When interest rates spiked in early 2018, income related investments such as Real Estate Investment Trusts (REITs) experienced a sell off. The FTSE NAREIT Equity REIT Index returned a negative 8.2% in the first quarter of 2018.¹ Income producing investments will frequently experience a sell-off in the face of a sudden spike in interest rates. Does this mean that you should not own REITS when interest rates increase? [+] Read More

With the month of May approaching, it’s the time of year when we’re reminded of the old Wall Street saying, “sell in May and go away.” In theory, this suggests that an investor can sell out of the stock market on May 1st and get back into the market on November 1st to avoid the months where equity returns are typically depressed. While the saying “sell in May and go away” may be catchy, is it actually sound investment advice? Over the 50 years prior to 2016, during the 6-month period from May 1st through October 31st, U.S. stocks returned an average of 2.68%, while the 6-month period of November 1st through April 30th, U.S. stocks returned an average of 8.08%.[1] [+] Read More

How Do Tax Credits and Tax Deductions Work for Foreign Dividend Payments? Your friend Emily made an investment in the stock of a company that is based outside of the U.S. This investment was made in her taxable individual account. She received $100 in dividends for this stock (net of foreign tax withholding) last year. She had no other investments in companies outside the U.S. [+] Read More

With interest rates spiking unexpectedly in early 2018 and the Fed poised to continue raising interest rates throughout 2018, some bond investors have become very concerned about experiencing negative returns in their bond holdings. While rising rates will have a negative impact on the price return of a bond investment, this impact can be offset by the positive impact of coupon income. A rising rate environment isn’t necessarily bad for bond investors in the long run because it will lead to higher coupon payments in the future. As interest rates rise, investors will demand higher coupon payments from newly issued bonds. Also, coupon payments from existing bonds can be reinvested in these newer, higher yielding bonds. [+] Read More

Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug helps you navigate tax efficient gifting strategies to help a friend transfer wealth to his adult son for school tuition and a future home purchase. Consider this Scenario: Your friend Gus is considering helping his son, Walter, with the cost of paying tuition and purchasing a new home over the next couple of years. Walter has two years of school left (including this year) and he is planning to purchase a home next year. [+] Read More

What Happens to Bond Investments When Interest Rates Go Up? Consider this scenario: Your friend Bob is concerned about what rising interest rates could do to his bond portfolio. He asks for your assistance in evaluating his bond holdings. In his current bond portfolio, he has the following holdings: $10,000 face value AA rated municipal bond that matures in 3 months and is currently trading slightly below par. $15,000 of a mutual fund that holds investment grade, floating rate bonds. $20,000 of a short-term, investment grade corporate bond ETF which tracks a broad index of hundreds of bonds. $3,000 of a high yield bond ETF that tracks a high yield index of hundreds of bonds. Bob has a long investment horizon ahead of him and he won’t need any of the funds invested in his bond portfolio for many years. To top it off, Bob also has another $100,000 of his portfolio invested in various equity market investments. [+] Read More

Inflation worries caused by a single economic report have led to increasing concern that the economy may be overheated. A rapidly expanding economy could lead the Fed to increase interest rates at a faster than expected pace. The January Unemployment Report from the Bureau of Labor Statistics showed an increase in average hourly wages of 9 cents, pushing the annual increase to 2.9% from 2.6%. A couple points of caution on this report are needed. First, it is possible that some or even most of the wage increase is due to 18 states raising their minimum wage as of January 1st. If that is the case, this will likely be a one-time bump in average wages rather than a sustained trend higher. Second, there could be a temporary weather impact on this report (which won’t repeat once the weather gets warmer). Some workers were not able to work full-time because they couldn’t make it to work on certain bad weather days. If these workers were lower paid workers, that would push up the aggregate average hourly wage for January because the lower paid workers worked fewer hours. We’ll need to wait for the February, March, and April reports to see if the increase in average hourly wages is a trend or if the January report is just a blip on the radar. [+] Read More

How Does An Expense Ratio Impact Returns? Consider this scenario: Your friend Martha has just invested $100,000 in a mutual fund that has an expense ratio of 1.50%. She has discovered an alternative investment that is very similar to the mutual fund she purchased but has an expense ratio of 1%. She is considering switching to the lower cost investment but isn’t sure if 50 basis points in an expense ratio will make much of a difference in her returns going forward. Assume both investments return 8% per year, each year for the next 10 years before expenses. What is the difference in ending dollar value between the mutual fund with an expense ratio of 1.5% and the alternative investment with an expense ratio of 1% at the end of 10 years? [+] Read More

Fidelity Investments recently produced research that unveiled a surging population of 401(k) millionaires: women. According to Fidelity’s findings, the share of women who have accumulated $1 million or more in retirement plans has doubled over the last 12 years (based on data from 15 million retirement plan participants in Fidelity 401(k) accounts). As of the end of September 2017, about 20% of Fidelity’s 401(k) millionaires were women, which is up from less than 10% in the same period in 2005. What does it take to grow a 401(k) to $1 million and above? Many things, but if we were to narrow it to just three, it would be: consistent saving, smart investing, and time. The women in Fidelity’s research have leveraged all three to become millionaires. [+] Read More