Admin, Author at Strivus Wealth Partners

Every so often, I review my past Congressional Financial Wish List, both to see what happened since my last review, as well as to see what could be improved. Given political changes since my 2019 update, it seemed like a perfect time to review and update my list. Here’s what I found:

Wish # 1 – Freeze personal income tax rates, which were lowered in 2018, to avoid reverting to the old (higher) rates after the year 2025
Wish # 2 – Reduce Capital Gains tax rates, which were not modified in the past Administration (much to my dismay)
Wish # 3 – Dramatically increase annual contribution limits for IRAs, which are currently only adjusted for (understated) inflation
Wish # 4 – Repeal all Estate Taxes (“Death Taxes”) and Gift Taxes
Wish # 5 – Eliminate the “progressive” income tax on Social Security Benefits, currently taxed up to 85%
Wish # 6 – Eliminate the Alternative Minimum Tax (AMT), which was eliminated for corporations, but not for individuals
Wish # 7 – Raise (further) the age for Required Minimum Distributions (RMDs) from all Retirement Accounts
Wish # 8 – Make permanent the limited “above-the-line” deduction for charitable contributions, which currently stands at $300 per person
Wish #9 – Index Capital Gains for inflation to avoid taxation on purely inflationary gains
Wish #10 – Restore the tax deduction for fees paid to financial advisors, which was eliminated (in my estimation) discriminatorily

We could go on ad nauseum, adding such items as the implementation of the FairTax. However, restricting this discussion to reasonable probabilities is difficult enough. In our current (revenue-hungry) Administration, we see little likelihood for positive change, except, perhaps, for #7 and #8. Worse yet, we are likely to lose ground, especially on #2.

Maybe it will help if I send a copy of my list to the North Pole.

Van Wie Financial is fee-only. For a reason.

Last summer we looked at upcoming problems in the Social Security System, with an eye toward its pending insolvency. Today we look at what “solutions” have been proposed in Congress during this year. Remember that this problem has been staring our elected officials in the face for years. We fear that 2021 proposals constitute, at best, too little, too late. As usual.

The need for reform has been well documented throughout recent history. Originally overfunded by design, the System built up a sizable Trust Fund for future benefit payments. Congress spent the actual money in the Trust Fund, replacing it with a huge I.O.U. They “own” the problem.

Changing demographics have now rendered promised benefits unsustainable. Without changes, present and future Social Security beneficiaries will soon face a sharp reduction in benefits. Politicians understand that senior citizens vote in consistently high numbers. Keeping seniors happy is paramount for their re-election. So, how did Congress fare in the quest for restoring sustainability? Simple answer—poorly, again.

Summarizing 2021’s proposals introduced into both Houses of Congress these past 12 months, we found the following:

Two proposals would restart the payroll deduction for Social Security above either $250,000 or $400,000 income levels, as the current payroll deduction stops for incomes above $142,800
Proposed benefit increases for low earners, older retirees, students, and workers in general
Expanded eligibility for Supplemental Security Income (SSI) benefits (note that the SSI portion of Social Security is actually a welfare program, and is funded by General Revenues, rather than payroll taxes)
Requiring paper statements for many more participants and beneficiaries (unless waived by the participant)
Ensuring that Social Security offices are fully staffed for phone calls
Improving benefits for surviving disabled spouses

Implementation of all these proposals would bring a small increase in overall revenue to the System, but with more than offsetting costs. Reviewing the list of proposals leaves us wondering if Congress understands that the System is going broke. Americans understand, and they are demanding action.

Historically, voters tend to punish politicians who offer realistic fixes. Perhaps we are our own worst enemies. That is not a welcome thought.

Van Wie Financial is fee-only. For a reason.

Saving money is the quickest and easiest way to make more money. Just don’t run headlong into the refi process without doing your due diligence and bracing yourself for a bumpy ride. Remember that refinancing lasts for a long time, but it comes at a hefty price that can be paid upfront or over time. And don’t try to hide anything financial, they will find your closet skeletons.

Van Wie Financial is fee-only. For a reason.

Step 1 is Suitability:

The refi process is not free, and not everyone is eligible for a beneficial refinancing
Potential economic rewards must be determined before taking the leap
Interest rates–both your current rate and prevailing market rates–need to be compared
Considering the remaining term of your existing mortgage, would the costs justify the savings?

Step 2 is Goal Setting:

Determine your priorities, i.e., shorter payoff term, lower interest rate, reduced payments, fixing a variable rate, taking cash out, elimination of PMI, etc.
Establish all parameters for a loan, then proceed as though they can all be met

Step 3 is to make a Funding Plan:

Determine your credit score (FICO), which you can obtain from any of the 3 large Credit Bureaus: Experion, Equifax and Transunion
Until April 20, 2022, through com, all three are offering weekly credit reports free of charge
If your FICO score is above 760, you should receive a preferred interest rate, and if not, you might pay a somewhat higher interest rate
Should your credit score need improvement, there are methods available online to help you add points
Establish a relationship with a reputable mortgage broker, credit union, bank, or online mortgage originator
Discuss all fees and closing costs with your selected mortgage professional to determine the best combination for you
Get an appraisal with a lender-acceptable appraiser
When a selection has been made and the lender is on board, lock in the interest rate, and get it writing
Complete the formal application and start gathering financial data
There will be a home inspection, and repairs are nearly always required, so plan ahead

Step 4 is Implementation:

Any mortgage lender will give you a comprehensive list of documents and data required for closing the loan, and you will need to furnish each and every one of them
In many cases, a competent Financial Advisor can assist with data gathering
Be patient, as we have seen refis that didn’t go to closing because the applicant got fed up with the process and simply walked away
If your Suitability, Discovery, and Goal Setting processes tell you that the process is worthwhile, it will most likely get you through the tedium and rigor of the process
Prior to closing, read all documentation, check the numbers, and try to avoid surprises

Van Wie Financial is fee-only. For a reason.

Interest Rates have come off their lows, and home prices are up sharply. Is this a good time to refinance your mortgage? We say it is, but as with all things financial, complexity is high, mistakes can be costly, and there is no “do-over” option. Planning before executing can save you time, trouble, and cash. Approach the refi process as a fee-only financial planner approaches a complete Financial Plan.

Step 1 is Suitability:

The refi process is not free, and not everyone is eligible for a beneficial refinancing
Potential economic rewards must be determined before taking the leap
Interest rates–both your current rate and prevailing market rates–need to be compared
Considering the remaining term of your existing mortgage, would the costs justify the savings?

Step 2 is Goal Setting:

Determine your priorities, i.e., shorter payoff term, lower interest rate, reduced payments, fixing a variable rate, taking cash out, elimination of PMI, etc.
Establish all parameters for a loan, then proceed as though they can all be met

Step 3 is to make a Funding Plan:

Determine your credit score (FICO), which you can obtain from any of the 3 large Credit Bureaus: Experion, Equifax and Transunion
Until April 20, 2022, through com, all three are offering weekly credit reports free of charge
If your FICO score is above 760, you should receive a preferred interest rate, and if not, you might pay a somewhat higher interest rate
Should your credit score need improvement, there are methods available online to help you add points
Establish a relationship with a reputable mortgage broker, credit union, bank, or online mortgage originator
Discuss all fees and closing costs with your selected mortgage professional to determine the best combination for you
Get an appraisal with a lender-acceptable appraiser
When a selection has been made and the lender is on board, lock in the interest rate, and get it writing
Complete the formal application and start gathering financial data
There will be a home inspection, and repairs are nearly always required, so plan ahead

Step 4 is Implementation:

Any mortgage lender will give you a comprehensive list of documents and data required for closing the loan, and you will need to furnish each and every one of them
In many cases, a competent Financial Advisor can assist with data gathering
Be patient, as we have seen refis that didn’t go to closing because the applicant got fed up with the process and simply walked away
If your Suitability, Discovery, and Goal Setting processes tell you that the process is worthwhile, it will most likely get you through the tedium and rigor of the process
Prior to closing, read all documentation, check the numbers, and try to avoid surprises

Van Wie Financial is fee-only. For a reason.

Step 1 is Suitability:

The refi process is not free, and not everyone is eligible for a beneficial refinancing
Potential economic rewards must be determined before taking the leap
Interest rates–both your current rate and prevailing market rates–need to be compared
Considering the remaining term of your existing mortgage, would the costs justify the savings?

Step 2 is Goal Setting:

Determine your priorities, i.e., shorter payoff term, lower interest rate, reduced payments, fixing a variable rate, taking cash out, elimination of PMI, etc.
Establish all parameters for a loan, then proceed as though they can all be met

Step 3 is to make a Funding Plan:

Determine your credit score (FICO), which you can obtain from any of the 3 large Credit Bureaus: Experion, Equifax and Transunion
Until April 20, 2022, through com, all three are offering weekly credit reports free of charge
If your FICO score is above 760, you should receive a preferred interest rate, and if not, you might pay a somewhat higher interest rate
Should your credit score need improvement, there are methods available online to help you add points
Establish a relationship with a reputable mortgage broker, credit union, bank, or online mortgage originator
Discuss all fees and closing costs with your selected mortgage professional to determine the best combination for you
Get an appraisal with a lender-acceptable appraiser
When a selection has been made and the lender is on board, lock in the interest rate, and get it writing
Complete the formal application and start gathering financial data
There will be a home inspection, and repairs are nearly always required, so plan ahead

Step 4 is Implementation:

Any mortgage lender will give you a comprehensive list of documents and data required for closing the loan, and you will need to furnish each and every one of them
In many cases, a competent Financial Advisor can assist with data gathering
Be patient, as we have seen refis that didn’t go to closing because the applicant got fed up with the process and simply walked away
If your Suitability, Discovery, and Goal Setting processes tell you that the process is worthwhile, it will most likely get you through the tedium and rigor of the process
Prior to closing, read all documentation, check the numbers, and try to avoid surprises

Van Wie Financial is fee-only. For a reason.

As we wind down 2021, as with every year in the Financial Planning business, we assess year-end financial needs and procedures to minimize taxes and to prevent penalties. One of our unique challenges for 2021 is the reinstatement of Required Minimum Distributions (RMDs), which were eliminated last year due to the pandemic. Aside from being easy to forget the RMD requirement following a year’s reprieve, Congress made rule changes that affect investors of certain ages.

One constant, however, is that failure to comply with RMD rules will result in tax penalties of 50% of the RMD value not taken. Something that has changed is the nationwide labor shortage of workers in nearly every business. Financial custodians are not exempt from labor shortages, so transaction requests (including RMDs) should be filed early this year.

Upon receiving money from RMDs, many investors purchase additional investments in (taxable) brokerage accounts. Anyone with mutual funds in a taxable account needs to be aware of certain dates announced annually by the fund. By law, dividends, interest, and capital gains earned in the fund must be distributed to shareholders at least annually. This normally happens late in the year, and important dates to remember can be found on the website of the fund or the fund family.

Distributions are taxable events, whether paid in cash or reinvested in more shares of the fund. “Buying a Dividend” refers to the purchase of mutual fund shares shortly before the distribution is made. Distributions do not create value, as the gains have already been built into the share price. Investors who purchase new shares prior to the Ex-Dividend Date will receive the Distribution. For many investors, those Distributions will be unwanted due to taxes. It is up to the investor to avoid this situation by delaying the purchase until at least the Ex-Dividend Date, which is the first day the purchaser will not be entitled to this year’s Distribution.

Due to excellent market conditions this year, Distributions are expected to be larger than normal.

For example, we checked Oakmark Funds for 2021, and found the ex-Dividend Date is 12/16/21, and the Pay Date is 12/17/21. Distribution amounts have not yet been announced. Whatever the amount of the Distribution, it will be taxable to owners prior to the Ex-Dividend Date. If this would negatively affect your tax situation (Tax-Deferred Retirement Accounts are not affected), delay the purchase until at least the Ex-Dividend Date.

Van Wie Financial is fee-only. For a reason.

Despite frequent and boisterous claims from the Biden Administration regarding being “transitory,” inflation continues to worsen. Last week, we were treated to new monthly and annual inflation numbers; both exceeded even the highest estimates from so-called experts. Congress and the Administration continually stoke the inflationary fire with bad policy, excessive spending, and excuses. What should we expect?

Good news is generally released in Washington, D.C. early in the day. Reporters then scramble to get their scoop into the public domain, helping any Administration they support. The bad news is treated in a manner that at best could be called clandestine. Late on Fridays, following the close of business, and in the dark of night, unpleasant news is quietly slipped into certain government websites, where only diligent media discover the truth.

So it was this past Friday when the Center for Medicare & Medicaid Services (CMS) announced 2022 pricing for Medicare Parts A, B, and D. Naturally, the news provided another metaphorical inflation nail in the coffin for Senior Citizens. The Biden Administration is plagued by inflation of their own making, and their responses are woefully inadequate.

Consumer Price Index (CPI, the overall price level) increased over the past 12 months by +6.2% and continues rising
Social Security Benefit Payments for 2022 are increasing 5.9% (in fairness, that was an accurate inflationary estimate when it was announced, which happened just before the last superheated numbers drove annual inflation up to 6.2%)
Income Tax Brackets are indexed to avoid “Bracket Creep,” which is caused by Cost-of-Living Adjustments, or COLAs, rising faster than the indexing of Income Tax Brackets by IRS
Medicare Payments also increase annually (using a COLA) to reflect inflation, but Medicare premiums are rising, not 3.1%, nor 6.2%, not the originally leaked 7+%, but 14.55%, due to a last-minute increase to cover a new Alzheimer’s drug called Aduhelm
Medicare’s Income Related Monthly Adjustment Amounts (IRMAA), reflect increased Medicare premiums for higher-income Americans, yet IRMAA bracket adjustments do not reflect actual inflation
Chained CPI is a new and different measure of COLA for Social Security Recipients, supposedly providing a more accurate accounting of items routinely purchased by older Americans, but it further understates costs and under compensates benefits

Any thinking person would be hard-pressed to comprehend any “fairness” in the current system. From the above explanation, it appears that government policy is, “Heads I win, tails you lose.” One year at a time, the effect is relatively nominal but compounded over time, it will ruin the Middle Class as we know it today. Government of the people, by the people, and for the people, has been cast aside in favor of an even Bigger Government.

Are you better off than you were 10 months ago? Be afraid, America; be very afraid.

Van Wie Financial is fee-only. For a reason.

Every occupation and profession, including politics, has its own vocabulary, but math is the same around the world, right? Not so fast—remember Washington, D.C.? In Washington Speak, “It’s different up here.” It certainly is.

We know that in Washington, D.C., words mean things; they just mean different things inside the Beltway. A vocabulary of Washington Words:

Taxes are “contributions”
Government Spending is “Investing”
“Fair Share” is more than you pay now, and more than you have ever paid
“Budget Cuts” are costs that increase less than in earlier proposals
“Tax Expenditures” are items that reduce government revenue (this requires accepting the premise that all money is government money)
“Paying for” a program means imposing new taxes on select taxpayers
“The wealthy” are people who either (a) make more money than members of Congress, or (b) have higher net worth than members of Congress, or (c) both
“Scoring” a Bill means estimating the cost to taxpayers using ridiculously flawed assumptions, as well as a not-so-independent CBO that leans left and is under the absolute control of Congress

Similarly, Washington Math is neither Old Math nor New Math–it is uniquely Government Math. Washington Math is easily illustrated using calculations from the State and Local Tax (SALT) Deduction included in proposed Infrastructure programs. In the Tax Cuts and Jobs Act of 2017, (TCJA, the Trump tax cut bill), SALT deductions, which formerly had no upper limit, were capped at $10,000 annually. The “Infrastructure Bill” allows taxpayers to deduct up to $80,000 of state and local taxes (as far as we know today) from their income. This would, of course, grant a substantial tax cut to the highest-income taxpayers, primarily in high tax states.

On its face, granting tax cuts to wealthy people would amount to a “Tax Expenditure” (see vocabulary above). Enter Washington Math, and it becomes a revenue generator for Uncle Sam. How is this mathematical sleight of hand accomplished?

Due to ridiculous and arcane Senate Rules, TCJA is set to expire in 2026, after which pre-TCJA laws will apply. The $10,000 SALT limitation would disappear, and tax deductions for wealthy taxpayers would rise dramatically. This would “cost” the Federal Government billions of dollars beginning in 2026.

Now the key—how to project additional revenue long-term by claiming future savings. Under the proposed new rules, the government would collect less money until 2026. After that, the $80,000 cap would limit deductions for the wealthy, raising their future taxes. Counting “expected” revenue for a few years makes time-phased revenue loss turn positive. Eureka! A positive estimated “revenue stream,” which in D.C. is apparently convincing. Confused yet?

There is virtually NO CHANCE that these numbers will see the light of day. But inside the Beltway, most everyone will buy it. Don’t you wish you could live on Government Math?

Van Wie Financial is fee-only. For a reason.

Inflation is here, and depending on where you choose to get your news, it is either here to stay, or merely transitory. As a student of economics and a “seasoned citizen” who has lived through a lot of inflation (the 1970s), I believe that inflation itself is not the problem. Most inflation results from bad government policy. Inflation is a process, not an event. Increased prices are the bogeyman in my worldview.

Consider an example from physics. A steadily moving vehicle travels a predictable distance in a predictable period of time. A simple computation allows anyone to greet the vehicle at a predictable destination. However, the destination of an accelerating vehicle cannot be anticipated until acceleration stops. Right now, inflation is accelerating, and where prices will land is unpredictable.

During the year 2020, steady and low inflation rates produced predictable price levels. Knowing the beginning price point, we could easily extrapolate the ending point. Our current (accelerating) rate of inflation is leading prices to an unspecified and unpredictable higher level. During and after several more months of rising inflation, prices will climb, and when inflation abates, only then can we observe price levels.

There is currently a great debate in the media regarding inflation. The “transitory inflation” group claims that inflation’s end is near, while “Commodity Super Cycle” proponents believe we face several more years of rampant inflation. Arguments on both sides are rational, leaving readers to form their own conclusions.

During and after inflationary cycles, certain commodities experience flexible prices. Lumber has been a great example over the past several months, as prices skyrocketed before falling back to Earth like a Space-X capsule. This price action, while extreme, is emulated by many commodities, though their fluctuation is mostly more muted.

Prices of other purchases are nowhere near as flexible. Labor costs, automobiles, taxes, insurance, medical care, and many other daily purchase prices are sticky on the downward side.

Inflation is generally measured using the Consumer Price Index, or CPI, which measures the current overall price level of a basket of goods and services, and compares the result to the same figure from an earlier period. In rare instances, and over short periods, the CPI change is slightly negative. However, over any significant period, the CPI rises, reflecting the fact that our overall price level has risen.

Slowing increases in CPI simply mean that current prices, no matter how high, are still rising, just not as quickly. But you will pay more to live your daily life than ever before. Prices do not measure inflation; they measure past inflation. Future inflation merely raises your cost of living. It will not return your purchasing power to those halcyon days of yesteryear.

Beware politicians pacifying their flocks with claims of upcoming reduced inflation rates. It will not return your lifestyle to pre-inflationary levels. Consumers continue to pay more and more, wages do not keep pace, and our standard of living erodes. Transitory Inflation supporters attempt to placate us with their claim that inflation will return to 2.0% in a couple of years. At that time, a new base rate for prices will have been set. Prices will continue to rise atop that new base level.

Next week, we examine the possibility of a “Commodities Super Storm,” and its potential impact on how we live our lives.

Van Wie Financial is fee-only. For a reason.

American investors of all ages have been “treated” to some market events they would rather forget. This week was the anniversary of October 19, 1987, when the S&P500 lost over 22% in one day. Mostly remembered now as “Black Monday,” it remains an annual source of apprehension as October comes around. For somewhat younger investors, their first market shock day was September 11, 2001, when terrorists attacked New York and Washington, D.C. More recently, the March 2020 COVID-19 pandemic caused a major interruption in the market.

While underlying reasons for these events vary, in each case many investors over-reacted, sold perfectly good assets, and lost more money in less time than they ever expected. These unfortunate souls made a tragic mistake – they “did something.” History shows that holding on is generally the most successful technique for lifetime investing. Remember, only long-term money (5-years minimum) should ever be exposed to the market.

Potential errors made by investors are twofold. First, many panic and sell their rapidly declining assets. Secondly, they fail to re-enter the market until the recovery brings the market higher than before the event. In 2020, only 58 days after the COVID-19 “market crash,” the market returned to pre-COVID-19 levels. However, the pandemic marched on, leaving reluctant investors behind as the market attained new highs.

Bad market days and stretches can happen any time of any year, and not always for reasons that are predictable. In 2001, the sudden and negative market reaction was understandable. In 2020, our country was ordered to grind to a halt, and the market reacted similarly. In 1987, only advisors and dedicated investors would have had any clue that equities were dramatically overheated. The later events happened after Internet access was universal.

Economic cycles are more understandable than sudden shocks, and to a degree, investors can make reasonable portfolio changes before and during recessions. However, there are problems with this philosophy as well. The market is forward-looking, and when market professionals see light at the end of the recessionary tunnel, buying begins in earnest. Average investors usually spot the new trend too late to make a positive difference.

Any experienced investor remembers at least one terrible incident, and many have experienced negative outcomes from their own (re)actions. Controlling the urge to “do something” is difficult, and goes against our instincts. Perhaps this is the best reason to work with an experienced financial advisor. Having a trusted and stabilizing advisor will generally result in better long-term returns.

One of the oldest adages in the market says to never make long-term decisions based on short-term events. Resist the panic urge, no matter how gruesome your lingering memories from past market events.

Van Wie Financial is fee-only. For a reason.

Medicare is an extremely popular National Health Insurance program for seniors and some disabled Americans. Advocates abound across the fruited and political plains. In one form or another, the national health insurance program is here to stay.

Government Social Systems tend to become underfunded over time, and Medicare’s insolvency is not far off. In the absence of change, reduced benefits are certain in the future. Most likely, the near future. Many experts are forecasting insolvency as soon as 2024. Clearly, something must be done, but Congress and this Administration have shown little propensity to broach the subject.

Funding problems are not the subject of today’s Blog, and will instead be discussed over time, as reasonable solutions are proposed and considered. Today we are looking at widely held misconceptions regarding Medicare. Also, we are limiting this current discussion to the 52 million+ over-65 recipients, as well as the thousands of Americans who are turning 65 every day. Disability is a complex subject and pertains to a small minority of Medicare recipients. We will discuss Disability Benefits at a later date.

Medicare is not free. Far too many Americans believe that Medicare is free. Most people do receive Part A (hospital coverage) free, but Part B (doctors, etc.) and optional Part D (prescription drugs) are never free. Premiums are partially based on income level, with IRMAA (Income Related Monthly Adjustment Amount) surcharges (taxes) applying to higher-income recipients. Medicare premiums are deducted from Social Security benefits for current enrollees.

Enrollment is not automatic. Many people believe that as they turn 65, Medicare will place them into the program. They are incorrect; all Americans must qualify and make application to receive Medicare benefits. Qualification requirements mirror those of Social Security. To earn benefits, the applicant (or a spouse) must have qualified by working and paying into the system through payroll taxes for 40 calendar quarters. All applicants must have attained 65, though application can be made with 3 months of reaching age 65.

Delayed applications, penalty-free. Any American turning 65 and covered by a group health plan (or a spousal health plan) may delay filing for Medicare until personal coverage lapses. Following the loss of private coverage, Medicare application must be made with 8 months. These deferrals are penalty-free.

Penalties for late enrollment. Americans who fail to enroll by age 65, and who do not qualify for a penalty-free delay, will be fined through a surcharge in their Medicare premiums. Eligibility for Part A carries a 10% penalty for twice as long as the delayed filing period. Failure to enroll in Part B carries a 10% penalty for each 12 months of delay. This surcharge is cumulative and permanent.

Know the rules, and you will avoid incurring penalties, while retaining important continuous health insurance coverage.

Van Wie Financial is fee-only. For a reason.

Mortgage rates remain near all-time lows, real estate prices are escalating, and the stock market has been on fire for the past few years. Inevitably, an age-old question has resurfaced, “Should I borrow against the equity in my home to invest in the market?” Seems like a no-brainer, with cash-out refinancing and Home Equity Lines of Credit (HELOCs) carrying interest rates in the 3% range.

One of Van Wie Financial’s foremost suggestions (read: rules) for investors is to never expose money to the stock market unless you have a minimum of 5 years before needing to touch the funds. Risk is a function of time, and market risk is not tolerable to many people. In any single year, the probability of loss is about 37%. Even after 5 years, the probability of loss is about 22%, and in ten years the risk of loss shrinks only to 14%. It is critical to note that these numbers apply to a theoretical diversified portfolio; 100% stock portfolios are even riskier.

How long would you be willing to pay interest on your borrowed money before realizing a positive return? Six months, one year, two, five, ten, or more? Sizing up market risks, then adding the cost of borrowed money, most investors get a bit queasy if they don’t show a positive return for several months or years. Here are just a few pertinent forms of risk:

Stock Market Risk is always present and unpredictable. Ten-year periods ending in 1999, 2000, 2001, and 2002 produced sequential S&P500 Index returns of -3.8%, -3.4%, -0.9%, and 0.4%. So that readers might breathe a little easier, there has never been a 15-year period in which the broad U.S. stock market lost money.

Credit Rating Risk results from borrowing against a home, which could lower your credit score. Excellent credit scores are hard-earned and easily “dinged.” Credit scores impact everything from credit card and loan interest rates to insurance premiums. For people with marginal credit scores, the loss of a few FICO points could be costly.

Real Estate Market Risk is real. “Recency Bias” is an observable phenomenon that causes people to believe that the future will emulate the present and recent past. House prices have been rising for some time now. When the country undergoes another real estate Bear Market, and prices begin to fall, investors who borrowed could get caught in a cash crunch.

We have no philosophical bias against the “borrow-to-invest” concept. Our arguments, both pro and con, are practical, based on decades of experience, and reflective of a deep understanding of people and their relationships with money. Generally, as we discuss risks with clients or potential clients, enthusiasm for the “borrow to invest” concept wanes.

Anyone considering tapping home equity to risk investing in the market should be financially stable, educated, and mentally prepared. And, did we mention patient?

Van Wie Financial is fee-only. For a reason.

My Congressional Financial Christmas Wish List 2021