Talking to Kids About Money

At New Perspectives, we're passionate about financial education. We love to be a part of helping individuals and families to navigate the complexities of markets, the economy, and understanding the role that individual choice can play in helping to shape one's financial future. 

When it comes to talking to kids about money, when is the right age to start? Children as young as age 3 have the ability to understand some basic money concepts - as long as they are presented at the appropriate level. 

Check out the graphic below for some guidelines regarding which money ideas to teach children at different ages. If you would like additional resources, give us a call! Who knows - maybe you could be the one to put your child, grandchild, or other loved one on the road to financial security and success!

CFA 18th Annual Forecast Dinner (worth the wait!)

 The CFA society of Mississippi hosted its 18th Annual Forecast Dinner at the Country Club of Jackson on February 24, 2022. After postponing the event last year due to Covid restrictions, we were anxious to hear what our experts had to say! As usual, the event did not disappoint. Financial advisors, clients, faculty, and students had the opportunity to reconnect with old friends and meet new ones over a delicious meal served with festive libations. The highlight of the evening was a truly compelling discussion about what our panelists predict for the behavior of the financial markets in the upcoming months. 

Going into the event, there were a number of things on our minds. We were awakened that morning to news of Russia invading Ukraine. With inflation fears looming and the after-effects of Covid still taking center state, we were hoping for some reassuring words from our panelists.

Speakers were Michael Scanlon, Managing Director and Portfolio Manager at Manulife Investment Management; Mebane Faber, Co-Founder and CIO of Cambria Investment Management; and Kenneth Woods, Chairman of Asset Preservation Advisors. Dr. Eduardo Marcelo, Professor of Finance and Dean of the School of Business at Mississippi College, moderated the event. 

Michael Scanlon's overall message: expect more muted absolute returns and a lot more volatility. Michael manages a balanced 60:40 stock/bond portfolio and believes that this balanced approach is still appropriate for the majority of investors. He also believes that US companies are still attractive, giving particular mention to the healthcare and tech sectors. 

Mebane Faber seems to favor holding a market-weighted portfolio that tracks the entire world in proportion to the underlying assets' market capitalizations. As the US is currently about 60% of market cap, he suggests that many investors increase their foreign holdings. Relative to foreign markets, the US has done well lately. Over the long term, however, the odds that the US will outperform the rest of the world are about 50:50. 

Because Kenneth Woods is a fixed-income specialist, his focus was more on bonds. He noted that investors should be in shorter term bonds right now as we are anticipating the Fed to raise rates throughout this year. He spoke of the possibility for an inverted yield curve - an indicator that recession could be looming - but also pointed out that the demand for long term US bonds is still healthy.

All three panelists named inflation as a large concern going forward, though the "significant inflation" that's "here to stay" is referring to inflation in the range of 3-4% - a much more palatable rate than what we've seen in the last few months. The panelists also touched on current geopolitical events, noting that international shocks (like the Russian invasion of Ukraine) will inevitably shake the markets in the shorter term. Over the longer term, however, market prices will reflect the health of the companies and the economies that they represent.

The most interesting takeaway for me was how different each of the panelists' predictions were for the behavior of the markets going forward. When asked where the S&P 500 will be one year from now, their answers ranged 36%! Nancy reminded us that it is precisely when prognosticators all fall in line with their predictions that markets are at greatest risk. Opinions that range broadly, rather, are indicative of a healthy market environment - and diverge they did!

I thought that the panelists were well-chosen and was delighted that the conversation remained accessible throughout. I strongly encourage each of you to listen to the program - we'd love to hear your thoughts!

February 8, 2022 Money Talks: Social Security

This episode of MPB's Money Talks originally aired February 8, 2021 and is available online at http://www.mpbonline.org/moneytalks/

This week, our radio guest was Shawn Mercer, a District Manager from the Social Security Administration. Shawn is an expert on all matters regarding Social Security and this show is always a favorite with callers.

As it is also tax time, we noted that the Social Security Administration sends out a special tax form, the SSA-1099 for everyone who receives benefits. Shawn always encourages people to sign up for an account at SSA.gov, where they can access all of their information and answer most questions.

We got a lot of excellent calls, and I've reformatted them here. Almost all of the answers were provided by Shawn Mercer.

Q: Several years ago I went on disability for 3 years. Started a work program to get back not workforce. Got a letter saying I would be removed from disability but continued to receive checks for almost a year before they stopped. About a month or so after, they sent a bill for $25,000. Now getting close to retirement. How will this affect him when I get to retirement age?

A: If there is an outstanding debt, SSA will try to collect. They are taking tax return as there is not a regular payment. You can start receiving benefits though. You can negotiate a payment when you plan to take retirement benefits. There is no interest on the debt.

https://www.ssa.gov/work/

Q: Could you talk a little bit more about getting off of disability? That is a somewhat common and frustrating situation.

A: For most people there are all kinds of work incentive programs with a 9 month trial period. The way it should work is that in the 9 month period, you report what you make, and that doesn’t affect your disability payments. After 9 months, benefits should terminate and any additional that you receive will be owed back. Lots of communication back and forth and lags are common in this process. 

Q: I'm looking at early retirement at 62. What is maximum I can make in income, net or gross? Do I pay SS taxes on that amount?

A:  Earnings limit goes up each year, $19,560 this year. That is gross wages, or net self-employment income. You will continue to pay SS (payroll) taxes on those wages. Your earnings could actually go to increase your benefit payments if they replace one of your highest 35 years of earnings. More information on this can be found here.

For more detail on what sounds towards this limit, see this helpful brochure from the Social Security Administration:

If you work for someone else, only your wages count toward Social Security’s earnings limits. If you’re self-employed, we count only your net earnings from self-employment. For the earnings limits, we don’t count income such as other government benefits, investment earnings, interest, pensions, annuities, and capital gains. We do count an employee’s contribution to a pension or retirement plan, however, if the contribution amount is included in the employee’s gross wages.

If you work for wages, income counts when it’s earned, not when it’s paid. If you have income that you earned in one year, but the payment was made in the following year, it shouldn’t be counted as earnings for the year you receive it. Some examples are accumulated sick or vacation pay and bonuses. 

If you’re self-employed, income counts when you receive it — not when you earn it — unless it’s paid in a year after you become entitled to Social Security and earned before you became entitled.

Q: My husband died in 2016 and I took widows benefits. I am at full retirement age (FRA) now, but waiting until 70 to take her own. Another widow was told they don’t do that anymore.

A: If your benefit on your record is higher, they will allow you to change over to the higher benefit. For some individuals they would never have a higher benefit. Case by case basis - you will still get the higher one you are entitled to. The earliest you can take widow/widower benefits is age 60, and that benefit increases each year as you wait. If you are over age 62, look at your own record first, then look at any other benefits that might be available.

Q: I'm really concerned about what representative for SSA will talk me into or not tell me? I will be retiring at 70.

A: At SSA we are not telling you anything other than what the benefits will be. We are often asked “what is the best time to retire?” but we cannot really answer that. They cannot tell you the best age, but can tell you what your benefits will be at different ages. If you are retiring at 70, no need in waiting past then, it will not increase after age 70. Nancy emphasized that the decision to retire and the decision to take SS benefits are not the same thing. It doesn’t have to be! If you can afford to wait until 70 you will maximize that lifetime income! Making that decision is the job of you and a financial planner - not the Social Security Administration.

Q: I found answers to all of my questions online! What would be a reason to go into office? If you can get answers and file claims on website, what is reason to go inside?

A: There are more complex issues that may need to be handled in person. Currently office are closed, but dire need and critical needs can come in. People with no SS number. Sometimes there is an anomaly with a claim filed online that something is needed, extra ID verification. Also doing phone appointments, as not everyone has internet!

Q: I have been drawing disability for 5 years and am now 60. If I goes back to work, how many hours, how much can I make? When she turns 62, does it change to retirement benefits automatically, or does she need to file?

A: If you go to work, contact your local office to see how much you are making. To be eligible for disability benefits, a person must earn less than the Substantial Gainful Activity threshold, which is about $1,350/mo. You will need to report your earnings monthly to your local social security office. Just as outlined to the previous caller, there is a nine month trial period where you can earn over $1,350 and still receive benefits.

Disability benefits do convert to retirement but that happens at full retirement age - automatic if you are still taking benefits. Disability is unreduced benefit at FRA based on what she had earned so far. If she stopped and got off disability, she would be able to delay until 70. Until then, earnings are subject to the substantial gainful activity amount. 

Our last question was not about Social Security:

Q: Husband and I are both retired. We both have IRAs. Can a nursing home take all or part of our IRAs for medical bills?

A: Nancy explained that the nursing home does not take your money, but you may be required to spend down assets. This may have been a reference to Medicaid - which has income and asset limits for those receiving benefits. Some assets may be subject to recovery by Medicaid. Rules here may vary by state, but if you are taking RMDs from your IRA, it may be considered to be in "payout" mode, and the balance would not be considered an asset, while the withdrawals would be considered income. You may want to talk to an elder law attorney.

The last sneaky hint that Shawn dropped was that you shouldn't carry your card around! You may need it sometimes for financial accounts or ID, but most people will not need to carry it around with them. It is unfortunate that they are in a wallet sized format. Do not laminate them either!

Don't forget to tune in or subscribe to Money Talks at 9 AM every Tuesday on Mississippi Public Broadcasting, or online at http://www.mpbonline.org/moneytalks/. This episode is available online.

A bit of New Year’s housekeeping…

New Year’s is my absolute favorite holiday. Typically by the last week of December, I’m still very much wrapped up in the holiday spirit, but the stressful part of Christmas is behind me. Some years we’re blessed with that cooler Mississippi winter weather which adds a little extra magic to that year-end holiday feeling. Many of us still have a few more festive days left before transitioning back into our everyday routines.

I love New Year’s because I enjoy reflecting on the year that is coming to a close. Even more than this, I love the anticipation and the planning for the year ahead: what goals to set for the upcoming year, what trips to plan, what new adventures to pursue! Planning for the new year can mean many different things, but most people would probably consider financial planning to be an important piece of that puzzle. I wanted to offer up a few end-of-year/beginning-of-year financial housekeeping items for consideration:

1.     Think about your saving and spending goals. Did you receive a raise/cost-of-living adjustment in 2021? If so, have you planned for how it will fit into your financial picture? You may wish to allocate a portion of any pay increase you received to your employer-sponsored retirement plan, your Roth IRA, or other retirement savings. You may wish to allocate a portion towards other savings goals – a vacation fund or new car fund, for example. It may be that nothing would make you happier than donating even more to that charity or organization that’s so dear to your heart. Whichever the case, now is a good time to put some deliberate thought into how you would like to use any additional funds now available to you.

2.      Look into any changes made to retirement account contribution limits. For 2022, the 401k/403b contribution limit has increased to $20,500. For those ages 50 and older, an additional $6,500 catch-up contribution can be made. Traditional IRA and Roth IRA contribution limits remain unchanged at $6,000, with a $1,000 catch-up contribution for savers ages 50+.

3.     It may be time to schedule a portfolio review. With each passing year, life continues to come at us full speed – our environments are constantly changing, and we may need to adjust our financial plan or our stock/bond mix to be more in-line with current life circumstances. Do you need to increase your savings, or perhaps (lucky you!) your spending? Would a Roth conversion save you money over the long-term? A meeting with your financial advisor could help you to answer these questions and more. Feel free to give us a call at 601-991-3158 or visit our website https://www.newper.com/. We’re always happy to discuss your options with you!

4.     Consider your legacy. Think about financial moves you can make now to help positively impact your family, your community, and/or the broader world. This could include beneficiary updates, college planning for children or grandchildren, or gifts to charitable organizations and other worthwhile causes. You have the power to make a difference!

Whatever your upcoming plans may be, we wish you a bright, joyous, and blessed new year! See you in 2022!

How and WHY are you buying Bitcoin?

Recently, a Bitcoin Futures ETF has been approved for trading on US stock markets. This represents just another way that you can get exposure to the price movement of Bitcoin as a US investor. Here are just a few:

The first and most "pure" way to access Bitcoin is to own and hold it directly. You can purchase through an exchange, like Coinbase or Gemini, who will hold it in an account, or "hot wallet." This wallet has a unique "address" and a private key which only you know. While anyone can see your address (so that they can send you more Bitcoin!) your private key is what makes it yours only. Keeping it in the hot wallet on an exchange is simplest, and most familiar to those who now brokerage accounts already. This is a little different from the "cold wallets" discussed later.

Maintaining a wallet can be difficult for some. As this is a new technology, most people will likely need a good bit of help getting started on this sort of system. Interacting with the broader crypto-economy will likely have more steps and complications than other methods. Much like buying stock directly from a transfer agent, you have direct ownership, but less convenience than using a broker.

A crypto broker or exchange will allow you to hold crypto in an account that they secure and monitor. This typically offers convenience and features that are not available for a wallet. Much like having a stock brokerage account, you can view your holdings in one place, buy, sell and transfer with ease. There are even regular stock custodians like Interactive Brokers or Robinhood that allow you to trade some crypto within a traditional stock brokerage account.

Stepping away from the actual coins, there are several ways to get exposure to the price swings of bitcoin without actually holding the coins yourself.

The new ETF from ProShares, BITO, tracks Bitcoin futures. Futures are contracts to buy a commodity, in this case, a digital commodity, at a later date. If a contract is only a few days or weeks away, the value of the contract will generally be very close to the value of the underlying commodity. This can be a way to get the same general exposure, but it isn't perfect. As new contracts are purchased, there will often be price discrepancies due to the dates of the contracts maturity, regulatory issues or supply and demand.

For short term trades, this is probably an acceptable way to get exposure to bitcoin price changes. Over time, however, the price discrepancies can add up to significant slippage.

In the US, there are no ETFs or Mutual Funds that own Bitcoin directly - yet. There is, however, a trust that trades over the counter that almost anyone can buy called the Grayscale Bitcoin Trust, ticker GBTC. Since the trust holds nothing but Bitcoin, the underlying value will accurately reflect the value of Bitcoin, less a fee. However, since the trust trades freely with no arbitrage mechanism, it can trade at a significant premium or discount to the value. As I write this, for example, Bitcoin trades at $60,264 and there are 0.00093361 Bitcoin per share of the trust. This implies a trust value of $56.26, yet it last traded at $47.07 - a discount of over 16%! While this means that you can buy Bitcoin on the cheap right now, there is no promise that you will ever be able to sell the trust for 100% of its value. Grayscale offers a series of trusts like this that offer exposure to many aspects of the crypto economy!

Another similar fund is the Bitwise Crypto "index fund" BITW. Accredited investors can buy this at intervals directly from Bitwise, allowing them to buy

Why can't Americans have a Bitcoin ETF - after all, Canadians have one! Each ETF has to be approved by the SEC, while I do not know their thinking, I suspect that the reliability of pricing and trading is a top concern, as ETFs must have an arbitrage mechanism to keep their price close to their value. As evidenced by the wild swings in the premium or discount of the existing funds, this may be a top concern.

We can step away from trying to get direct exposure to the price of the coin, and try to profit from the growing crypto economy instead. There are many companies that participate in mining, trading or using bitcoin in some way. You can even buy ETFs that specifically look for those companies. The idea is that as bitcoin becomes more important and more widely used, these companies should profit from that increased activity. There are even major companies like Square, PayPal or Robinhood that let users hold and trade Bitcoin. While they profit from other lines of business, they certainly are exposed to the crypto-economy.

Lastly, I would be remiss to not bring up the company Microstrategy, Ticker MSTR. This is a software and technology company that started buying Bitcoin to hold on their balance sheet. They currently have about $7 Billion of Bitcoin and the entire company is with $8 Billion. They still do carry on with their normal business and they have debt on the balance sheet, but there is interesting exposure to Bitcoin nonetheless.

Mechanically, the steps that you take to invest in bitcoin are still a little less familiar than investing in stocks. Some of this complexity may remain a feature of the crypto-economy as security and self-custody remain fundamental aspects of Bitcoin. Some of that will change, but just like investing in stocks, there will be many ways to gain exposure to the price movements of Bitcoin.

Importantly, if you want to invest in Bitcoin, you have to consider why, and what the best way to gain that exposure is. For instance, if you want to trade the price swings, the new Futures ETF may work well within your current trading account. If you believe in the long term transformational power of Bitcoin, maybe a self-custodied, cold wallet is most appropriate. Popular cold wallets like Tenor or Ledger keep your coins out of your "hot" exchange wallet for more security. If you think that the crypto economy will keep growing, but don't know what coin will be best, there are funds of crypto-adjacent companies you can invest in.

Bitcoin, the broader crypto-economy and it's derivatives are very new and changing very rapidly. Nothing in this post is or should be construed as a recommendation to purchase or invest in bitcoin or any related investments. If you have independently arrived at the conclusion that crypto investments are aligned with your values and goals, this may be a useful guide for determining how exactly to make that investment.