RMDs
Quote of the Week “In the stock, a bargain is not a bargain if it remains a bargain.” – Marty Whitman Technical Corner Last week the markets hit a new all-time high on Thursday but sold off Friday with the Dow down 112 points. Today (Monday) the markets are selling off again with the Dow down 267 points which is the worst down day since October 8th. Stocks are being pulled lower by a disappointing U.S. Manufacturing Survey (ISM) data report that pointed to a fourth straight month of contraction for the sector. The ISM index unexpectedly declined to 48.1 in November. Readings below 50 reflect business conditions worsening. The report wasn’t encouraging, especially if you look at the new orders component. Construction also came in on the downside. Adding to the jitters in the last few days are higher U.S. stock valuation levels, which can make the market prone to sudden and fast corrections. The economy has been in what we call Quadrant III, which is characterized by growth slowing and inflation rising. If history is any guide, stock markets have always topped out in Quadrant III. With the economy slowing as reflected by the declining GDP, trade tensions, and with stock market valuations stretched, I wouldn’t be surprised if we are either at a top or nearing a top in the stock market. Now is not the time to take on risk chasing the markets. As a result of the changing conditions of rising inflation and slowing, we have made some changes to the portfolio. We are still maintaining our high dividend positions in REITs, and Utilities plus we are still holding a position in precious metals. Due to inflation increasing we have shortened the duration of our bond exposure. With inflation increasing we have probably seen the lows in long-term interest rates for a while, so we are now invested in short-term U.S. Treasuries and TIPs which are inflation protected U.S. bonds whose interest rates rises with inflation. Continuing on the rising inflation theme, we have taken a new position in Energy and Canada. Energy has been down for quite a while, but is now rallying off its lows. The position in Canada is also inflation themed due to the large energy exposure in Canada. The last change we made was taking a small position in Cocoa. The Cocoa market is rising due to disease in the Cocoa trees in Africa where we get most of our Cocoa. It doesn’t appear that there is going to be a decline in the demand for chocolate in the future, especially during the Holiday Season. The one thing I consider most in portfolio designs is not to take risk when the economy is declining. I do not under any circumstances want to ruin anyone’s retirement. There will be a time when the economy starts to expand. Then we will consider growth investing in the stock market like we did in 2017 and the first three quarters of 2018. Lisa’s Thoughts Required Minimum Distributions What are required minimum distributions (RMDs)? Required minimum distributions, often referred to as RMDs or minimum required distributions, are amounts that the federal government requires you to withdraw annually from traditional IRAs and employer-sponsored retirement plans after you reach age 70½ (or, in some cases, after you retire). You can always withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you will be subject to a federal penalty. The RMD rules are designed to spread out the distribution of your entire interest in an IRA or plan account over your lifetime. The purpose of the RMD rules is to ensure that people don’t just accumulate retirement accounts, defer taxation, and leave these retirement funds as an inheritance. Instead, required minimum distributions generally have the effect of producing taxable income during your lifetime. Which retirement savings vehicles are subject to the RMD rules? In addition to traditional IRAs, simplified employee pension (SEP) IRAs and SIMPLE IRAs are subject to the RMD rules. Roth IRAs, however, are not subject to these rules while you are alive. Although you are not required to take any distributions from your Roth IRAs during your lifetime, your beneficiary will generally be required to take distributions from the Roth IRA after your death. Employer-sponsored retirement plans that are subject to the RMD rules include qualified pension plans, qualified stock bonus plans, qualified profit-sharing plans, including 401(k) plans. Section 457(b) plans and Section 403(b) plans are also subject to these rules. If you are uncertain whether the RMD rules apply to your employer-sponsored plan, you should consult your plan administrator or a tax professional. When must RMDs be taken? Your first required distribution from an IRA or retirement plan is for the year you reach age 70½. However, you have some flexibility as to when you actually have to take this first-year distribution. You can take it during the year you reach age 70½, or you can delay it until April 1 of the following year. Since this first distribution generally must be taken no later than April 1 following the year you reach age 70½, this April 1 date is known as your required beginning date. Required distributions for subsequent years must be taken no later than December 31 of each calendar year until you die or your balance is reduced to zero. This means that if you opt to delay your first distribution until April 1 of the following year, you will be required to take two distributions during that year — your first year’s required distribution and your second year’s required distribution. Example(s): You have a traditional IRA. Your 70th birthday was December 2, 2018, so you will reach age 70½ in 2019. You can take your first RMD during 2019, or you can delay it until April 1, 2020. If you choose to delay your first distribution until 2020, you will have to take two required distributions during
