On balance, the Tax Cut and Jobs Act of 2017 was a very positive financial development for American taxpayers. Lower corporate and individual income tax rates, wider tax brackets, and an increased Standard Deduction were all helpful. However, these provisions were offset somewhat by the elimination of the Personal Exemption and a few other deductions.

Thankfully, small investors were treated to some true tax savings. Contrary to my expectations, capital gains remain free for people in the lowest two tax brackets, and those brackets were adjusted higher. In 2018, a married couple filing jointly can have taxable income up to $77,400 (including capital gains) and pay no tax on their capital gains. This came as a surprise to us, especially in light of the reduced marginal tax rates. Medical expenses remain deductible, and Roth conversions remain available. Estate and gift tax exemptions were doubled, making planning easier for most Americans.

Now we’ll discuss what was lost. Medical expense deductions expire in two years, and we sincerely hope that Congress will regain some sense of propriety by extending these important deductions for people who experience an unusually high-cost medical year. The loss of the Personal Exemption ($4,050 per household member in 2017) can hurt large families whose income phases out the new child tax credit.

Personal financial planners and other interested individuals will mourn the loss of the Recharacterization of Roth Conversions. This long name is not as complicated as it sounds. Roth Conversions are simply transactions that convert existing funds from a Traditional (deductible) IRA to a non-deductible Roth IRA. Roth IRAs are favored by people who would rather pay taxes on the money they earn now, as opposed to paying tax when these funds are eventually removed from a Traditional IRA.

Roth conversions continue to be allowed, but gone in 2018 is a wonderful provision that formerly allowed a Roth Conversion to be “undone,” either in full or in part. Called “Recharacterization,” this technique was used to plan levels of income, for instance to keep other capital gains non-taxable (as described above). Since January 1, 2018, Roth conversions are permanent and taxable at marginal tax rates in the year of the conversion. No more second chances.

Many people may want to consult qualified financial planners and CPAs before performing Roth Conversions under the new rules. Although this may be good for our business, we consider the loss of the Recharacterization provision a negative event for taxpayers.

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

Credit cards are one of the greatest and worst inventions of our lifetime. How is it that something can be so good and so bad at the same time? It all depends on how you use them. The average American household carried $15,654 of credit card debt in 2017 according to NerdWallet.com. This means that the total credit card debt in the US was an estimated $905 billion, an 8% increase from the previous year! This balance includes consumers who pay off their cards every month, so it isn’t just debt that is carried from month to month. The current average interest on this debt is 14.87% also according to NerdWallet, which is about 10 times higher than the current Fed Funds Rate.

Clearly, Americans are addicted to credit card debt. We are constantly surprised by the number and type of people that come into our office carrying large credit card balances. In some cases, there are really good reasons for this. In others, people just can’t handle the responsibility of using credit. Whatever the reason is for the debt, it is extremely important to pay attention to the type of card you use, the benefits it offers, and the interest rate you pay.

If you are bad with credit, tend to buy things you can’t pay for, and carry large balances, you probably shouldn’t have a credit card. I am not a fan of debit cards, but in this scenario, this is probably the best option for you. If you really feel that you need a credit card, look for a prepaid card that only allows you to charge up to the cash balance on the card every month. This forces you to control your spending and won’t allow you to build a balance that charges high interest.

If you are someone that has found yourself in trouble and needed to leverage a credit card for a large unexpected expense (like a medical emergency), look for a 0% interest rate card. Card companies run these promotions all the time, and if you have decent credit, these should be available to you. Read the fine print before you transfer the balance and see what fees are involved, but typically if the balance is large and you can’t pay it in the next couple of months, these offers can save you money.

If you have a job that requires lots of travel that you can charge to your own card and get reimbursed by your company, you can really hit the jackpot by using a travel rewards card. These are cards that offer substantial point rewards for booking flights, hotels, and rental cars with them. Some cards offer no international exchange fees if you travel overseas, which can lead to big savings. As a side note, also sign up for all the rewards programs offered by hotel chains, airlines, and rental car companies to maximize your rewards. When I was younger and travelled every week, I was able to build up enough airline miles and hotel points to pay for my entire honeymoon in Hawaii with points!

If you are someone who does not travel for work, but simply likes to charge everything to a card so that you can collect points while spending only what you would anyway (like me), your best bet might be a cash back card, a card that has a robust point system, or a retail points card. American express has a reward points card, and they offer varying levels of points per purchase based on the annual fee paid. These points can then be used to pay your balance, pay for vacations, or on a variety of other goods and services. Some cash back cards will actually send you a check at the end of the year of up to about 2% if you would rather have the cash in hand.

Using credit is a personal decision that can benefit you or it can lead to financial problems. Knowing what type of person you are and making responsible decisions is the key to handling debt correctly. If you are able to handle the responsibility that comes with credit and looking to be rewarded for this, choosing the right card can actually bolster your financial position.

“It’s a lot more difficult to recover in retirement,” says Adam Van Wie, a financial planner in Jacksonville Beach, Fla. “You can try to find another job, but that’s not an option for everyone.”

Read the full article on The Wall Street Journal

Once in a while a concept emerges in the mainstream of public thought which strikes me as totally foreign, literally and figuratively. Recently one of those arrived in my digital mailbox, and I found myself shaking my head at the mention. Universal Basic Income, or UBI is back, and being tried in a pilot program in California.

Studying for a minute, I saw that it was in the city of Stockton, California, and that name triggered a thought. A quick search later I remembered why. In 2012, Stockton filed Chapter 9 bankruptcy, having gotten themselves into financial trouble before and during the Great Recession. Today, pension obligations are underfunded to a degree that threatens every other aspect of the budget.

The UBI test project will give several families $500 per month for doing absolutely nothing. At this time, the project is being funded with private funds, most likely to circumvent a taxpayer revolt. The spending habits of these families will be monitored, as well as the impact on the families’ (are ready for this?) self-esteem!

Stockton has a huge problem, along with California in general. One in four Stockton residents lives below the poverty line, home prices are rising, and wages are stagnant. Homelessness is everywhere. The argument that “something needs to be done” is undeniable. What should be done is, of course, where the disagreements begin.

Many people believe that UBI will encourage people not to work, but some people believe the opposite is true. Hence the UBI experiment. Here it gets more interesting:

  • Many Tech CEOs favor the proposal, as they worry about rapid automation replacing a large percentage of the workforce
  • “People without Borders” advocates deny that illegal immigration is the cause of stagnating or shrinking wages, so UBI is no problem
  • Various well-known economists and politicians have been supporters of UBI, including Milton Friedman (usually my Economics role model) and the late New York Senator Daniel Moynihan
  • Others argue that funds from existing welfare programs would be diverted to families who don’t need the money, exacerbating all-too common class warfare arguments

Oakland is starting a similar trial, but with $1,500 being the monthly stipend. Most people probably remember that Oakland is in the news lately for helping illegal immigrants avoid the law. This program simply fits the pattern of mismanagement that we have come to expect in some California cities.

It will be interesting to see the interpretation of the UBI experiments. I am not holding out any optimism that UBI will prove to be the “silver bullet” in restoring fiscal sanity to California’s troubles. Soon, I fear, we will all be ponying up the bailout funds for the bankruptcy of the so-called “Golden State.”

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

For many families, the annual trek to Orlando is the event they look forward to all year long. Did you know that the average cost for a family of four to visit Disney World for four days can now reach almost $5,000? Imagine what a whole week would cost! The costs break down as follows (roughly):

  • Hotel: $1746 (on site)
  • Admission: $1660
  • Food: $1154
  • Souvenirs & Extras: $400

This come out to over $300 per person, per day.  It is actually amazing how many people can afford to do this type of trip.  But what if you can’t afford it?  Is there any way to save money on a Disney trip? There is, so keep reading to find out how.

  • Visit on a ‘Value Day’ –Disney crowd calendars like this one can save you approximately 15% on tickets.
  • Get tickets in advance (and not from Disney) – Plenty of places offer ticket sales at a discount; AAA, Costco, ParkSavers, Undercover Tourist, etc. Be sure to do your research to avoid online scams.
  • Go all week – This is not an actual cost savings, as the total may be more expensive, but the per day cost is cheaper. For example, a day pass is around $102 but for a 3-day pass it’s $160. There is always some sort of deal going on when you spend more days at the parks.
  • Skip the Park Hopper – These passes allow you can to attend multiple parks in one day. Pick a park and stick with it for the day.
  • Book on offsite hotel – Some say that parking will offset the cost of staying at a cheap hotel, but Orlando has thousands of hotel rooms that are cheaper than the onsite properties at Disney, especially if there is not a big convention in town.
  • Consider Camping – Fort Wilderness is a great way to add a second vacation into your trip if your family is a fan of the outdoors.
  • Pack meals – You can bring food into the park (as long as it follows the guidelines), rent a locker near the picnic area and keep sandwich making supplies
  • Amazon Prime – Have pantry items delivered to your hotel room the day you arrive, no premium to buy food, like eating at home
  • Buy your Disney-branded items before your visit – The sales people in Orlando aren’t stupid, so even something for sale offsite can be at a major premium compared to what you would spend in your hometown or online.
  • Give your kids a budget – You have a budget, so why not your kids? Allow for souvenirs, but give the kids a budget of $25 each that they can spend on snacks, toys, etc.
  • Dine out for less – Split meals or order smaller portions, does anyone ever finish an entire meal from Cheesecake Factory? “They’ll always sell you more food, but they wont refund you food you didn’t eat.”
  • Apps – The Disney World Mobile App shows wait times for rides, show times, where the characters are, how to find the restrooms, and will even link up with your GPS and direct you exactly where you want to go.
  • PLAN YOUR TRIP – Look over the maps, see what shows you want to watch and times, plan how you will move around the park and when you’ll eat. You’ll avoid those I’m bored moments with the kids when it’s tempting to spend extra money.

I am ambivalent regarding being old enough to have lived my formative years in the ‘50s and ‘60s, but on balance I believe that what I am today was significantly affected by the experiences in high school and college. How many of you have wonderful recollections of growing up in a “Beaver Cleaver” middle-American household? The Cleavers live in Mayfield, which was Likely to be representative of Ohio, whereas I grew up in Wisconsin, “around the corner,” as we’d describe it.

Small town 1950s Wisconsin was pretty much like the mythical Mayfield, or perhaps even Mayberry, where doors were unlocked, and Deputy Fife kept his single bullet in his shirt pocket, “just in case.” Depending on the season, in the trunk of my car was either a set of golf clubs or a hunting rifle. In the ignition (where it belonged) was the key.

We feared the disappointment of any teacher, principal, or parent, should we mess up in school. President Eisenhower was a war hero (we won – again) who recognized the need for an Interstate Highway System to accommodate the burgeoning economy. Times were good. The country was strong and safe. Our public educational system was the best.

In the 1950s, a number of wonderful innovations were happening:

  • 1950 – the first credit card appeared, and Snoopy was born, as Peanuts was first published
  • 1951 brought the first color TV
  • 1954 – in Brown vs. Board of Education, the Supreme Court ruled segregation illegal (really, it took that long?)
  • 1955 brought Disneyland
  • 1056 produced Elvis Presley, and America’s parents were outraged; their children weren’t
  • 1957 saw us slip to second place in the Space Race, as the Soviets launched Sputnik, which produced a surge in American national pride, with a corresponding desire to regain the lead
  • Then, in 1959, Fidel Castro rose to power, and, in my opinion, the country started the slide we now call the “Sixties”

Why am I taking this stroll down Memory Lane with you? The (perhaps not-so-obvious) answer is the Trump Presidency. If that seems like a stretch, stay with me.

Following the Revolutionary War, Andrew Jackson eliminated the nation debt. However, following WWII, when the debt stood at $285 Billion, that debt was not repaid, despite a thriving economy. Right about then, politicians began looking at re-election to public office as a career. Many who were first elected in the Fifties, Sixties and Seventies stayed for decades (we allowed that to happen, sorry to say).

What have these long-tenured elected officials accomplished? Are they proud of their record? Is the country better off? Is our public education system the best in the world? Have they been good stewards of the finances, the culture, and/or our safety? I can only speak for myself, but in my opinion, they should hang their heads in shame.

Apparently, however, I am not alone, as became evident in the election of 2016, when voters opted to elect a Washington outsider. Most of us are excited that things are actually being accomplished, and promises are being kept. We are, unfortunately, not supported by Wall Street, the Mainstream Media, or elected officials. Despite our debt, now in excess of $21 Trillion, current Administration policy seems anathema to those groups. Record trade imbalances are met with opposition to Trump’s attempts for change. “Resist” seems to be the attitude. When obstructionism is the order of the day, our problems are virtually impossible to solve.

Wake up, America. No tariffs have been imposed, negotiations are ongoing, and changes are imminent. Embrace the changes we so badly need. When the only situation that is intolerable is the status quo, do something!

And, by the way, you longstanding elected obstructionist political swamp-dwellers, JOHNNY CAN’T READ!

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

Every so often a new cry emerges to change the way we assess civil fines for breaking speed limits and other “offenses” against our society. Some vocal people (often elected officials looking to generate revenue for their communities) want to implement a system of penalty fines that is variable according to the income of the offender. Class envy is nothing new, but class hatred and animus are growing daily, all across the planet. Unlike some European countries, variable fine proposals have not gained traction with the majority of voters in the US. Income inequality is NOT a problem; it is an opportunity.

Variable fines represent a form of class warfare. Perhaps the most fundamental form of class discrimination lies in the U.S. Income Tax Code. The so-called progressive income tax has produced the current system of disincentives, in which there are 7 tax rates, escalating with the increasing income of the taxpayer. We should note that today’s top marginal rate of 37%, while too high in my opinion, is down sharply from the 94% rate reached in 1944.

Thankfully, most items are not subject to income-based pricing, and yet wealthier people generally pay more than the less-well off, based solely on purchasing preferences. Higher-income people generally buy larger houses, more expensive cars, take more exotic vacations, and so on, but they do so voluntarily. No one holds a millionaire at gunpoint and makes him or her buy a Lexus rather than a Chevrolet. Further, once they own the car, the gasoline they put in the car costs the same (per octane content) as the minimum wage worker. Choices. That is pure American.

Growing up in rural Wisconsin, I had ambition and incentive to achieve a better lifestyle. We all knew that if we studied, worked hard, and took some chances, the better life we desired was available. After all, it was America, the Land of Opportunity. No caste system, purely a results-driven economic reality.

Among the tenets of Americanism is our desire and ability to keep our personal information private. Although we have surrendered too much information already, the desire and ability to not share our personal economics involuntarily is indigenous. Surrendering this information to a traffic court judge is anathema to our American way of life.

Speeding fines should be proscribed by state and local law, variable only by the severity of the offense. While we are on the topic, you might enjoy some speeding ticket trivia (thanks to the website joetaxpayer.com):

  • The first known speeding ticket went to the wife of the Canadian Prime Minister, who was driving 10-over the limit (in 1910!)
  • An average traffic cop earns $75k and generates $200k in fine revenue
  • 65 speeding tickets are written (on average) every minute in the US alone
  • In 18 states, judges can add jail time to the fine
  • The average speeding ticket will add $300 annually to the cost of insurance for the driver – the gift that keeps on taking
  • The fastest ticket in the US was issued in Texas in 2003 to a driver going 242 in a 75 zone (in a Koenigsegg CC8S sports car)
  • Fighting your ticket is generally 1% successful, and hiring an attorney can raise your odds to 5%, for a price generating $27 Million in annual legal fees)
  • Germany has variable fines, and the highest speeding ticket fine can exceed $15 million, based on the ability to pay (see my point about “progressive fines?”)

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

This week I was reminded of one of my favorite sayings, A good business deal is one where everyone walks out smiling; a good political deal is one where no one walks out smiling.

I have read and heard many descriptions of this past week’s market action as representing a “Perfect Storm,” which is probably a reference to the very intense movie by the same name in the year 2000. During the week, we saw the FED raise interest rates, Facebook get caught not properly protecting personal information, and President Trump implementing tariffs on some imports.

Unlike the crowd, I believe this week to be a colossal “Imperfect Storm.” Why? Because there was a political deal in which at least one side came out smiling. When Democrats smile and jump in front of cameras to claim victory, hang on to your wallets! Better yet, tell your children and grandchildren to hang on to theirs. This one is a doozie.

Herbert Stein (Ben’s father) was the formulator of “Stein’s Law,” which stated that, “If something cannot go on forever, it will stop.” Borrowing a Trillion Dollars a year is unsustainable. Do the math – the implications are not good for America.

In a world searching for sustainability, we are being led by elected officials who seemingly cannot comprehend the unsustainability of gigantic annual deficits and the resultant mountain of debt. Perhaps worse yet, I believe that Congressional leaders are not interested in supporting the President and his agenda. What happened to the promises made by Trump and elected Republicans in 2016? The public expressed their enthusiasm, but no one, it appears, was listening.

We must return to doing the will of the people, support the Trump agenda, and restore some fiscal sanity in this country. Your livelihood depends on it, both before and during retirement. In the words of then-candidate Donald Trump, “What do you have to lose?”

As has happened too often in recent decades, the Republican majority in both Houses of Congress, coupled with a Republican President, has imploded. Seemingly incapable of leadership, they will likely be relegated to minority status by uninspired voters come November. Party suicide by leadership. And a sad day for America, as it will most likely hasten the bankruptcy of America.

Investors should take heart that with all the new money being spent, coupled with tax rates being reduced, profits in the coming quarter should drive the market higher. Since we are unable to control the politics, let’s hope we all benefit through our investments. Make hay while the sun shines.

Van Wie Financial is fee-only – for a reason.

The Irish Rovers, in their Shel Silverstein-written hit “The Unicorn Song,” described early unicorns as playing, and loving the rain so much that they missed the boat when Noah sailed away in the ark. To this day, the song goes, “You’re never gonna see no unicorn.” Or are we?

President Trump is a unicorn in Washington, D.C. He is the one president in recent history that systematically does what he promised, unless Congress holds him back, such as when Senator McCain shot down the repeal of ObamaCare. Keeping one’s word is simply not done in politics, with the major exception of raising taxes, which is easily done by big government-loving politicians. To show his resolve, Trump actually cut taxes, as promised. Now, he is talking about doing it again, and I am enthused that “President Unicorn” may get it done.

The “Swamp,” as Washington, D.C. has rightly become known, is unaccustomed to such behavior, because “we’ve always done it this way.” How has that worked, given our $21 Trillion+ national debt, gigantic annual deficits, and loss of companies, industries, and jobs over the past few decades? The election of 2016 was about “Draining the Swamp,” and the Swamp doesn’t like it. Make no mistake about one thing – Wall Street is an appendage of the Swamp. And the Swamp hates change. Americans should embrace the changes.

Due to inane Senate rules, recent individual tax cuts (for an estimated 91% of taxpayers) were neither permanent nor significant enough to stimulate wealthier taxpayers into more action and investment. “Round 2” of tax cuts are being proposed to rectify the shortcomings of the Tax Cuts and Jobs Act. The highest marginal rates, which were lowered relatively insignificantly, need to come down again, this time by a large percentage. All personal rate cuts then need to be made permanent. I would then propose a rule change that would require a supermajority of both houses of Congress to raise taxes, except in time of declared war.

Americans are bombarded with lies about tax cuts being “only for Corporations and the wealthiest taxpayers.” The liberal media and most young people have no historical perspective from which to evaluate their opinions. Those of us who experienced tax cutting efforts from the past (John F. Kennedy, Ronald Reagan and George W. Bush) remember the positive effect they produced in terms of added revenue and prosperity. Effects of the recent tax changes are already showing up in our booming economy, and should accelerate.

Following the prosperity of post-World War II America, Congress and several presidents have spent our way into a mess. We have gone from the world’s largest creditor to the world’s largest debtor. The decline in our prosperity and civility is shameful and needs to be reversed. It was inevitable that a Trump-like character would emerge and reveal to so many of us what should have been apparent all along. When and who it would be were unknown, but it was a virtual certainty. So, Trump happened. We should give him a chance. After all, failure is unacceptable; success isn’t automatic. A unicorn is just what we needed. I’ll take Unicorn Spit over Swamp Water any time of any day.

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

Everyone who had money in the stock market in 2007 remembers the painful 18 months that began on October 9, 2007. Most of us would rather forget, but learning from history should help us avoid mistakes made in the past. Did most of us miss something back then?

As a general rule, not over-reacting to stock market swings is a fundamental key to long-term success. Yet hindsight tells us that “buy and hold” was excruciating during those 18 months, during which the S&P 500 Index lost about 55%. Should we all have done something different?

In order to answer that question, we should first look at Friday’s 9th birthday of the current Bull Market. On that day (March 9, 2018) the S&P 500 Index closed at 2,786.57, up from 676.53 in those 9 years. That’s an astounding 312% gain. Even better are the NASDAQ gains of 496%. Would you have wanted to miss out on those remarkable numbers?

During these past nine years there have been some very scary times in this Bull Market. The summer months of 2015, the first six weeks of 2016, and the first several days in February, 2018, were painful and frightening periods. Yet we held, and on Friday the market was already approaching its January, 2018 highs (the NASDAQ actually set a record high Friday). Should anyone have sold during these three rough periods?

Have you noticed that every paragraph so far has ended in a question? This purposeful style is meant to reflect the simple fact that there is no absolute answer. Looking back is easy, so the “right thing to do” is readily apparent. Obviously, we did the right thing by staying put. So why did it hurt so much to watch the two 1,000+ point down days on the DJIA?

While the standard answer to these questions is that long-term investing pays off, we do like to consider the economic conditions driving the markets. It should come as no surprise that the economy is excellent. Job creation, tame inflation, and more money in our pockets from tax cuts, all have contributed to the recent strong market performance. Should we be surprised?

Looking back 10-1/2 years ago, and asking the same question, would the answer be the same? Money market funds faced danger of “breaking the buck,” mortgages were failing in record numbers, large investment firms were going under and/or seeking bailouts, oil, gold and silver prices were skyrocketing, and job losses were a daily occurrence. Enough questions – those were economic bad times, and that is an understatement.

“Staying the course” is made much easier by understanding and acknowledging economic conditions at the time. Markets don’t operate in a vacuum, and politically-biased opinions are ubiquitous and should be ignored. The purpose of the Van Wie Financial Hour is to help listeners understand the conditions influencing the markets at any time. When the markets are acting sensibly, we say so, and vice versa. Knowledge is power, as the saying goes. We couldn’t agree more. Enjoy the ride, even if it gets bumpy. Bull rides are like that.

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