Day: February 25, 2020

The Libra Association Gets a New Member in Shopify

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The Libra Association has signed up Canadian e-commerce platform Shopify as its newest member as the troubled crypto project looks to get back on track.

Libra has lost several founding members in recent months for a variety of reasons, the most prominent of which was the massive amount of scrutiny leveled at the project. The association was originally made up of 27 founding members; however, several early backers such as Visa (NYSE:V), PayPal (NASDAQ:PYPL), and Mastercard (NYSE:MA) all jumped ship before the founding charter was signed, leaving just 21 members.

Vodafone was the most recent firm to quit The Libra Association, although for a different reason. The British telecom giant said it intends to dedicate resources previously allocated for the project to its own well-established digital payment service M-Pesa, which it plans to expand beyond the six African nations currently served.

In a rare piece of good news for Libra, Shopify said it is linking up with the venture to “work collectively to build a payment network that makes money easier to access and supports merchants and consumers everywhere.” The e-commerce platform has around 1 million businesses from 175 countries on its books and will join other Libra Association members in contributing at least US$10 million and operating a node that processes transactions for Libra, and will also leverage its expertise in managing payment networks.

>> Whale Transfers 31.30 Million Ripple (XRP) to Bitstamp

Following the news that Shopify would join the Libra Association, Libra’s head of policy and communications Dante Disparte said the group was “proud” to welcome its newest member and talked up the troubled initiative. “Shopify joins an active group of Libra Association members committed to achieving a safe, transparent, and consumer-friendly implementation of a global payment system that breaks down financial barriers for billions of people,” Disparte said.

Libra is slated to launch in June of this year despite the huge amount of pushback against the project.

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Personal Finance Daily: How 2020 candidates would tackle disease outbreaks like coronavirus, and outstanding auto-loan balances just hit a new record and delinquencies are on the rise — should you be concerned?

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Happy Tuesday, MarketWatchers. Don’t miss these top stories:

Personal Finance
‘I’m apprehensive about where I stand.’ My husband of 5 years inherited his parents’ Californian home and didn’t put my name on the deed — what should I do?

‘I understand an inheritance is not community property unless you make it so. If the shoe were on the other foot, I would have added his name to the deed.’

Outstanding auto-loan balances just hit a new record and delinquencies are on the rise — should you be concerned?

Nearly $66 billion of the $1.33 trillion in outstanding auto loans were over 90 days delinquent in the fourth quarter of 2019, up from $57 billion for the same period last year.

‘My husband’s ex-mistress is ruining our life.’ She claims she gave birth to his child and is extorting us for money

‘After he signed a waiver, I removed my husband as beneficiary from my retirement accounts, and he took his name off our joint checking and savings accounts.’

The Affordable Care Act is more popular now than when Obama was president

Yet partisanship has not subsided when it comes to overall views of the law, studies suggest.

‘I’m worried that my daughter would blow through her inheritance.’ My family has a trust fund worth $6 million. Should I keep this money a secret from my kids?

‘My children had a lot of difficulty growing up and their father enabled a lot of behavior by giving them money well into their adulthood.’

My husband watches TV all day while I cook and clean. He has a monthly income of $8K and a P.O. box to hide his finances. I found his will — and it left me reeling

‘He never leaves his wallet on the table.’

How 2020 candidates would tackle disease outbreaks like coronavirus

Sens. Elizabeth Warren and Amy Klobuchar and former Vice President Joe Biden have outlined how they would address outbreaks like COVID-19.

‘They’re looking at where you live.’ If you’re wealthy and haven’t filed your taxes, the IRS could soon be ringing your doorbell

IRS audits have been sliding for years as the federal tax collector’s staffing has been reduced.

This diet will help reduce your risk of heart disease, scientists say

Researchers evaluated the coronary health of 760 women over a decade to figure out how what we eat affects our heart health.

Morgan Stanley is paying $2,500 per customer for E-Trade. You can earn a $3,500 sign-up bonus for signing with a new broker — with one big catch

‘Moving a balance to a new brokerage can net you a nice reward.’

Elsewhere on MarketWatch
Tonight’s Democratic debate likely to feature attacks on both big spender Mike Bloomberg and front-runner Bernie Sanders

Analysts say moderate contenders can’t let Bloomberg off the hook, while Sanders “will have a target on his back” because of his bigger-than-expected win over the weekend in Nevada’s caucuses.

Why is humanity so reluctant to save itself from climate change?

The biggest challenge in saving the planet from climate change isn’t technical, it’s political.

Trump says Ginsburg and Sotomayor should recuse themselves from cases involving the president

President Donald Trump on Tuesday called on two Supreme Court justices to recuse themselves from cases involving him, saying comments they have made are “inappropriate.”

Fed’s Clarida says ‘still too soon to even speculate’ about impact of coronavirus

Federal Reserve Vice Chairman Richard Clarida said it was ‘still too soon to even speculate’ about whether effects of coronavirus will lead central bank to cut interest rates

Watch CNN’s Jim Acosta tangle with President Trump over who lies more

CNN’s chief White House correspondent asked the president in New Delhi, India if he would pledge to reject foreign interference in the 2020 election. But, as one might expect, it quickly turned nasty.

Deep Dive: These U.S. stocks are falling the most Tuesday as the market slides for the fourth straight day

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Early gains for the broad U.S. stock indexes were reversed Tuesday, as investors grew more concerned about the spread of the COVID-19 virus outside of China. The indexes have now fallen for four trading days in a row.

The Dow Jones Industrial Average DJIA, -3.09%  was down 679 points (or 2.4%), while the S&P 500 Index SPX, -2.99%  was also down 2.4%. The Nasdaq Composite Index COMP, -2.65%  was down 2.2%. All prices were as of 2 p.m. ET.

Read: Prepare now for the post-coronavirus bond market, this investor says

As bonds rose, the yield on 10-year U.S. Treasury notes TMUBMUSD10Y, -4.24%  dropped to 1.32%.

An official at the Centers for Disease Control and Prevention (CDC) warned the American public to prepare for “the possibility that their lives will be disrupted,” while referring to the virus as a “pandemic.”

MarketWatch’s Howard Gold described the market selloff, despite the tragic circumstances, as a buying opportunity for investors.

Dow 30

At 2 p.m. ET, all but two of the 30 components of the Dow Jones Industrial Average were down for the day:

Company Ticker Price change – Feb. 25, 2020 Price change – 2020 Decline from 52-week high Price change – 2019
American Express Co. AXP, -5.66% -5.3% -2.4% -12.1% 30.6%
Visa Inc. Class A V, -5.17% -4.4% 1.1% -11.3% 42.4%
Dow Inc. DOW, -5.47% -4.2% -19.0% -26.8% #N/A
United Technologies Corp. UTX, -4.97% -4.1% -6.1% -11.2% 40.6%
UnitedHealth Group Inc. UNH, -5.02% -4.0% -9.3% -13.0% 18.0%
Boeing Co. BA, -4.15% -3.7% -6.0% -31.4% 1.0%
Cisco Systems Inc. CSCO, -3.49% -3.6% -11.6% -27.2% 10.7%
J.P. Morgan Chase & Co. JPM, -4.34% -3.4% -8.4% -9.5% 42.8%
Chevron Corp. CVX, -4.20% -3.3% -16.0% -20.5% 10.8%
3M Co. MMM, -3.92% -3.2% -16.3% -32.8% -7.4%
Exxon Mobil Corp. XOM, -3.99% -3.0% -21.7% -34.5% 2.3%
Walt Disney Co. DIS, -3.49% -2.9% -10.7% -15.9% 31.9%
Intel Corp. INTC, -3.45% -2.8% 0.3% -13.4% 27.5%
Walgreens Boots Alliance Inc. WBA, -3.32% -2.7% -19.1% -33.7% -13.7%
International Business Machines Corp. IBM, -3.09% -2.6% 6.4% -10.2% 17.9%
Goldman Sachs Group Inc. GS, -3.10% -2.6% -4.9% -12.7% 37.6%
Nike Inc. Class B NKE, -3.09% -2.3% -7.5% -11.2% 36.6%
Pfizer Inc. PFE, -2.25% -1.9% -13.2% -23.7% -10.2%
Caterpillar Inc. CAT, -2.44% -1.9% -12.2% -13.9% 16.2%
Apple Inc. AAPL, -3.16% -1.9% -0.4% -10.8% 86.2%
Travelers Companies Inc. TRV, -2.22% -1.5% -3.6% -14.8% 14.4%
Walmart Inc. WMT, -1.65% -1.1% -3.2% -8.2% 27.6%
Merck & Co. Inc. MRK, -1.38% -0.9% -11.4% -13.0% 19.0%
Procter & Gamble Co. PG, -1.71% -0.9% -2.2% -4.6% 35.9%
Microsoft Corp. MSFT, -1.33% -0.8% 7.5% -11.1% 55.3%
Coca-Cola Co. KO, -1.48% -0.6% 5.3% -3.0% 16.9%
Verizon Communications Inc. VZ, -1.66% -0.6% -6.1% -7.4% 9.2%
Johnson & Johnson JNJ, -1.04% -0.6% -0.5% -6.1% 13.0%
McDonald’s Corp. MCD, -0.74% 0.0% 8.1% -3.8% 11.3%
Home Depot Inc. HD, -0.77% 0.1% 9.9% -3.0% 27.1%
Source: FactSet

You can click on the tickers for more about each company.

S&P 500

Among the S&P 500, 481 stocks were down, with these 10 showing the greatest declines:

Company Ticker Price change – Feb. 25, 2020 Price change – 2020 Decline from 52-week high Price change – 2019
American Airlines Group Inc. AAL, -8.45% -8.4% -18.7% -36.5% -10.7%
Cimarex Energy Co. XEC, -7.64% -7.8% -30.8% -51.9% -14.9%
Occidental Petroleum Corp. OXY, -8.46% -6.9% -10.8% -46.6% -32.9%
Noble Energy Inc. NBL, -7.62% -6.6% -38.1% -45.8% 32.4%
Devon Energy Corp. DV, +1.54% -6.5% -31.0% -49.3% 15.2%
Norwegian Cruise Line Holdings Ltd. NCLH, -7.29% -6.4% -31.7% -33.3% 37.8%
Raytheon Company RTN, -5.53% -6.3% -7.9% -13.3% 43.3%
United Airlines Holdings Inc. UAL, -6.04% -6.2% -19.6% -26.3% 5.2%
ViacomCBS Inc. Class B VIA, -10.48% -6.2% -39.8% -52.9% -4.0%
Southwest Airlines Co. LUV, -7.13% -6.2% -5.9% -13.7% 16.1%
Source: FactSet

Here are the 10 components of the Nasdaq-100 Index NDX, -2.59%  with the biggest declines:

Company Ticker Price change – Feb. 25, 2020 Price change – 2020 Decline from 52-week high Price change – 2019
American Airlines Group Inc. AAL, -8.45% -8.4% -18.7% -36.5% -10.7%
United Airlines Holdings Inc. UAL, -6.04% -6.2% -19.6% -26.3% 5.2%
Western Digital Corp. WDC, -6.42% -6.1% -6.0% -17.1% 71.7%
Marriott International Inc. Class A MAR, -6.97% -5.8% -16.1% -17.2% 39.5%
Micron Technology Inc. MU, -5.36% -5.3% -3.2% -14.9% 69.5%
PayPal Holdings Inc. PYPL, -5.03% -4.5% 2.8% -10.7% 28.6%
Nvidia Corp. NVDA, -4.40% -4.2% 11.2% -17.3% 76.3%
Check Point Software Technologies Ltd. CHKP, -3.73% -4.2% -3.6% -19.4% 8.1%
Tesla Inc. TSLA, -4.33% -4.1% 91.2% -17.4% 25.7%
Gilead Sciences Inc. GILD, -4.02% -4.0% 7.7% -6.1% 3.9%
Source: FactSet

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Whale Transfers 31.30 Million Ripple (XRP) to Bitstamp

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Over the past year or so, the fintech firm Ripple has come under fire from the XRP community for selling large amounts of the cryptocurrency token. The company holds the highest number of XRP tokens, meaning significant sales at regular intervals have affected the price of the cryptocurrency considerably.

In a new development, it has emerged that more than 31 million XRP tokens were sent from an unknown wallet to the Bitsamp exchange. The transaction was announced by a reliable Twitter account named Whale Alert, which tracks big transactions in the crypto space.

Key Impact

Now, it is being speculated that the latest movement of XRP tokens could also be a case of Ripple selling more of its holding to exchanges. Last year, there had been widespread dissent against the company for the heavy selling of the XRP token. Eventually, CEO Brad Garlinghouse had to state that the sales were aimed at expanding the use of the token.

The behavior from the company eventually saw some prominent members of the XRP community threatening that they would go for a fork if it continued. Reports suggest that the unknown wallet had received as many as 463,420,929.99 XRP tokens from Ripple last month.

>> Over $650K Worth of  Tezos Moved to Binance: What to Do Now?

It’s not a surprise that there is speculation that Ripple has possibly started selling XRP in bulk yet again. Additionally, there has also been talk about a possible initial public offering from the company, and according to Allen Scott of Cointelegraph, such a move could prove to be a problem for XRP. He stated that an IPO could actually make it difficult for XRP to exist as a cryptocurrency altogether.

However, it should be noted that Brad Garlinghouse clarified later that his comment about more blockchain companies having IPOs was a bit of theorizing and has nothing to do with a possible IPO from Ripple.

Featured image: DepositPhotos © akulamatiau

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Outside the Box: This is the best way to achieve long-term growth in your stock investments

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“Ultimate” isn’t a term to toss around lightly. But in this case it fits. I believe the investment portfolio I’m about to describe is the absolute best way for most investors to achieve long-term growth in the stock markets — and I’ve believed that since the 1990s.

My view is based on the best academic research I know of as well as my own experience working with thousands of investors over the past half century. I’ve been recommending this combination for more than 20 years, and it is the basis of the majority of my own investments.

I’ve got loads of evidence to back up my confidence. The strategy itself isn’t new, and as I do every year, I am updating the results to reflect one more year of data.

In a nutshell, the “ultimate” portfolio starts with the S&P 500 Index SPX, -1.83%, then adds small and equal portions of nine other carefully selected U.S. and international asset classes, each one of which is an excellent long-term diversification vehicle.

The result is a low-cost equity portfolio with massive diversification that will take advantage of market opportunities wherever they are, and at about the same risk as that of the S&P 500.

I like to roll this out in steps rather than all at once, so you can see how it goes together. Here’s a table that might make it easier to follow along.

The base “ingredient” in this portfolio is the S&P 500 Index, which is a pretty decent investment all by itself. For the past 50 calendar years, from 1970 through 20119, the S&P 500 compounded at 10.6%. An initial investment of $100,000 would have grown to nearly $15.4 million.

For the sake of our discussion, think of the S&P 500 index as Portfolio 1. It’s not bad, and you could do much worse. But you can do a whole lot better, too.

An enormous payoff from a small change

You take the first small step by adding large-cap value stocks, ones that are regarded as relatively underpriced (hence the term value).

(The links above, and others below, are to specific articles from 2015 that focus on each asset class.)

By moving only 10% of the portfolio from the S&P 500 into large-cap value stocks (thus leaving the other 90% in the S&P 500), you create what I call Portfolio 2.

Although only 10% of the portfolio has changed, the 50-year return improves enough to be worth noticing. Assuming annual rebalancing (an assumption that applies throughout this discussion), the 10.8% compound return of Portfolio 2 was enough to turn $100,000 into $16.9 million.

In dollars, this simple step adds more than 15 times your entire original investment of $100,000 — the result of changing only one-tenth of the portfolio. If that isn’t enough to get your attention, I don’t know what would it would take.

In the next step we build Portfolio 3 by putting another 10% into U.S. small-cap blend stocks, decreasing the weight of the S&P 500 to 80%. Small-cap stocks, both in the U.S. and internationally, have a long history of higher returns than the stocks of larger companies.

This change boosts the 50-year compound return of the portfolio to 11%; an initial $100,000 investment would have grown to nearly $18.1 million — an increase of $2.7 million from Portfolio 1.

Taking still another small step, we add 10% in U.S. small-cap value stocks, reducing the weight of the S&P 500 to 70%.

Small-cap value stocks historically have been the most productive of all major U.S. asset classes, and they boost the compound return of Portfolio 4 to 11.3%, enough to turn that initial $100,000 investment into $21.6 million.

With more than two-thirds of the portfolio still in the S&P 500, that seems like a marvelous result.

In the next step, creating Portfolio 5, we invest another 10% of the portfolio in U.S. REITs funds. Result: a compound return of 11.4% and an ending portfolio value of $22.3 million.

Let’s pause for a moment to recap.

• First, Portfolio 5’s increase in compound return over Portfolio 4 was small, but over 50 years that tiny step produced an additional $708,000. This is a lesson I hope you won’t ever forget: Small differences in return, given enough time, can add up to big differences in dollars.

• Second, Portfolio 5, with its substantially higher return, had essentially the same risk level as the S&P 500 Index. Higher returns, without adding risk, has to be a winning combination.

You could stop here

Some investors may wish to stop here and not invest in international stocks. If that’s the limit of your comfort level, that’s fine. The combination of asset classes in Portfolio 5 is excellent, and I expect it will do well in the future.

But I believe any portfolio worth being described as “ultimate” must venture beyond the U.S. borders. And the rewards have definitely been there.

Accordingly, in building the ultimate equity portfolio I add four important international asset classes: international large-cap blend stocks, international large-cap value stocks, international small-cap blend stocks and international small-cap value stocks.

Giving each of these a 10% weight reduces the influence of the S&P 500 to 20%. If that sounds frightening, think about this: Over 50 years, the changes I just described (Portfolio 6) increased the compound return to 12%, and the portfolio value to $29.4 million.

That is an increase of 91% over the S&P 500 by itself. And Portfolio 6 produced that result with only a slight increase in statistical risk.

The final step, which results in Portfolio 7, is to add 10% in emerging markets stocks, representing countries with expanding economies and prospects for rapid growth. While this asset class has been a laggard lately, in eight of the most recent 20 calendar years, it was either the top-performing equity asset class or No. 2.

This additional slice of emerging markets stocks boosts the compound return to 12.6% and brings the final portfolio value to a whopping $37 million — nearly 2.5 times that of the S&P 500 alone.

That’s the Ultimate Buy and Hold Portfolio, which over nearly half a century obviously stood the test of time very well.

As you will see, Table 1 includes another column, labeled Portfolio 8. This is my suggested All-Value Portfolio, which includes only five asset classes instead of the 10 in Portfolio 7. Portfolio 8 starts with Portfolio 7, then eliminates REITs and the blend asset classes. The 50-year performance of Portfolio 8 is slightly less than that of Portfolio 7, but still stunning at 12.6% in compound return and a final value of just under $37.1 million. Portfolios 7 and 8 are among the results of my long-standing commitment to find higher expected rates of return with little or no additional risk.

Investors who build either of these portfolios using low-cost index funds or ETFs don’t have to rely on anybody’s ability to choose stocks. Nor must they make economic or market predictions.

Obviously, all these performance statistics are based on the past. Will we see returns like these in the future? Nobody knows.

However, every academic I’m familiar with expects that, over the long term, stocks will continue to outperform bonds, small-cap stocks will continue to outperform large-cap stocks, and value stocks will continue to outperform growth stocks.

Depending on your need for return and your risk tolerance, Portfolios 7 and 8 are the best ways I know to put those insights to work for you.

It’s easier to describe this strategy than to implement it in real life. You’ll get an excellent start with this article, in which my friend and colleague Chris Pedersen identifies the best-in-class exchange-traded funds for all these building blocks.

There’s much more to say on this whole topic, and I hope you’ll check out my podcast “10 more things you need to know about the Ultimate Buy and Hold Strategy.”

Richard Buck contributed to this article.

The Margin: There’s been a huge spike in the number of seniors smoking pot and taking cannabis edibles

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These seniors don’t fear the reefer.

In fact, the number of Americans ages 65 and up who smoke marijuana or take edibles spiked 75% in just three years, according to a new study published in JAMA this week.

Researchers analyzed the data from just under 15,000 adults in the National Survey on Drug Use and Health, and found that the number of those 65-plus who had smoked or ingested “marijuana, hashish, pot, grass and hash oil” jumped from 2.4% in 2015 to 4.2% in 2018. A decade earlier, just 0.4% of people in this age group copped to using cannabis in any form.

Related: Seniors at this upscale retirement community are really into cannabis-infused products

The new analysis found that the rise in marijuana use was highest among women (up 93%) and racial and ethnic minorities (up 336%) in particular. There was also a significant increase among Americans over 65 who were married (up 100%), college educated (up almost 114%), those who had been treated for mental health issues in the past year (up 157%), as well as those who reported incomes of $20,000 to $49,000 (up almost 139%) and $75,000 or higher (up 129%).

What’s more, a surprising number of diabetics are going to pot, with a 180% relative increase in marijuana use among those with diabetes between 2015 and 2018.

The survey didn’t ask subjects why they used cannabis products, however, so lead author Dr. Benjamin Han, assistant professor of geriatric medicine and palliative care at the NYU Grossman School of Medicine, couldn’t definitely explain why these specific groups of people reported higher rates of marijuana use. In fact, the report notes that these numbers could be even higher, as there is still some stigma around cannabis use despite the fact that 11 states and the District of Columbia have already passed laws legalizing recreational cannabis use, so many subjects could have been hesitant to report their weed habit.

Related: Cannabis experts are hoping 2020 will be the year that New York finally legalizes weed

“Certainly the passing of medical marijuana laws in many states for a variety of qualifying conditions and diseases has played a role, and gotten the attention of older adults who are living with chronic diseases or symptoms that are difficult to treat,” Han told MarketWatch. “Also we have a large baby boomer cohort who has more experience with cannabis compared to generations before them now entering their 60s and 70s.”

Indeed, marijuana delivery platform Eaze has reported that boomers are its “biggest spenders by a fairly wide margin,” dropping more than $95 a month on weed, which is 53% more than Gen Zers ages 21 to 24 years old.

Related: They’re over 60, selling marijuana — and say it’s ‘pretty damn cool’

The new analysis also didn’t ask seniors whether they had conditions like arthritis, Parkinson’s disease or chronic pain. And using cannabis products for pain management is one reason why many seniors might consider trying weed, especially since a 2019 Health Affairs report found that 65% of people who use medical marijuana in the U.S. use it to treat chronic pain. The National Academies of Science, Engineering and Medicine also reported evidence that cannabis and/or cannabinoids could help with conditions like pain, chemotherapy-related nausea and multiple sclerosis-related muscle spasms.

Related: More baby boomers use medical marijuana, but they want their doctors to get wise to the risks and benefits

But Han also cautioned that there is still a lot that we don’t know about the risks of cannabis, especially for older adults with more chronic medical diseases who take more prescribed medications. The report warned that there is an urgent need to better understand the benefits and risks of those 65-plus using marijuana products, especially since there was also an increase in cannabis use among older adults who use alcohol — and binge drinking among Americans over 50 has also been on the rise.

“As a clinician, I worry about how cannabis (depending on the dose of certain cannabinoids, route of administration) may interact with existing chronic disease or medications. I also worry about the psychoactive properties of THC that could predispose older adults to dizziness or falls,” he said. “While cannabis may be beneficial for certain medical conditions, we need well-done clinical trials to better understand the benefits and the risks for older adults.”

The Number One: Former hedge-fund manager says this is the ‘No. 1 retirement stock in America’

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Your retirement is safe in the hands of Warren Buffett.

At least that’s the message former hedge-fund manager Whitney Tilson, who now runs Empire Financial Research, has for investors approaching their golden years, according to a note published by ValueWalk this week.

In fact, Tilson touts Buffett’s Berkshire Hathaway BRK.B, -0.86% as the “No. 1 Retirement Stock in America” for many reasons.

“Importantly for all investors — and especially retirees — it’s incredibly safe,” he explained. “It’s an incredible collection of high-quality businesses, run by the greatest investor of all time, and has the ultimate Fort Knox balance sheet.”

Here’s a table of Berkshire’s top holdings, which include “high-quality businesses” such as Apple AAPL, -1.26%  , Bank of America BAC, -2.55% and Coca-Cola KO, -0.19%  , to name just a few:

Tilson wrote that the stock is actually cheap, trading at a discount of more than 20% to his conservative estimate of its intrinsic value.

“While Berkshire may not be as cheap today as it has been during times of market extremes,” Tilson told investors, “it’s still extremely attractive in light of the fact that we’re more than a decade into a complacent bull market, in which most stocks are trading at full (if not overly full) valuations.”

He prefers it to “safe haven” alternatives like low-yielding bonds and fully-valued blue chips. “This is one of the very best times to buy Berkshire,” he said.

Tilson also pointed to the fact that Buffett is signaling that more share repurchases are on the way, a trend illustrated in this chart:

“In his annual letter, Buffett is clear that he’s looking to buy back a lot more (he’s never before been so specific about who shareholders should call if they want to sell their stock to the company),” Tilson said, adding that he believes Buffett will “back up the truck” if the stock drops enough from this level.

Berkshire Hathaway has gotten a bit cheaper this week, along with much of the broader market. At last check, the stock was down less than 1% at $220.08, while the Dow Jones Industrial Average DJIA, -1.33% was extending Monday’s drop.

Upgrade: I’m 59, and my husband and I earn $500,000 a year — but have credit card debt and nothing saved for retirement. What should we do?

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Dear Catey,

My husband is 65 and a lawyer and partner in his firm with a thriving practice; I am 59 years old. We have three children (more on that below), and I was fortunate to be a stay-at-home mom. I now work part time, which is essentially just “play” money. Although I’m college-educated, I never had a career outside of the home.

Our youngest recently graduated from college and is now working full time. We provided a college education for all three children, and we were easily able to afford it. We make a very good income (over $500,000 a year), although we live in an expensive city and our income tax bracket is astronomical.

Our oldest child, a son, had mental health and addiction issues for a decade. We spent a small fortune trying to help him by sending him to multiple rehabs, sober living housing, psychiatric counseling, living expenses when he was unable to work or go to school, paying for his college education, etc. He took his own life several years ago, which left us utterly devastated. We have tried our best to move forward, but money for our retirement is simply not there.

The pluses are that my husband is healthy, fit, and energetic and has an excellent law practice. Assuming he remains in good health, he can work for many more years and plans to do just that. We own a home that will be paid for in 7 years, and at this time is worth around $1.4 million. If we sold it tomorrow, we could net a million dollars in equity. Our city is rapidly growing and homes prices have become very high, so it would be difficult to find a home for less than $750,000 (if we were lucky).

Do you advise sitting tight as our home continues to appreciate, or try to downsize and pay for a home in full with cash? We bought our house for a song when the market was down. We have emptied our IRAs and have a great deal of credit card debt, which I hope to have paid off in full in the next 18 months — and we’d like to save for retirement.

I’m mortified to speak to a financial adviser. Any advice would be sincerely appreciated.

Thank you so much,

Dear LS,

It was hard for me to know how to begin this column to you, other than to offer my deepest condolences about your son. I think any parent reading this (and I’m one of them) can relate to your willingness to spend so much of your savings to help your son.

Please don’t be “mortified” to speak to a financial adviser. You’re human, and if there’s one thing I’ve learned from writing about personal finance for a decade, it’s this: Almost everyone has something in their financial lives that they feel embarrassed about.

The silver lining here is that you’ve got a high income and a ton of equity in your home. You have options even though it may not feel like it right now. Here’s how several experts think you should proceed going forward.

Sell your home and move to a cheaper spot, using the proceeds from that sale to pay down your credit card debt as quickly as you can and start saving more for retirement, says certified financial planner Brian Bruggeman, a vice president at Baker Boyer in Walla Walla, Wash. You could buy a cheaper place. Or you might even consider renting for a few years, says Shannon McLay, the founder and CEO of The Financial Gym.

If you can, consider switching to a 0% interest rate credit card while you repay the balance — though be sure to pay it off before the 0% period expires. It’s also important that you use this time to make a budget and see where you can make larger cuts in your spending to free up as much cash as you can, Bruggeman adds.

“Pay off your credit card debt as soon as possible. The less debt you carry, the more spendable income you’ll have in retirement—period,” explains Kimberly Foss, founder of Empyrion Wealth Management in Roseville, Calif.

You should also start saving for retirement with those extra funds, says Foss, who recommends putting down 20% on the new home (to avoid having to pay private mortgage insurance) and investing the rest to “help provide additional income for retirement.”

As for how to start saving for retirement, “the first place to look is their workplace retirement plans,” says Bruggeman, who suggests your husband max his plan and you do the same if you have a workplace plan. Because your husband is over 50, he can contribute $26,000 to a 401(k) in 2020.

Then, he adds, consider maxing out any tax-advantaged accounts you have access to, such as an HSA, or potentially funding what’s called a backdoor Roth IRA. (You can read more about backdoor Roth IRAs here; Foss notes that you should consult with a tax adviser if you are considering this plan.) “The rules around backdoor Roth IRAs are a little tricky if they have outside IRAs, so they’ll want to do their homework before pursuing that strategy. If they are able to fund their employer plans and other tax advantaged accounts, they should fund a joint investment account and invest in a tax-efficient portfolio,” he adds. (Read more about spousal IRAs here.)

It’s also a good idea, as you are already planning, for your husband to continue working as long as he can, experts say. And though you might be tempted to take Social Security early, don’t.

“Your husband should delay taking Social Security benefits until at least age 70. As long as he is in good health and enjoys working as an attorney, he should not begin taking Social Security benefits. His benefit will reach its maximum level at age 70, though he need not begin claiming it until he is ready. You should consider claiming your spousal benefit when your husband reaches age 70, whether he retires then or not,” Foss explains.

Outside the Box: The Secure Act upended estate planning and taxes for a lot of people — here’s how to adapt

This post was originally published on this site

About two months ago, I gave a presentation to a group of CPAs, attorneys, and financial professionals on the use of trusts as beneficiaries of retirement plans. I spent about an hour explaining the complicated rules for timing distributions and the identification of beneficiaries, of the requirements for see-through trusts, and what it meant for a beneficiary to stretch their inheritance.

Well, please let me apologize to the attendees, because Congress passed the Secure Act, blowing it all up effective Jan. 1. Sorry.

The Secure Act, which was signed by President Trump in December, does a number of things that change the rules around retirement plans. I keep seeing estimates that there are 29 provisions, but they really boil down to five major items.

1. Barriers to entry to 401(k) and 403(b) plans for small businesses and part-time workers are reduced;

2. Retirement plan participants don’t have to take their first required minimum distributions (RMDs) until age 72, instead of age 70;

3. The age limit on contributions to your traditional IRA, formerly 70, has been removed;

4. There are more options to purchase annuities inside 401(k) plans; and

5. The rules for distributions for inherited IRAs have changed.

Keep in mind, these changes went into effect on Jan. 1. If you inherited an IRA before 2020, or turned 70½ in 2019, you’ll still be subject to the old rules.

Now, I’m an attorney with significant experience working side-by-side with financial advisers and I even spent about two months once studying for securities licenses, though I never took the test, so while I know a lot of the vocabulary I’m a jumping off point on the first four points rather than the end-all be-all. Let’s deal with them quickly.

Reduced barriers

The age of the pension has been sunsetting ever since the 1980s when Congress went all in on advantaging retirement accounts like 401(k)s and 403(b)s, shifting responsibility for our financial well-being in retirement from our employers to ourselves. Still, if you work for a small business, the entry costs for establishing a 401(k) plan could be prohibitive, leaving you holding even more of that responsibility to seek out SEP IRAs, Simple IRAs, and other more niche markets.

Secure tries to increase access to retirement plans in three concrete ways. First, it provides modest tax incentives for small employers to establish new 401(k) or 403(b) plans. Second, it provides a legal framework for multiple employers to get together to establish pooled plans. There are a few interesting hypotheticals in that world that we just don’t have answers for yet. Finally, it requires that employers allow part-time employees who work 500 hours per year access to the company’s plan. If you are an employer, consult with your attorney for what these changes may mean for you. If you are an employee, consult with your HR representative to see if your workplace will be changing any of its policies, or else to start the enrollment process if you are newly eligible.

Read: The Secure Act is changing retirement

New RMD age

Did you know that, even if you don’t need it, you will have start taking out some of your qualified retirement money once you reach a certain age, and pay tax on it accordingly? There’s a good chance that if you are under 60 or 65, no one has gone over that with you.

Despite what some of my clients have doggedly insisted, you have not yet been taxed on money in your qualified retirement plans (except for Roth IRAs). When you pull that money out, then you may owe Uncle Sam, and Uncle Sam wants his cut. Therefore, the law requires that once you hit a certain age, you have to take out a minimum amount each year. Before Secure, your required minimum distributions started in the year in which you turned 70½ years old. Failure to take an RMD resulted in a 50% penalty, the steepest the IRS can levy.

Good news. Now you can wait to take your first RMD until age 72, provided you weren’t already 70½ years old by 2019. You may take money out, but you don’t have to.

Read: Who should consider a Roth conversion under the Secure Act?

No age limit on contributions

Before Secure, you were unable to contribute to your traditional IRA plan once you hit age 70. The law basically said that you were done saving at that point. Secure removes that requirement. Now you can continue to contribute wages to a traditional IRA for as long as you are working. Now, how much this will matter will vary based on how long you plan to keep working.

Annuities in 401(k) plans

Out of the five major items I identified, can you guess which one the insurance industry lobbied hard for? If you guessed opening up trillions of dollars in employer-sponsored retirement plans to invest in annuities, while forgiving the employer from a fiduciary responsibility in managing the same retirement plans, give yourself a pat on the back. That should go nicely with a newfound paranoia that you’ll find your 401(k) investment options to be a warren of indecipherable annuity options with unclear growth options, hidden fees, and sizable commissions to the sales people that managed to convince your company that this was a good idea.

Fun times. And sure, not all annuities are always bad. There are circumstances in my practice where I have to recommend specific annuities for my clients because they are the only tools that work. But for every Medicaid-compliant, spousal income annuity I’ve set up, I’ve seen several clients with products that won’t pay what they expect to at death or whose method for calculating interest requires a scorecard and a thaumaturgist dissecting Nasdaq ice core samples.

If you’re an employee, keep an eye on your 401(k) and 403(b) plans and talk to your attorney and financial adviser if you start seeing annuities as options. If you’re an employer, please review any proposal with your attorney and an independent financial expert before signing up with an insurance company to manage your company’s plan.

Read: The Secure Act will change the way people inherit money

Inherited retirement plans

Ah, now we’re talking my language. You may also want to call your estate planner, because your children (probably) will not have the same options available as if you had passed in 2019 or earlier. If you have a trust set up for your kids, let me say this delicately — call your estate planning lawyer to review it.

See, based on the old rules, if I had inherited an IRA from my parents, I would have to take out a minimum amount each year. I could take as much as I wanted, even cashing out the entire account, but had to take out a minimum amount (and get taxed on it) based on my age. At 36, I would have to fully exhaust the inheritance in a little less than 50 years. For a lot of that time, a good market would return more than I would have to pull out.

Compound interest and deferred taxation made this a real benefit. Here’s a few examples from my presentation. Assume a $100,000 inheritance, the beneficiary lives to 85 and only takes RMDs:

• A beneficiary inheriting at age 10 with a 10% annual yield would get over $14,000,000

• A beneficiary inheriting at age 20 with an 8% annual yield would get over $2,500,000

• A beneficiary inheriting at age 50 with a 6% annual yield would get over $325,000

A popular tool in the estate planner’s arsenal has long been the stretch trust. Parents have often used these vehicles to benefit their children without giving the child too much direct control. By leaving qualified accounts to a stretch trust, parents gave structure to and exercised control over the inheritance. It also allowed additional protection from creditors.

Read: The Secure Act killed the stretch IRA — here are alternatives for your inheritance

Well, Congress has changed the stretch. Since January 1, most beneficiary must now withdraw the inherited funds within 10 years of the death of the plan participant. Good news — gone are the required minimum distributions. You could take it out whenever you want in those 10 years (some now, the rest in year 8; all in year 9; whatever you want!). Bad news — depending on your age, you have now lost some of the possible deferred tax benefits. In fact, the government expects to collect $15 billion more in taxes over the next 10 years as a result of this change.

If you have a stretch trust, or stretch language as part of your estate plan, if it is imperative that you review it with your attorney. Stretch provisions are typically either conduit or accumulation in nature, either distributing the required minimum distribution each year directly to the beneficiary, or else at the trustee’s discretion. So, what happens if you have conduit language with a mandatory distribution and no RMDs until year 10, when it’s 100%? Not what you the settlor intended, that’s for sure.

There are four primary exceptions to this rule.

• Surviving spouse. My wife won’t have to withdraw my 401(k) within 10 years of my death;

• Disabled or chronically ill individuals;

• Minors (until they reach the age of majority); and

• Any other beneficiaries who are within 10 years of age of the decedent (a sibling, for instance).

I have implemented many stretch trusts over my career. This change severely limits the benefit that my clients were seeking. It does not do away with them — there is still a lot of value in structuring distributions or providing protection against creditors — but the tax savings and compounding growth of 10 years is a disappointing fraction compared with 30 or 40.

If you have a stretch trust now and want to review your plan, or are just hearing about them now, I recommend calling your estate planning attorney to discuss your options.

Keith Stevens is an associate at law firm Isaac Wiles.

Economic Report: Home price growth accelerated in December — here’s why that trend could continue in 2020

This post was originally published on this site

The numbers: The pace of home-price appreciation across much of the U.S. ramped up in December, according to a major price barometer.

The S&P CoreLogic Case-Shiller 20-city price index posted a 2.9% year-over-year gain in December, up from 2.5% the previous month. On a monthly basis, the index increased 0.4% between November and December.

While price appreciation ramped up in December, the overall rate of home-price growth was slower in 2019 than in the previous year, the Case-Shiller index showed.

Additionally, the Federal Housing Finance Agency released its quarterly and monthly home price indices for the end of 2019. In the fourth quarter, home prices rose 5.1% on an annual basis. Between November and December, the index increased 0.6%, the FHFA reported Tuesday.

Overall, home prices have now risen for 34 consecutive quarters since September 2011, the FHFA said.

What happened: The same cohort of cities led the Case-Shiller index as in November: Phoenix, Charlotte, N.C., and Tampa, Fla. Phoenix posted the largest price increase, with a 6.5% year-over-year gain. That was followed by Charlotte’s 5.3% increase and Tampa’s 5.2% uptick.

The Case-Shiller index has shown the Southeast region leading the rest of the country in home price growth.

Comparatively, the FHFA reported that Boise, Idaho, had the largest price increase in the fourth quarter of 2019, with an annual gain of 12.7%, followed by Colorado Springs, Colo. (11%) and Orlando, Fla. (10%). Overall, the FHFA said the Mountain region — which includes Idaho, Montana, Wyoming, Utah, Nevada, Colorado, New Mexico and Arizona — experienced the most substantial home-price appreciation during the fourth quarter.

According to the FHFA, only three of the largest 100 metropolitan areas nationwide saw home prices fall over the past year: Albany, N.Y., Baton Rouge, La., and Bridgeport, Ct.

Big picture: The latter half of 2019 represented a major turnaround in home-price appreciation. Back in July, price growth dropped to the slowest rate since 2012.

Much of the boost in prices can be attributed to interest rates. Mortgage rates fell precipitously throughout August and September, and then stayed at those low levels for many months. Lower rates made buying a home more affordable for many Americans — which in turn boosted demand and caused prices to increase. Another factor supporting home-price appreciation is the constrained supply of homes for sale across much of the country.

Now, with concerns related to the COVID-19 coronavirus roiling markets and sparking concerns of a global economic slowdown, rates have come down even lower. That could provide a solid foundation going forward for home prices. However, if the coronavirus leads to a slower rate of job growth, that could hamper Americans’ ability to afford to buy a home at current prices and slow the pace of appreciation.

What they’re saying: “Whether the current modest rate of gain is maintained will be dependent on the strength of demand, which we feel is going to weaken over time in sync with a slower rate of job growth owing to corporate cost-cutting in the face of eroding profit margins,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez, wrote in a research note.

Market reaction: The Dow Jones Industrial Average DJIA, -0.16%  opened 0.57% higher on Tuesday, following the previous day’s sell-off. Comparatively, the S&P 500 SPX, -0.31%  was down 3.35% and the 10-year Treasury note’s yield TMUBMUSD10Y, -2.49%  was flat.

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