest rate policy. Each year’s meeting has offered a chance for Buffett and Munger to share their insights for hours on end.

This year, what caught my ear was their fascination with how our current economic “movie” will play out. While they didn’t share the name of the movie they’re watching, for years now I’ve felt we’re deep in Wonderland, walking shoulder-to-shoulder with Alice herself!

At the center of their curiosity is the conundrum of super-low interest rates. It certainly has been my obsession. Will interest rates stay this low? Have they permanently elevated stock prices? Do bonds still have a rightful place in conservative portfolios? Can we really print trillions without major consequences? Seeking answers to these important questions, and many more, will lead you right down the rabbit hole, of course. As enticing as it is, just throwing up your hands doesn’t really seem like a viable option.

For Buffett and Munger, the current movie inevitably inches closer to their final scene. I imagine their calm sense of wonder at this year’s meeting reflects their own demographic reality (and their unimaginable personal wealth is possibly a contributing factor!) For me, however, today’s environment is just one more fascinating scene in a story that’s still very far from complete. Calm wonder, I’m afraid, feels like a luxury. Embracing a little bit of their attitude, though, might in fact be the only rational way to manage through it.

As I reflect on this year’s meeting, the lesson from Buffett and Munger certainly wasn’t about the nuts-and-bolts of investing. Rather, I think this year’s lasting lesson is to always stay curious. After all, in a world that seems about as mad as the one Alice tumbled into, things are bound to get curiouser and curiouser!

Q: I heard that the government is going to start sending monthly payments to families with children. Is this really true?

A: Yes, it is true. With the recent passage of the American Rescue Act, Congress instructed the IRS to begin sending “advanced” child tax credits every month to qualifying parents. Similar to the three stimulus payments, most families with children will begin seeing automatic direct deposits into their checkbooks.

In the past, parents had to wait until they filed their taxes to claim their child tax credits. Starting in late July, they will now get this money in advance for the six months of 2021. The other half of the child tax credit will arrive in the normal way, by claiming the benefit on their tax return. If parents prefer to receive all of their child tax credits in one fell swoop at tax time, they will be able to opt-out of these monthly payments.

The American Rescue Act’s new child tax credit for 2021 was increased by $1,000 per child, moving up from $2,000 to $3,000 per child between the ages of 6 and 17 ($250 per month.) For children under the age of 6, the tax credit was boosted by $1,600 to a new level of $3,600 per year ($300 per month.)

These new monthly payments will feel significant for many households. For example, a qualifying family with three children will begin to receive $750 to $900 per month.

These enhanced child tax credits only go to those who earn under certain income thresholds. Married couples with adjusted gross income of less than $150,000 ($75,000 for single parents) will now get these enhanced amounts. The regular, lower child tax credit amount of $2,000 per child will still go to married couples with adjusted gross income of less than $400,000 ($200,000 for single parents.) The enhanced and regular child tax credit are subject to phaseouts above these income levels.

Importantly, the new child tax credit for 2021 was also made “fully refundable.” This means qualifying parents – and over 90% of parents qualify – will now get a tax credit for the full amount, even if they don’t pay any federal income taxes. Prior to the new law, the tax credit was reduced to $1,400 per child for non-taxpayers. Ironically, those most in need received $600 less per child because they didn’t earn enough.

According to some analyses, the switch to the enhanced, and now fully refundable, child tax credit will lift around four million children above the poverty line. An estimated six million additional children will be lifted closer to the poverty line. This equates to about one in seven children in the US.

The changes to the child tax credit only apply to tax year 2021. Without new legislation, most families with children will cease receiving these monthly payments starting in January 2022. With the looming kick-off of the midterm election cycle, we’ll be hearing a lot more about this issue.

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

The obsession with Bitcoin is bonkers. But, a ten-fold return in only a year’s time has a way of grabbing attention.

Back in 2009, Bitcoin was invented by a still-unidentified person named Satoshi Nakamoto who wrote a short paper describing a new “peer-to-peer electronic cash system.” Mr. Nakamoto simply described an idea, published some basic software and registered a website. He then abruptly handed it over to his fellow enthusiasts and mysteriously stepped back into the shadows. It’s an origin story fit for a superhero.

At its heart, Bitcoin is just a secure, electronic ledger of transactions using a completely made-up and purely digital currency. There are no banks and no middlemen involved. There is simply a collective of non-owner stewards running the system.

Imagine I’m Mr. Nakamoto and I created the first 1,000 Bitcoins out of thin air. And, let’s further imagine I convince you that each of my Bitcoins is worth $0.10. With my new $100 in Bitcoin “wealth”, you kindly agree to sell me ten delicious pizzas. You then quickly turn around and convince your neighbor to accept your 1,000 Bitcoins in exchange for a $110 used bike. And, your neighbor then spends her 1,000 Bitcoins to buy a $120 painting from a local artist.

To make this transaction history official, this very first “block” of Bitcoin transactions needs to get securely recorded somewhere. After all, we need to have a record of the changing ownership of every Bitcoin in existence.

Remember, unlike carrying around traditional bills or coins or gold, Bitcoin is a purely digital thing. In the absence of something tangible to convincingly demonstrate true ownership, the entire system depends on the existence of a trusted ledger. To ensure the Bitcoin ledger’s security and legitimacy, Nakamoto’s moment of genius was arguably his creation of the “blockchain.”

Now, to permanently cement the addition of each new block of Bitcoin transactions to the official ledger – the process of “chaining” one block of transactions to the next block – Nakamoto’s system calls on millions of computers to solve a mathematical puzzle. The fastest computer to solve the puzzle is declared the winner. This winner then gets to officially add the newest block of transactions to the old ledger. The previous version of the ledger is destroyed and the brand new, official ledger is immediately distributed across the globe and is stored on an untold number of independent computers. This process is repeated every ten minutes with each new added block of transactions.

Like mining for gold, in return for their successful effort, the winner is awarded some newly-created Bitcoin. By its very design, a declining number of new Bitcoins will be awarded to the winning “miner” until exactly 21 million of them are in circulation. Supposedly, this limit will be reached in about 100 years.

In the face of newly-printed paper currencies, you can clearly see that promised scarcity is Bitcoin’s primary allure. While unlikely, perhaps Bitcoin will someday supplant the historic role of gold. But, there’s only one major problem, you cannot use Bitcoin to pay your taxes. That’s the ultimate definition of legitimacy. It seems only US dollars will truly satisfy Uncle Sam. Given this, I think I’ll stick with old-fashioned dollars and marvel at Bitcoin’s wild ride!

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

Q: Both last spring, and now again in December, I didn’t receive any “economic impact payments.” It doesn’t make any sense to me. My income in 2020 was way down compared to 2019. Do you have any idea how that could be?

A: Your confusion is completely understandable. You’re absolutely not alone! Let me explain how the stimulus payments actually work.

Congress structured those payments – the one last April/May and the most recent one in December/January – as an “advance” on a tax credit that’s officially applied to your 2020 tax return. But, they wanted to speed up payments to people during the lockdown last spring. And, since they didn’t know what your 2020 income was going to be, Congress simply used 2019 as their “guide.”

It looks like your 2019 tax return disqualified you from receiving the “advanced payments.” The government clearly got the wrong impression about the financial hit you took in 2020. As a result, they didn’t send you those payments in “advance” of your actual 2020 tax filing.

But, don’t worry, the 2020 tax season has now arrived. If your 2020 income was lower than it was in 2019, as you’ve said, you’ll now qualify for the two tax credits of $1,200 (spring) and $600 (winter). When it’s completed, take a close look at your 2020 taxes and see if your tax credits are in there. Better late than never, right?

Q: Is age 70 ½ still an important age when it comes to my annual required minimum distribution (RMD) from my IRA? I turned age 70 ½ last spring, but I didn’t have to take any distributions because of the pandemic. Do I have to take my first RMD in 2021?

A: You are correct that required minimum distributions, known as RMDs, were suspended in 2020. But, you’ve missed a recent change related to the RMD rules.

Back in December of 2019, Congress quietly passed the SECURE Act that changed a number of things to enhance overall retirement readiness. For some reason, this bipartisan bill officially pushed back the age that you are required to start taking distributions (and, therefore, finally paying some tax) from your IRA and other tax-deferred accounts.

Since you were born after June 30, 1949, you don’t actually have to take your first distribution from your IRA until you reach age 72. For those born prior to June 30, 1949, the important milestone remained age 70 ½.

You might wonder, why did they choose such an odd cut-off date of June 30, 1949? Well, that’s officially the last day you could have been born to reach age 70 ½ during the calendar year of 2019.

Side note: There appears to be a movement afoot in Congress to further push out the RMD starting age to 75. If that comes to fruition, it’ll no doubt create some tax and financial planning strategies to consider. Frequent tax law changes and arbitrary complexity certainly breeds job security for paper-pushers, like me!

Idle hands certainly are the Devil’s workshop. If the mob of Reddit day traders who drove GameStop to stupid heights last week are any indication, so too are idle thumbs!

For the uninitiated, here’s the lowdown. Over the span of three short weeks, GameStop inexplicably vaulted from about $20 per share to nearly $500 per share. The stock’s move had nothing to do with GameStop’s actual business, of course. It was driven by individuals who gathered online and supposedly shared the common goal of inflicting pain on evil Wall Street types.

GameStop is a struggling retailer operating in the video game industry that’s increasingly going digital; a trend that’s only been accelerated by Covid. It comes as no surprise that many hedge funds decided to bet against them. In fact, GameStop ultimately became the most heavily shorted stock on Wall Street.

Now, when an investor wants to bet against a stock, they find some shares to temporarily borrow and then immediately sell them into the market. Their plan is to return the borrowed shares by repurchasing them after the stock drops. Short sellers aim to sell high and buy low. Over the past couple years, short sellers literally borrowed every possible share of GameStop.

This massive, one-way bet caught the attention of some contrarian investors. Some wagered that GameStop might be able to pull off a turnaround. A few entertaining ones even went on YouTube to explain their rationale.

If things improved for GameStop, they dreamed of a colossal “short squeeze.” That is, they imagined a rising stock price that would literally crush the short sellers. Further, if only Gamestop investors could hold on tightly enough to their shares, the short sellers would be forced to bid higher and higher for shares to exit their terrible trade.

As the story goes, inspired by the prospects of destroying Wall Streeters, millions of idle, stuck-at-home and new investors – armed with easy-come, easy-go stimulus checks and Robinhood’s trading app – gathered on a social media platform, Reddit, to coordinate the ultimate short squeeze.

To help keep the game going, these new investors have even devised mantras to inspire others to hold tight. They speak of having “diamond hands” with the ability to ride through the volatility of the trade. They even post brokerage account screenshots showing their sometimes massive losses and add pithy reminders to their fellow gamers that you-only-live-once. I imagine it looked so fun!

Lately, though, it appears the Devil has been lurking in the shadows as these gamblers tapped away on their phones. Ironically, their end-game depended on their ability to suppress the deadly sin they most despise in others; personal greed.

Over the past few days, the mob has decided to sell out and is searching in vain for a willing sucker to buy their bloated shares. Naturally, no matter how game-like it all appeared, all that free money started to add up to some real dough. The mob does still view it as real money, right? Are you listening, Fed and Congress?

Here comes yet another $2 trillion in economic relief directly on the heels of last month’s nearly $1 trillion package. For those keeping score, that’ll bring the official tally to roughly $5 trillion spent to combat Covid.

President-elect Biden unveiled an outline of his economic recovery plan last week. With majority control of both the House and the Senate, we should expect semi-swift passage. Here’s a rundown of the major things we can expect to see.

To begin, with $600 payments now just landing in the bank accounts of about 250 million adults and children, it looks like this will be topped off to $2,000 per person. Given the very broad reach of these payments – which will be received by approximately 75% of adults and children – it is probably safe to say the main goal is to encourage consumer spending, rather than helping those most in need.

To address those most in need, Biden’s plan also aims to further enhance unemployment benefits for the current 19 million people who continue to struggle to find ample safe or steady work. Just before Christmas and after many months of intense negotiation, Congress recently agreed to add $1,200 per month to regular state-based unemployment benefits. If Biden’s plan becomes law, we should expect this to increase again to $1,600 per month and push the benefit period out another six months to September.

Biden’s plan also seeks to help those with children. Currently, almost all families receive a $2,000 tax credit for each child under the age of 17. The proposed plan is to increase this to $3,000 per child. Biden has also proposed making these child tax credits fully, rather than partially, “refundable.” That’s just a fancy word that means eligible families would get a check for the full $3,000 per child, even if they actually owed zero federal tax.

Biden also wants to expand the tax credit designed to help defray the high cost of childcare. Families currently receive a tax credit between 20% and 35% of childcare expenses. The current credit can reach as high as $3,000 per child with a family maximum of $6,000. The proposal is to expand the credit to $4,000 per child, subject to a maximum of $8,000 per family. And, unlike the current tax law, he also wants to make these childcare tax credits “refundable”, as well.

Among other proposals, Biden’s goal is to establish a multi-year transition to a national minimum wage of $15 per hour. This proposal would affect workers and businesses in some states more than in others. Additionally, Biden hopes to provide bigger health care premium subsidies for those who use the Affordable Care Act to gain coverage.

Oh, I almost forgot to mention the growing talk of student loan debt relief up to $10,000 per borrower. So, the next time your kids or grandchildren question the impact of their vote, just remind them of the two Georgia run-off elections!

Mark Twain once said, “History doesn’t repeat itself, but it does often rhyme.”

Investor speculation is once again running rampant. Trading activity and the number of new brokerage accounts has spiked in 2020. Options trading among individual investors has jumped and eye-popping IPOs have arrived. Tesla and Bitcoin are signs of something concerning, not to mention the surging market valuations of all things tech-related. This type of investor frenzy doesn’t usually end well.

Under most measures, both the stock and bond markets appear to be significantly overvalued. Fundamental metrics, such as sales, earnings and cash flow almost uniformly point to frothy financial markets. Coldly weighing fundamentals and finances, as opposed to simply chasing market momentum, is what separates investment from speculation. The line is blurry, for sure.

A common explanation of the market’s stunning rebound since March centers on the Federal Reserve and the US Treasury. Since the virus struck, the financial support by these two government bodies totals about $7 trillion and growing. The Fed is buying bonds at an annual pace of about $1.5 trillion and President-Elect Biden describes the latest $1 trillion aid package as just a “down payment.”

About half of the $7 trillion is meant to prop up consumer spending through direct payments to people and businesses. The goal is to fill the income holes left behind by Covid. The other half of that $7 trillion has been used to prop up stocks and bonds by mercilessly driving down interest rates and prodding investors to take on risk. Think of this part as filling asset holes created by Covid. Arguably, it’s not hard to view this part as market manipulation.

The documentary, The Flaw, convincingly argued the underlying cause of the financial and housing crisis of 2008 was a combination of anemic income growth and growing wealth inequality in America. Not surprisingly, the central villain in that story was the Federal Reserve.

As the story was told, for the poor and middle-class who don’t tend to own a lot of investments, the equity in their homes represented their primary path to wealth creation. For the rich who have lots of financial assets, the Fed’s super-low interest rate policy in response to the tech-stock bust drove them to provide toxic mortgages to everyone with a pulse.

The story described a symbiotic relationship where the rich chased after some yield and the poor gained easy access to rising home equity to keep spending beyond their income. It worked beautifully, until the merry-go-round stopped. As if trapped with no other way out, what came next was a doubling down on zero interest rates by the Fed along with deficit spending by Congress.

As I eagerly turn the page of my calendar to 2021, today’s pumping of trillions into the economy has me contemplating the impact on the tomorrows yet to come. I’m hearing history’s rhyme. I sincerely hope this time the Federal Reserve has finally devised a way out of the trap they’ve created for conservative, income-starved investors. In the meantime, I’d suggest you prudently rebalance.

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

Ah, to be Rip Van Winkle! Just imagine if we could have fallen asleep last New Year’s Eve and are only just now stirring awake wondering what we’ve missed. No doubt we’d be vigorously scratching our proverbial long and scraggly beards as we peruse this year’s dark headlines.

Unbeknownst to us as we blissfully snored away to start 2020, an insidious and novel virus had begun to spread inside and outside China. At first, it seemed like a far away risk. Images of hazmat-suited workers spraying disinfectant in the streets seemed benign and, yes, very foreign. A few weeks later, a storm hit our shores like none other.

Relying on all of our American exceptionalism and optimism, it took the stock market until late February to finally stop rising. In a blink of an eye – just one short month later – not only were the stock market’s big gains from 2019 gone, but essentially all of Trump’s sacred stock market boom since late 2016 had vanished.

Luckily for us, slumbering away like Rip Van Winkle, things were about to get very, very troubling.

Recognizing the speed of the financial meltdown in early March, the Federal Reserve took action only it could take. Within two weeks, the Fed cut interest rates back to zero and, for all intents and purposes, pledged to try to backstop financial markets. Putting this into perspective, it took the Fed six years to buy $4 trillion in financial assets after the Great Financial Crisis. In just eight weeks during this current crisis, the Fed added yet another $3 trillion to the mix. Perhaps more importantly, they promised investors unlimited support for as long as it would take.

Within days, Congress joined the fight and authorized its own $3 trillion of financial aid to both individuals and businesses. Unemployment benefits were boosted dramatically for the tens of millions of workers who were instantly out of work. Direct payments were also sent to nearly every household. About one in ten mortgages and nearly every student loan was given a repayment holiday. Last but not least, about six million businesses were given free government money to keep paying the workers they chose to keep around.

Despite the shutdown’s initial success in bending the curve, the virus once again spread over the summer months and experts were sounding the alarm about the colder seasons to come. In the face of these threats, Congress let its financial aid programs end in August. One logically could have assumed that this level of inaction – both in mitigating the virus and buffering the economy – would have stirred the financial markets awake to the ongoing risks that were apparent late in the summer.

Well, today, with our eyes now finally opening, we find ourselves in a truly peculiar world. It’s been quite a year to be wide awake the whole time. If only we had peacefully slept our way through it all. Ah, to be Rip Van Winkle!

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

The news over the last few weeks has been remarkable in its positivity. No, I’m not referring to the alarming surge in positivity rates in our nation, our state and our community. Nor am I referring to the need to positively stay home and stay safe when it’s at all possible. And, I’m certainly not talking about the positively dark period just ahead of us as this unrelenting virus spreads and we are stretched to new limits.

Instead, I’m talking about the positive vaccine developments.

The vaccine news from Pfizer and Moderna is a game changer. After giving their vaccine to tens of thousands of volunteers, about 95% of the first batch of positive COVID-19 infections happened in people who were only given the placebo. These two vaccines appear to provide protection far better than hoped. It’s important to remember this was never a slam dunk. It could have taken years.

I’m optimistic that we’re actually starting to turn the long, long corner of this crisis. What exactly does this mean for the economy and the financial markets? It all depends on the timing of the vaccine and the actions of our politicians in Washington and Lansing.

Until we achieve mass vaccination, parts of the economy will continue to be heavily weighed down. As we’re experiencing right now, public health restrictions will continue to affect the obvious set of businesses that rely on people gathering together.

Since mass vaccination likely won’t happen until well into 2021, more financial help is needed immediately, especially for these employees and these small business owners. Congress needs to deliver a financial bridge that should have been built many months ago. And, our politicians in Lansing need to start speaking with one voice to ensure public health compliance to get through this difficult period. I am hopeful that their childish, political squabbling will be silenced as we experience our biggest wave of infections, hospitalizations and death.

Naturally, what’s next for the direction of financial markets is far less clear. The main culprit for this lack of clarity is in how markets actually work.

Financial markets are real-time “anticipation machines.” In this sense, both good news and bad news is immediately pulled forward and instantly reflected in today’s prices. Since the crisis hit, the virus has produced violent waves of bad news and good news. Uncertainty and market volatility are identical twins.

Financial markets are also real-time “comparison machines.” The central question that’s answered on a daily basis is whether one investment is more attractive than another. On this front, the Federal Reserve has totally gummed up the machine. With yields on bonds and cash downright paltry, it makes many stocks look relatively attractive, even at today’s all-time highs.

This all presents a serious conundrum, both for investors and for our economy. A vaccine is coming and our hospitals are almost full. The political season is over and real leadership is now required. Congress and Lansing, are you listening? The message the virus is sending is loud and clear.

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 a bygone era, risk and reward were inexorably linked. Managing an investment portfolio was like turning a series of dials on a dashboard. Today, not so much.

Investors have choices ranging from risk-free to downright speculative investments. These old trade offs, when guided by prudence, were governed by clear-eyed calculus. Cash offered the lowest return and the greatest peace of mind. Stocks offered a chance for higher returns, given enough research, time and guts. And, in between these poles, sat other investment options like bonds of varying maturities and quality. With each step investors took along the path of risk, the deal was clear; higher risk, higher returns. It was all so quaint.

The Federal Reserve now has its heavy fingers gripped to the master dial used to calibrate the sensitivity of every other dial on the financial market’s dashboard. Their master dial is both simple and powerful. It sets short-term interest rates and it changes investor behavior.

Today, cash pays nothing. US Treasury bills pay next to nothing. High-quality bonds offer paltry returns. Even junk bonds issued by financially-weaker companies offer historically slim yields. And, with so many of the dials on the dashboard unresponsive, investors have driven up stock prices to levels that befuddle the green eyeshade types. These are the number crunchers who still care about fundamentals and still believe in the relationship between price and value!

In all fairness, the Fed has been fiddling with the master dial for some time now. Remember when they set interest rates so low, and for so long, that bankers had no choice but to fuel a real estate bubble? The Fed finally woke up to that reality and pulled away the punch bowl. Then, they wildly spun the master dial in reverse to deal with the aftermath. Incredibly, interest rates were pinned to zero for a decade. When even zero rates didn’t work as hoped, they just printed trillions of dollars to tweak the sensitivities of the other dials on the dashboard.

Well, what the Fed has done since March has made their past efforts look restrained. What took them years back then, only took a matter of weeks this time. With one mighty blow, interest rates have hit the floor and are unblinking. Trillions of dollars have been printed to push up asset prices, and drive down yields, everywhere. And, the Fed has credibly promised to starve risk-conscious investors for many years to come. For added impact, politicians have joined the effort. It’s basically free money, after all.

Let me be clear. The Fed, and the bankers they ultimately work for, understand the present situation. Our finance-fueled economy depends mightily on high asset prices. When prices decline, the Fed’s fingers twitch. They seem to have concluded our free-market system cannot be left up to investors alone. Their fingers are twisting every dial now, whether we like it or not. To make matters even worse, I’m starting to feel like my once-stylish green eyeshade is dating me.

As is my habit, I wake in the very early hours on Friday morning to write this column. I routinely start with a blank screen, but rarely a blank mind. The “kernel” of the column is almost always decided and I begin to write. On this crisp morning, however, my screen started out blank and my original topic was promptly discarded. A new one arrived courtesy of Twitter, “Tonight, @FLOTUS and I tested positive for COVID-19.”

Every four years in October, focus inevitably turns to the race for the White House. Having managed money now through five other presidential elections over my career, clients often ask me to opine on the election’s outcome and its possible effects on the financial markets.

While I do my best to answer, admittedly my heart is never really into it. My relative disinterest reminds me of Warren Buffett’s quip that his brain has three boxes, “In”, “Out” and “Too Hard!” For me, elections land in the too hard pile. However, while this election is way too hard – on too many levels – it has my attention.

I’m a numbers guy and I’ve looked at the polling and have played with the electoral map. As things stand today, it is my belief that Trump will lose this election and perhaps in a landslide. This election is, in my view, a clear referendum on Trump. Things have not been looking good for him.

The number of pathways to a Trump victory is small. First, he must win Florida and Ohio. Neither is certain and both are critical. He also needs to avoid an upset in Texas, Georgia, North Carolina or Iowa. While he could theoretically withstand an Iowa defeat, it would likely point to bad outcomes elsewhere on the map. People in Iowa aren’t all that different from other people in the Midwest.

Now, if he gets through that gauntlet of six states, I think he has three possible roads to victory. One goes through Arizona, one through Pennsylvania and one through Michigan.

With Arizona, Trump can win it with either Michigan or Pennsylvania. If he loses Arizona, but happens to eke out a victory in Pennsylvania, he can win by adding either Michigan or Wisconsin. And, if he doesn’t win in either Arizona or Pennsylvania, but is able to pull off another slim victory in Michigan, he needs to also win Wisconsin. To be clear, across all three pathways, his margin of victory is small and his margin for error is tiny.

This is 2020, after all, so I must add that there are a couple of possible scenarios that end in a tie. The verdict is then left up to the newly-elected House; not by majority vote of the representatives, but by simply tallying one vote for each state’s delegation.

Do you know which party currently has a one-state majority in the House, but a clear minority of the House seats? And, what if this election cycle creates a deadlocked House vote? Say hello to President Pelosi. Things can always get crazier!

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

The concept of all things being connected is on my mind. Every glance I take at the news of the day makes it obvious why. And, every day that brings us closer to the colder months makes it more consequential.

In the narrow world of financial markets, the concept of connectedness is clear.

When the Federal Reserve makes cash trash, the flow of investment dollars moves elsewhere. As if moving outward in concentric circles, money moves out the risk spectrum in search of better returns.

After this drives up the price of one investment type after another – inevitably squeezing future returns down – the search moves into even riskier areas. The difficulty lies not in determining the final destination of this journey, but in the timing of the end game. It always ends, of course.

As Chuck Prince, ex-CEO of Citigroup, said just before the mortgage mess exploded, “As long as the music is playing, you’ve got to get up and dance.” Similarly, Warren Buffett wisely wrote just before the tech-bubble popped, “[People] hate to miss a single minute of what is one helluva party. They are dancing in a room in which the clocks have no hands.”

In the broader, real world, the concept of connectedness is equally clear.

As we move into the fall months and move indoors, the virus begins to gain a major advantage. Our next moves will matter.

After six months of sacrifice, the next test of our collective commitment to stop the spread is approaching. I’m afraid we’re in the process of failing.

In Grand Traverse County, our average positive test rate for Covid-19 moved from a summer low of around 1% in early August to over 5% in early September. Epidemiologists want positivity rates below 3%. We have seen about 225 positive cases in Grand Traverse County over the past month. That was with only half of the recommended number of tests given. So, you should probably double it.

With almost all of our area’s schools resuming face-to-face instruction, my focus on our area’s connectedness is heightened. The safety of our 20,000+ kids and our 2,000+ school employees is intimately linked to the safety of our entire community, including our area’s businesses and the livelihoods of thousands of their employees.

The virus thrives on our connectedness. The resumption of typical face-to-face schooling fails the safety test for our community on nearly every level. The daily process of crowding thousands of kids and adults indoors, combined with inadequate testing and a palpable sense of virus fatigue, is a perfect recipe for accelerated spread.

The sad irony is that our desperation to hear the music and ignore the clock on the wall is the very thing that will hold back our return toward normalcy. Remember, we’re all in this together, right?

“We survive here in dependence on others. Whether we like it or not, there is hardly a moment of our lives when we do not benefit from others’ activities.” – Dalai Lama

Since the start of the year, Apple’s share price has vaulted over 70%. Amazon’s has jumped more than 80%. Both Facebook and Microsoft are up over 40%. And, Google’s stock price is up over 20%. Remarkably, this super-charged performance is happening in the midst of a pandemic.

As things stand now, the top 10 largest companies in the much-watched S&P 500 make up just under 30% of the total market value of the index. This level of concentration in the stock market now sits at a modern day record. It deserves investors’ attention and some level of caution.

For the uninitiated, the S&P 500 is simply a published list of the 500 largest publicly traded companies in the US. It was created to represent a fair sampling of the overall stock market. The S&P 500 is the most popular index around and it captures about 80% of the total market value of all US stocks. Literally tens of trillions of dollars are passively invested to just match the returns of the S&P 500 index.

When you buy the entire S&P 500 in your portfolio, it’s important to note that you don’t actually get 500 equally-weighted stocks. In fact, the 500th stock on the list is far, far less important than the 1st stock listed. Rather, it’s a market value-weighted index with the top stock, Apple, representing over 6% and the last stock on the long list makes up just a tiny sliver of your holdings.

Over recent decades, the top 10 largest companies in the S&P 500 represented around 20% of the total market value. Today, the top stocks are pulling ahead like never before. As a result of this imbalance, today’s level of stock market concentration exceeds the tech-bubble era of the late ‘90s.

The froth we’re all seeing in today’s stock market is baffling to many professionals. Politicians have distributed trillions of borrowed dollars into household and corporate bank accounts in recent months. At the same time, the Federal Reserve has shoveled trillions in printed money into our financial markets and set interest rates at zero. They’ve even promised markets that they aren’t even thinking about thinking about raising rates anytime soon!

Interest rates have hit rock-bottom and savers are starved for safe income like never before. Money market funds now yield next-to-nothing, CD rates are downright tiny and high-quality, short-term bonds yield less than inflation. The search for a reasonable, low risk return feels futile.

Investors and speculators have responded by purchasing the safest, largest stocks they can find. Among them are massive, cash-rich and debt-free technology companies and a smattering of companies that are currently benefiting from the shifting demands created by this pandemic. At the same time, investors eschew most companies involved in traditional retail, banking, travel and energy, among other sectors. The gap between the haves and have-nots is widening. This troubling trend is happening on both Wall Street and on Main Street.

Things are getting more than a little bit funny. Seriously.

Congress and the White House are in heated negotiations on the nature of the next round of financial support needed for our economy. A deal will soon be struck, of that I am quite certain. What I am growing uncertain about is our lost sense of empathy as a nation. It’s high time we find it.

In a few days, we will reach the end of the second week of zero supplemental unemployment benefits coming from the federal government. As of last week, about 30 million people without work depended on this financial lifeline. For the average unemployed person in Michigan, what’s been left behind is a meager $300 per week. For just a moment, let that figure sink in as you reflect on your own personal budget.

Between my own flurries of frustration and hostile criticisms of our nation’s abject failures to effectively respond to this ongoing crisis, I’ve also tried to acknowledge a sense of gratitude. It’s an internal battle; some won, some lost. I’m sure many of us who still have our jobs and still feel a sense of economic stability have felt similarly. For too many of us, including me, criticism comes much more easily than does empathy.

As we watch the negotiations in Washington unfold, let me summarize the main sticking point of unemployment benefits through the lens of empathy.

Republicans have proposed cutting the special federal unemployment benefits from $600 per week and replacing it with a lower benefit of just $200 per week. Democrats want to keep the higher benefit in place for the next five months. The difference roughly equates to a mortgage or rent payment for tens of millions of households. Note that already one in 12 households with a mortgage are in forbearance programs.

Republicans’ primary criticism of the now-expired benefit is the majority of jobless workers were collecting more from unemployment than they earned in their former jobs. Many Republicans have adopted the view that this encourages people not to work. Their underlying assumption is that the millions who have experienced the misfortune of losing their job during a global pandemic are inherently lazy.

My personal reminder of the importance of empathy – the act of understanding the experiences of another person – recently came to me through an essay written back in 2017 by former CBS anchorman Dan Rather. His recollections of his Depression-era upbringing offers a stark contrast to the situation we find ourselves in today. The following passage highlights a viewpoint that I think we could all benefit from, especially those of us who, today, can be counted among the fortunate.

“There was no judgment or disdain on the part of those offering assistance. No one wondered why those neighbors weren’t working, and no one passed moral judgments on their inability to fend for themselves. We understood that in life, some are dealt aces, some tens, and some deuces…We understood that those who were suffering weren’t lazy or lacking the desire to do better. Fate had the potential to slap any of us.”

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

Here we go again! Congress is back in session and crafting yet another pandemic financial aid bill. The negotiations, by all indications, will be brutal as the fate of the finances of millions of households, businesses, schools, cities and states hang on every twist and turn.

Based on the early reports, I would characterize the pending legislation as likely to be undersized for the economic challenges we still face. That may surprise some readers. It really shouldn’t.

While the trillions already allocated is truly staggering, it’s arguable that our dismal failure to contain the virus was largely wasted. The earlier shutdown was designed to buy us time to squash the first wave and to build our contact tracing capacity to manage later outbreaks. Our failure is the cost of poor leadership and our poisoned politics.

Taking center stage in the current negotiations is how to deal with the extra $600 weekly benefit provided through the Federal Pandemic Unemployment Compensation (FPUC) program. This economic lifeline for about 30 million people is set to expire in just a few days. The deadline has been known for many months, of course.

This generous benefit has been highly controversial. Some believe it has created a perverse incentive for people to remain unemployed, rather than work. As infections rise to fresh records, it’s an open question if employers are ready to fill the void. Republicans and Democrats would answer the question quite differently.

Another contentious proposal that’s being openly debated is to provide a temporary payroll tax holiday for every employee and employer. It may quickly find itself on the cutting room floor, but the White House is lobbying hard for it. However, even Republicans are wary of this idea as it is a very untargeted approach. It’ll be interesting to watch, especially with an election that’s only 104 days away. Getting a government-provided raise just before mail-in ballots arrive has a nice ring to it.

Speaking of government payments, a real consensus is forming quickly around providing another round of economic impact payments directly to households. From the looks of it, the eligibility for this round of checks and direct deposits may be narrower as millions of households received money they didn’t need.

Finally, in the face of severe budget shortfalls with far-reaching implications, one can hope the normal political lines will be wiped away as Congress considers providing more financial aid to schools, cities and states. If too little financial aid is granted, it will be a real reminder of how our national politics can have tangible downstream impacts on our own local public institutions.

Back in late May, at the height of the economy’s re-opening euphoria, majority leader Mitch McConnell over-confidently declared that the next coronavirus bill will be the “last.” If Congress opts to undersize this next bill – as I suspect they might – I’m afraid I’ll be forced to begin a future column with the same exasperated words, Here We Go Again!