Leonesmoneymonitormonthly's Blog

By Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:  edleonedds@gmail.com   303-478-6793

There has been significant speculation on the trend for interest rate increases as this year of 2017 continues to unfold. The economy is improving, but slowly and the unemployment rate which is reported (instead of the labor participation rate) is coming down. Inflation is another measure used by the Federal Reserve to judge economic vitality. It has been running below 2% (the Federal Reserve target for interest rate increases) since 2012. The inflation rate gives an indication of demand increasing to excess which is an urge to tighten the money supply. It is also important to consider that inflation is a hidden taxation. It burdens savers and consumers and rewards debtors including the US Government since debt over time is paid back in dollars worth less. It is very likely, considering the debt service required of the US Government (assuming that inflation rate reporting is accurate) will be a moderator to Federal Reserve aggressive interest rate increases. The world economy now has $215 trillion in debt. This may also be a factor in interest rate trends for global central banks including the Federal Reserve. How will bond investors looking for positive returns react to such dynamics. Perhaps holding cash is temporarily attractive!

On the positive side, almost all of the S&P 500 index companies have reported their 1st quarter earnings. It seems that these three months have been the strongest in the last six years. We know that earnings are a key ingredient in stock price increases.Will this trend continue and will the equity bull market sustain? International economic growth has also been positive.

It is still much of a challenge to have any firm information on the outcomes of tax reform and health care reform. The deliberation processes being engaged by the Congress, lead me to believe that it will be much later in this year before we have some solid ideas on legislative content regarding these two issues. I have been made aware, by my reading in Forbes Magazine, of legislation being proposed in both the US House of Representatives and in the US Senate to establish USAs. This is a savings program which is similar in structure to and IRA. It is open to all citizens and is funded with before tax dollars. There are no taxes on distributions or withdrawals and no restrictions on when or how much can be taken. The motivation seems to be for expanding consumption, education and retirement savings along with the creation of capital for economic growth. With the potential for establishment of Universal Savings Accounts (USAs), it may be helpful to be reminded of potential investing mistakes that are made from time to time by many of us since more and more people may be inclined to use USAs as a source for investing:

1. Reacting to short-term returns
2. Selling when the investment price drops below your basis or in a falling market
3. Ignoring fees and other costs of investing
4. Not engaging in diversification of investments
5. Not rebalancing the portfolio from time to time
6. Tax considerations
7. Not considering the benefits of compounding returns over the long-term.

I wish all readers the best of results with their investing efforts!!

For The Record:

DJIA                 21,069

NASDAQ           5,795.50

S&P 500            2,414.75

Suggested Reading:        “The Charles Schwab Guide to Finances” By Carie Schwab-Pomerantz

By: Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:  303-478-6793  edleonedds@gmail.com

I must express a bit of concern over available information on 2 major legislation efforts in the US Congress. The Replacement for the Affordable Care Act is 1990 pages long. Who has time, including legislators, to read and understand the content? I am not happy with reports and information shared by AARP on this legislation.  The Tax Reform legislation passed by the House of Representative this week is not being shared adequately in the media. I have not been able to identify the income levels associated with the new tax margin structure (10,25,35%) to determine after the removal of all tax deductions except mortgage interest and charitable contributions, whether or not it represents a tax deduction or a tax increase depending on earned income. This is an important element of information if anyone desires to make input on this legislative effort. I must also express concern over the tax exempt treatment of assets accumulated in qualified retirement plans such as 401Ks and IRAs. These plans hold about $15 trillion in assets according to the Investment Company Institute. The government gets taxation on distributions after some 30 to 40 years of tax exempt savings, but Congress looks at budget projections over a 10 year horizon. Given the potential tax revenue left on the table as a result of current defined contribution retirement plan structures and the building federal deficits, will Congress change the rules??

Everyone engaged in retirement savings efforts, is faced with 2 large areas of concern- longevity and health care costs. Planning for these difficult to quantify challenges presents significant problems for many. It may very well be that most of us will be engaged in employment past what has been considered normal retirement age. Positives are as the following:

a larger nest egg,

perhaps greater Social Security benefits,

a boost in financial security,

personal satisfaction in contribution to personal and social well-being.

Another area of concern for many is the global effects of inflation on the currencies we use to conduct business and consume products and services since the termination of gold  standard based currency values. If you have saved any pre 1965 US coins which have a silver content, be aware that your quarters are worth $2.97 and your dimes are worth $1.19 based on the content of silver in these coins and the current value of silver bullion. A $1,000 stash of either of these coins in 1965 is now worth $23,790 52 years later. HUM, WHERE ARE WE GOING REGARDING THE PURCHASING POWER OF OUR MONEY?

Be sure to use mosquito repellent, but watch the SWAMP closely!!

For The Record:

DJIA        $21006.94

S&P 500  $ 2399.29

NASDAQ $ 6100.76

Suggested Reading;    “The End of Alchemy”  By Mervyn King