The Roth Opportunity is Knocking

It’s very difficult to watch the value of your portfolio decline. We’re all feeling that pain right now. But please don’t overlook a potential opportunity – imagine a substantially lower tax bill in the future. Have you thought about moving funds from your traditional IRA to a Roth IRA? Nobody likes to volunteer for a tax bill – the amount “converted” must be included in your taxable income. However, once the funds are converted to a Roth IRA, future withdrawals are tax-free.[1] There are three timely reasons why you should consider a Roth conversion.[2]

Reason #1 – Falling stock prices. If a Roth conversion otherwise makes sense for you, then you would be wise to consider a conversion while stock prices are low. Without getting into the math, lower stock prices mean a lower tax bill on conversion. Rebounding stock prices inside of a Roth IRA eliminate future gains from taxes.

Reason #2 – Higher tax rates in 2026. The tax cuts of 2018 are scheduled to “sunset” in 2025 – meaning that we will be facing higher tax rates in 2026 (unless Congress changes the law or extends the tax cuts). You probably know that all pre-tax traditional IRA funds must eventually get taxed – but a Roth conversion can ease that future burden for you.

Reason #3 – SECURE Act passed last December. Congress passed the SECURE Act during the last week of 2019, and this eliminated the “stretch” IRA concept. Through 2019, your children inheriting a traditional IRA could “stretch” IRA distributions over their lifetimes – thereby minimizing the tax impact. Not anymore – now your children inheriting your IRA must empty it within 10 years. Many children inherit IRA funds during their peak earning years – therefore, much of your traditional IRA could be diverted to the government in taxes. A Roth conversion doesn’t eliminate the new 10-year distribution rule, but it will eliminate taxes for your children or grandchildren.

One last reason to consider a Roth conversion: there are no required minimum distributions on Roth IRAs for you and your spouse. You determine when to take distributions, not the government.

I know it’s difficult to look at your account values right now, but now could be a very good time to take some positive steps to strengthen your financial future.

[1] There are certain age and time-period rules that must be followed to obtain all tax-free benefits from a Roth IRA.
[2] Please consult with your tax advisor before converting to a Roth IRA. Higher taxable income from conversions can cause unintended consequences, such as higher Medicare part B premiums. This doesn’t mean that a Roth conversion doesn’t make sense, but it’s best to go into a conversion with an understanding of all tax issues.

By |2020-06-11T04:20:56+00:00March 30th, 2020|Uncategorized|0 Comments

Please…Just Give Us the Bad News!

One of the main problems with markets right now is the massive uncertainty. Market participants and business leaders loathe uncertainty. They would rather hear the bad news any day over uncertainty. At least they can plan when they know how bad it is.

We should start getting meaningful news – good or bad – in the next 2-3 weeks. And that news is going to be three-fold: first, we will begin to know the extent of this virus by the number of emergency room visits and, with expanded testing, the number of Coronavirus cases in the country. The news might be bad – very bad. But at least it will be news. Second, we will start getting a sense of the economic devastation that these shutdowns and social distancing measures are causing based on unemployment filings and other data. Lastly, we should have more clarity on the government response. As market participants and management teams begin to digest this news and rework their plans, my hope is that markets can then begin to stabilize.

Berkshire Hathaway released its annual report last week. In his letter to investors, Warren Buffett wrote: “Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But…The American Tailwind, about which I wrote last year…will make equities the much better long-term choice for the individual…who can control his or her emotions. Others? Beware!” (emphasis firmly added).

Trying to time markets when your emotions are in play is foolish. It’s not investing – it’s speculating. Markets are forward looking, and I have found that they tend to bottom 3-6 months before a recession ends. We are now undoubtedly in recession. We got here in record time, so it’s possible that we’re already close to when markets will begin looking past the destruction. And don’t forget that it’s quite possible we could get some great news any day. Imagine something announcing a new vaccine has been developed – or that the cases in the U.S. have peaked. I would envision a market relief rally like no other.

A word on our media. Regardless of whether you have confidence in our business, health care and government leaders, we don’t have a choice, people – it’s who we’ve got. They’re not perfect – leaders never have been. Unfortunately, both mainstream and social media seem to magnify every real and perceived flaw in our leaders. Would Eisenhower have succeeded on D-Day if he had to concern himself with Twitter mobs or endless analysis of whether he’s xenophobic? He was, after all, killing foreigners. But here’s one thing I know – a crisis can bring out the best in people. I remain hopeful that our leaders will rise to the occasion. Please be careful what media you consume.

Lastly, whenever you get lost in the fearful details of this story, it’s worth remembering that the fundamentals of private property rights, freedom to contract, and the rule of law will survive this virus. Be of good cheer. We will get through this mess. Stay well.

By |2020-06-11T04:21:21+00:00March 25th, 2020|Uncategorized|0 Comments

Optimism vs. Pessimism on the COVID-19 Virus

At times, it’s easy to move between optimism and pessimism on this quickly evolving virus story. The economic impact for the next few months is going to be dramatic. A modern-day economy cannot be on lock down and “social distancing” for long without destroying wealth. But there are reasons for hope in the stories below.

Please remember that an optimist and a pessimist show up every day in the stock market. In other words, there is a buyer for every seller – and lately there have been more sellers showing up! Maybe the buyers have been busy buying toilet paper, guns and hand sanitizer. But the point is that there is always an optimist-buyer on the other side of every transaction.

As for the larger investment perspective, it’s important to match your investments to the time when you need your investment funds – i.e., for needs in the next 5-8 years, it’s prudent to hold cash, bonds and income-oriented investments. For needs beyond that, then holding stocks for their capital appreciation and dividends is generally appropriate. For now, I don’t see anything in the COVID-19 virus story to change this investment approach.

As for the virus, here are both divergent pessimistic and optimistic views that I have come across this week.


First, simply watch the news or get your information from social media. Bad news sells – this hasn’t changed.

Second, I am attaching a paper from a working group of apparently very smart people from Imperial College in London. This paper has made a big impact in England and the U.S. this week. It’s not an easy read. But in a nutshell, it paints a grim picture. They believe that this pandemic is most appropriately compared to the 1918 influenza that killed 675,000 Americans (rather than the 1957 and 1968 flues). They are calling for an aggressive interventionist approach. Even then, it will overwhelm hospital systems in Great Britain and the U.S. either in June or later in the fall – later if we implement extreme containment measures now. And without a vaccine, this virus could come in waves and keep us in rolling lock downs and quarantines – not a comforting thought given the economic damage they cause.


First, viruses are clearly beyond my expertise. But having spoken to several medical professionals and doctors this week, I understand that the virus has mutated from its inception and might now be less virulent than initially thought. If so, then it’s possible that the death rate in the U.S. will end up being lower. This might help explain why some younger people were dying in Wuhan when the outbreak began – that, and it’s thought that they were exposed to larger quantities of the virus. Unfortunately, without adequate testing, it’s impossible to know the fatality rates in the U.S. Fingers crossed.

Second, I follow a gentleman named Peter Diamandis. He and his staff are focused on what is going right in the world – and we could use more of that! I am copying and pasting an email that I received from him on March 18th. Here it is in its entirety with links:

How about some good news for a change? There have been A LOT of facts going around regarding COVID-19, and a flurry of “positive news” items to lift our spirits.

Here are a number of major victories from the Pandemic line. I’ve had my team fact-check these wins with links you can follow up on.

(1) Vaccine development: An experimental vaccine developed by Moderna Inc. began the first stage of a clinical trial on Monday, with testing on 45 healthy adults in Seattle. [link]

(2) China’s new cases plummet: China has now closed down its last temporary hospital built to handle COVID-19. Not enough new cases to warrant them. [link]

(3) Drugs that work: Doctors in India have successfully treated two Italian patients with COVID-19, administering a combination of drugs — principally Lopinavir and Ritonavir, alongside Oseltamivir and Chloroquine. Several are now suggesting the same medical treatment, on a case-by-case basis, globally. [link] [link]

(4) Antibodies to the rescue: Researchers at the Erasmus Medical Center claim to have found an antibody that can fend off infection by COVID-19. [link]

(5) 103-year-old recovery: A 103-year-old Chinese woman has made a full recovery from COVID-19 after being treated for 6 days in Wuhan, China, becoming the oldest patient to beat the disease. [link]

(6) Stores re-opening: Apple has reopened all 42 of its Apple retail stores in China. [link]

(7) Test results in 2 hours: Cleveland’s MetroHealth Medical Center has developed a COVID-19 test that can now deliver results in just two hours, rather than in a matter of days. [link]

8) South Korea’s dramatic drop in new cases: After its peak of 909 newly reported COVID-19 cases on February 29th, South Korea has now seen a dramatic drop in the number of new cases reported daily. [link]

(9) Mortality rates inflated? Experts predict that Italy has seen a higher mortality rate of COVID-19 given its significant aging population, as well as its higher percentage of COVID-19 patients with pre-existing health conditions. This might suggest that COVID-19’s fatality rate may have been slightly more inflated than previously thought for the general population. [link]

(10) Israeli vaccine development: More than 50 scientists in Israel are now working to develop a vaccine and antibody for COVID-19, having reported significant breakthroughs in understanding the biological mechanism and characteristics of the novel coronavirus. [link]

(11) Full recoveries: Three patients in Maryland who tested positive for COVID-19 have now been reported to have “fully recovered.” [link]

(12) Isolated virus: A network of Canadian scientists isolated the COVID-19 virus, which can now be replicated to test diagnostics, treatments, and vaccines. [link]

(13) Yet another vaccine in the works: San Diego biotech company Arcturus Therapeutics is developing a COVID-19 vaccine in collaboration with Duke University and National University of Singapore. [link]

(14) Treatment protocols: Seven patients who were treated for COVID-19 at Jaipur’s Sawai Man Singh (SFS) Hospital and Delhi’s Safdarjung Hospital in India have recovered. The treatment protocol will be widely scaled to other hospitals. [link]

(15) Another treatment: Plasma from newly recovered COVID-19 patients (involving the harvesting of virus-fighting antibodies) holds promise for treating others infected by the virus. [link]

Some of COVID-19’s hardest hit nation victims are already emerging strong after peak infection, and biomedical innovators are tackling the virus at unprecedented speeds. IMPORTANT TO REMEMBER… While everyone is concerned about the super-high mortality rate of this virus — which is calculated by the “number dead” divided by “the number who have tested positive” (currently ~8,000/200,000) — the denominator, i.e. the number infected is actually VERY hard to know because so few people have been tested. It may well be that 10x more are infected but subclinical. So is the mortality rate 4% or 0.4%? We will find out as large scale-testing comes reliably online. Wishing you the best. Remember that our most important tool during times of panic and crisis is our mindset. Best, Peter

By |2020-06-11T04:23:38+00:00March 20th, 2020|Uncategorized|0 Comments

A Brief History of Flus and Viruses in the U.S.

As fear works its way through financial markets, it might be helpful to review a brief history on pandemics to help keep things in perspective.

Spanish Flu of 1918-19

The world was a different place in 1918. Europe was ravaged by World War I, and antibiotics had not yet been discovered. The flu is a virus, but people often die from secondary complications caused by bacterial pneumonia. The Spanish Flu killed an estimated 675,000 Americans – and this was when the U.S. population was only around 106 million! A deep recession set in during 1920-21 that is attributed mainly to the after-effects of war and returning veterans. The Dow Jones Industrial Average fell 35% in 1920 to close the year at 72. But it rebounded and soared to 381 by the end of the decade.

Asian Flu of 1957

The Asian Flu of 1957 broke out early in the year and came in two waves. The first wave infected relatively few people, but the second wave was particularly devastating and killed an estimated 69,800 Americans.[1] According to the Federal Reserve Bank of St. Louis (FRED), real GDP dropped about 3.5% in the 4th quarter of 1957 and the 1st quarter of 1958.[2] The S&P 500 index finished the year down 14.3% in 1957 but rebounded 38.1% in 1958.[3] The total decline in the index – excluding dividends – from top to bottom (8/2/56 to 10/22/57) was 21.6%.

Hong Kong Flu of 1968

According to the CDC, the Hong Kong Flu of 1968 killed an estimated 100,000 Americans and 1 million people world-wide.[4] According to FRED, U.S. real GDP grew about 3% from mid-1968 through 1970. The S&P 500 index finished with a gain of 7.7% in 1968, a loss of 11.4% in 1969 and a small loss of .1% in 1970 before rebounding in 1971. The total decline in the index – excluding dividends – from top to bottom (11/29/68 to 5/26/70) was 36.1%.

The Other Viruses in the Last 40 years

Click image below to view PDF.

The Current Downturn in Stock Prices

At its peak in mid-February, the S&P 500 was trading around 19 times forward earnings of the companies that comprise the index. The 5-year average is around 16.7 – and a little lower for longer time periods.[5] In other words, perhaps stocks were getting a little ahead of themselves.

The virus undoubtedly will impact 2020 corporate earnings – we just don’t know how much. But if history is a guide, we will get past this Coronavirus, and investors will begin looking to 2021 earnings estimates, which are currently around 195 per share.[6] At a 16.7 P/E multiple, that would put the S&P 500 at 3,256. Given extremely low bond yields/interest rates, a multiple of 18 is arguably reasonable, and this would give us a potential valuation of 3,500. This is in no way a market prediction – simply a way of reminding you that numbers ultimately matter when it comes to valuations.

I know that staying the course during times like this are difficult. But please remember that reacting to market developments has historically been a bad idea. I remain confident and optimistic that investors will be rewarded for staying invested.

[6] See Yardeni Research S&P 500 Earnings & Price Targets

By |2020-06-11T05:29:54+00:00March 13th, 2020|Uncategorized|0 Comments
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