Why You Shouldn’t Rush to Buy a House Right Now

With mortgage interest rates at an all-time low, the temptation to buy is now higher than ever and may make sense for some. To put it in perspective, a 30-year $250K mortgage with a 5% interest rate would have once cost you $1,342; now, with a lower 3% rate, that same mortgage can cost you $1,054. At $288/month, the difference may seem negligible, but it adds up significantly over time  —  for someone making $3,000 per month, it represents almost 10% of their monthly income.

Although the math might be in your favor, there are several factors you should consider before pulling the trigger.

1. The amount and type of debt you have.

Lenders typically don’t want you paying out more than 43% of your income on debt. They weigh your credit card minimums, auto/student loan payments and any other debts you might have against your gross income. If you’re struggling to keep up with your payments, you might want to delay committing to a 15- or 30-year mortgage

 For a lot of us, that’s longer than anything we’ve committed to in the past. And unlike some types of debt, mortgages are typically recourse debts, meaning you’re personally liable for the loan. That loan may harm you if you foreclose and the lender decides to come after your other assets.

2. How much you have left to spend every month.

As a homeowner, you’ll want to prepare for additional expenses. Whether it’s an appliance that needs replacing, a plumbing emergency or a broken washer, you’ll want to have the funds on hand to cover these emergencies.  If you are used to running a tight budget, you may find yourself unintentionally taking on debt to cover these surprise expenses.

When budgeting, aim to keep all your bills to no more than 50% of your income, including the new mortgage. A healthy bill/income ratio ensures you have enough money left to spend and save every month.

3. Down payment funds.

Some lenders may lure you in with the promise of a small down payment. If you qualify, VA (Veterans Affairs) loans can even lend you money with a 0% down payment. However, expenses such as closing costs, escrow bills and legal fees can quickly add up, requiring you to have more than the required down payment for the house. You can also be at a disadvantage when negotiating without the necessary funds to buy down your interest rate or increase your down payment.

Keep in mind, any down payment lower than 20% may require you to purchase Private Mortgage Insurance (PMI). Depending on the size of the mortgage, this may cost you 0.5%-1% of your loan and adds to your monthly payment.

4. Your current credit score.

Similar to a low down payment, some lenders may make an exception for a low credit score. The catch is that lenders typically charge a higher interest rate to compensate for the risk of a lower down payment. Since mortgages charge interest differently, the tiniest difference in your interest rate can cost you thousands of dollars over the life of your mortgage.

Put into perspective, for a 30-year $250K mortgage, the difference between a 3% and 3.50% rate over the life of the mortgage is $24,697. Holding off for a few months and working on tackling your debt-to-income/credit score will improve your position in the long run.

5. A tight housing market.

Although it can be nerve-racking to watch a small number of houses fly off the market, the last thing you want is to rush into such a big decision and find yourself in the middle of a bidding war. Not only would purchasing a more expensive house lead to a higher payment, but you may risk having a loan worth more than your house in the event of a market downturn.

Overall, think of homeownership as an investment before anything else. Like any investment, ensure you’re well off and able to handle the risks first. From there, your financial adviser can help you evaluate your options. You’ll be surprised how often renting in a hot market and investing additional funds elsewhere may be the better option!

Financial Advice Expert, Albert App

Daniel Demian is a financial advice expert at Albert. Daniel earned his bachelor’s in Business Commerce from York University and is a Chartered Financial Analyst Level 3 Candidate. When he’s not working on improving his and others’ financial literacy, you can find him working out or exploring the outdoors.

Source: kiplinger.com

Stock Market Today: Dow Ekes Out a Win Despite Nike Miss

It was a choppy day of trading as the major market indexes took time to catch their breath after a volatile week.

The Dow Jones Industrial Average fell more than 116 points out of the gate as Nike (NKE, -6.3%) stock plunged on the heels of the athletic apparel retailer’s fiscal first-quarter revenue miss, announced Thursday after the markets closed. Nike also cut its fiscal 2022 forecast amid supply chain issues and production shutdowns in Vietnam.

In the wake of Nike’s report, CFRA analyst Garrett Nelson downgraded the stock to Hold from Strong Buy. “With one of the strongest global brands and a strong balance sheet, we believe the company will eventually recover,” he says. “It will just take time.”

However, the blue-chip index closed up 0.1% at 34,798, thanks to cloud stock Salesforce.com (CRM, +2.8%), which continued to gain ground following yesterday’s updated guidance.

The S&P 500 Index also finished in positive territory, adding 0.2% to 4,455, on strength in the financial (+0.5%) and energy (+0.8%) sectors.

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And while the Nasdaq Composite slipped 0.03% to 15,047, it did finish well off its session lows. 

Other news in the stock market today:

  • The small-cap Russell 2000 gave back 0.5% to 2,248.
  • Costco Wholesale (COST) was a post-earnings winner, gaining 3.3% in the wake of its fiscal fourth-quarter report. For the three-month period, COST reported adjusted earnings of $3.90 per share on $62.7 billion in revenues, above the $3.57 per share and $61.3 billion analysts were expecting. Despite the beat, CFRA analyst Arun Sundaram kept a Hold rating on the retailer. “Going forward, inflationary pressures are expected to intensify, mostly driven by higher product, labor and freight costs,” he says. “Like other club stores, COST will absorb some cost inflation, which will likely lead to some margin pressure over the next few quarters.” 
  • Roku (ROKU, -3.8%) took a notable slide today after Wells Fargo downgraded the streaming stock to Equal Weight from Overweight (the equivalents of Hold and Buy, respectively). The research firm cited increasing competition from the likes of Amazon.com (AMZN) and Comcast (CMCSA), which has made “ROKU’s valuation more constrained.” And while they like the stock’s story, “its ability to outperform requires results that exceed already high expectations.”
  • U.S. crude oil futures gained 0.9% to settle at $73.98 per barrel, marking their fourth win in a row.
  • Gold futures rose 0.1% to end at $1,751.70 an ounce.
  • The CBOE Volatility Index (VIX) slid 4.7% to 17.75.
stock price chart 092421stock price chart 092421

One Big Headline Today: Bitcoin

“Bloomberg reported that China’s central bank declared crypto transactions were illicit financial activities and that non-fiat cryptocurrencies were not to be circulated,” says Richard Repetto, managing director at Piper Sandler.

“The news this morning comes approximately three months after China cracked down on cryptocurrency mining, which also triggered a global sell-off in crypto markets.”

Bitcoin was down 9.2% at one point, but finished the regular trading session off a slimmer 5.3% at $42,409.05 (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day).

Today’s price action underscores how volatile cryptocurrency can be – and that the high-risk investment must be approached with extreme care. For those wanting an introduction – or possibly a refresher course – to digital currencies, here’s a breakdown of the biggest players in the space.

And for more risk-averse investors who are still crypto-curious, consider these larger, established companies that have exposure to this technology. Read on as we highlight seven stocks (and one fund) that have embraced the cryptocurrency space.

Karee Venema was long NKE as of this writing.

Source: kiplinger.com

Namaste Invested: Look to Yoga to Build Your Wealth

I have been practicing yoga for more than a decade. I love the physical and mental benefits it provides. Yoga makes me stronger and more flexible and helps counteract the effects of sitting in a chair at my desk all day. Yoga is also a great stress reliever, helping to clear my mind and keeping me grounded and focused. I love how I feel after a great yoga class – strong and empowered, yet balanced and calm.

As I was practicing recently, it occurred to me that a number of the lessons I have learned from my yoga practice can be applied in our financial lives as well:

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1. Focus on your own mat.

 A man doing yoga looks around during class. A man doing yoga looks around during class.

It can be tempting to compare yourself to the people around you in a yoga class. There is always someone that can bend a little deeper or hold a pose a little longer than you can.

It’s important not to worry about what the person next to you is doing. Instead, focus your attention and energy on the practice on your own mat.

This same philosophy can also be applied in our financial lives. You will be better served by ignoring what your neighbor is doing with their finances. Their investment allocation might be right for them, but that doesn’t mean it is the one that will best help you reach your goals. You may envy their outwardly lavish lifestyle, but that doesn’t mean they are on track for retirement. Ignore what you see other people doing with their finances and focus on yourself instead. 

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2. Be mindful.

A young woman does yoga.A young woman does yoga.

One of the benefits I get from yoga is it helps me be more mindful. Through yoga I find myself consistently more aware of my surroundings, feelings and actions, living more thoughtfully and purposefully in the present.

It can be easy to get caught up in the hustle of everyday life and forget to be mindful in each moment. I find this also to be true in personal finance, particularly when it comes to spending. It is too easy to absentmindedly swipe a credit card, spontaneously add to our Amazon cart without thinking, or overdo it on expensive takeout.

One of the best things that you can do to build wealth is to control your savings rate – which means controlling your spending. Unfortunately, very few people have an accurate idea of what they spend their money on. There are various ways that you can incorporate mindfulness into your spending decisions, such as tracking where every dollar you spend goes or asking yourself whether you are buying something you need or something you want.

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3. Look past the wobbles.

A woman looks uncomfortable as she tries to get into a yoga pose.A woman looks uncomfortable as she tries to get into a yoga pose.

There are times during my yoga practice when I find myself constantly wobbling and falling over, struggling to find my balance. When I find myself swaying and struggling to stick with the pose, I take a deep breath, look across the room, and find my drishti – a spot on the wall that doesn’t move that I can focus my gaze on to help me remain steady until the wobbles pass.

Occasionally the stock market also has “wobbly” days, which can be unsettling for many investors. Usually, the best thing that you can do in times of market volatility is to take a deep breath, look toward the future, and focus on your drishti: Remind yourself of your long-term goals, revisit your financial plan, and keep in mind that you put your plan in place when your emotions weren’t running high. Maintaining your focus on the long term is one of the simplest ways to stay the course through any market volatility.

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4. Make adjustments, just don’t give up.

A yoga teacher adjusts a student's pose.A yoga teacher adjusts a student's pose.

On days when everything feels more challenging than it usually does, I am sometimes tempted to give up. Rather than quit, however, I pause, take a breath, and then I make small adjustments. This might mean using a yoga block for support or simply bending my knees deeper. The important thing is to modify in small ways that still allow me to continue my practice. I have found this approach also works well in times of market volatility.

If market volatility has you spooked and you are tempted to sell everything in a panic, don’t just quit investing. Instead, try making some minor adjustments first. You could sell just enough stocks to raise one year of expenses in cash, or you could “flip” your portfolio from a 60/40 stock/bond mix to a 40/60 stock/bond mix. You could also trim your spending instead of your stock allocation. The important thing is not to give up entirely.

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5. Do nothing.

A woman lies in the grass, totally relaxed.A woman lies in the grass, totally relaxed.

Savasana, one of my favorite poses, occurs at the end of the practice and is a meditative posture where you lie on your back in total relaxation, bringing stillness to your body and your mind. It sounds easy, but it can be challenging to just let go and to resist the urge to twitch or move. We are all so accustomed to the idea that you need to be taking action or moving to accomplish something, but taking time to do nothing in Savasana is what allows me to reap and enjoy the benefits of the hard work I just did. This same premise also applies to investing.

Investors often think that constant trading, trying to time the market, or picking the next hot stock is the best way to accumulate wealth – it’s not. In fact, a Fidelity study once found that the best performing accounts were owned by people who forgot they had an account!

Once you put in the work of crafting your financial plan and developing your asset allocation, then take a financial Savasana: Do nothing. Resist the urge to tweak your plan or investment portfolio at the slightest hint of market volatility. Unless there has been a meaningful change in your life that necessitates an update to your financial plan, take some time to relax and reap the benefits of the hard work you just did.

Hopefully these lessons I have learned from my yoga practice can help you relieve some of the financial stress you feel in your life. 

Namaste!

Senior Wealth Adviser, Boston Private, an SVB company

Kathleen Kenealy, CFP®, CPWA® is the Director of Financial Planning and a senior wealth adviser for Boston Private, an SVB company. She specializes in working with successful individuals and families to manage, protect and grow their assets. Kenealy provides guidance on investment, retirement, philanthropic, estate and tax-planning strategies.

Source: kiplinger.com

Stock Market Today: Stocks Maintain Gains After Fed Signals 2022 Rate Hike

The Federal Reserve threw Wall Street something it was expecting – but also mixed in a curveball – following Wednesday’s conclusion of the latest Federal Open Market Committee (FOMC) meeting.

The Fed, as expected, said it wasn’t quite ready to announce the start of tapering but made it clear that action was on the horizon.

“If progress [on maximum employment and price stability goals] continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the central bank said in a release. Many strategists believe the Fed will make its move in November or December.

More startling was that the Fed’s latest “dot plot” – a chart illustrating FOMC participants’ expectations for where interest rates will be in the future – now projects a 0.5-percentage-point uptick in the Fed funds rate by late 2022.

“The lack of a formal taper announcement is clearly dovish, compared to a somewhat surprising hawkish dot plot, which now increases the odds of a rate hike in 2022,” says Cliff Hodge, chief investment officer for Cornerstone Wealth. “This accelerated timeline is firmly ahead of consensus expectations for the first hike to not occur until 2023.”

Michael Gregory, deputy chief economist for BMO Capital Markets, provides additional detail on the dot plot:

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“The median projection now includes a 0.5-point rate hike for this year compared to none before (2 of the 11 in June’s no-move camp jumped on the one-hike bandwagon),” he says. “And, it now has 75 bps worth of tightening in 2023 instead of 50 bps before, with only one no-rate-hike holdout. The inaugural dots for 2024 show a further 75 bps of tightening to a 1.75% endpoint, with, as expected, no one left in the no-change camp.”

The Dow Jones Industrial Average (+1.0% to 34,258), which already was enjoying a strong up day, fought through some volatility after the release but held on to its gains. The S&P 500 (+1.0% to 4,395) and Nasdaq Composite (+1.0% to 14,896) followed suit.

Other news in the stock market today:

  • The small-cap Russell 2000 jumped 1.5% to 2,218.
  • FedEx (FDX, -9.1%) suffered a steep drop in the wake of a disappointing earnings report that included a cut to its 2022 guidance. While the shipping firm exceeded revenue estimates with $22 billion worth of sales in the first quarter of its fiscal 2022, its $4.37 per share in profits was well shy of analyst expectations for $4.88 per share. That led FedEx to drop its full-year profit guidance to $20.38 per share from $21.00 previously – even farther short of the consensus estimate for $21.13. Of particular note were significantly smaller August-quarter EBIT (earnings before interest and taxes) margins of 8.2% versus 6.7% of last year. “This should be temporary, though, as severe labor shortages that are causing FDX to reroute shipments around understaffed hubs will taper as the pandemic wanes, in our view, alleviating excess shipping and overtime costs,” says CFRA analyst Colin Scarola, who dropped his 12-month price target to $335 per share from $357 but maintained a Strong Buy rating on shares
  • Facebook (FB) fell 4.0% today after the social media giant said it is underreporting Apple (AAPL) iOS web conversions by roughly 15%. This, according to Facebook VP of Product Market Graham Mudd, is because recent “platform changes” – namely AAPL updating its iOS earlier this year to allow users to opt out tracking – has made it harder to measure the performance of advertising campaigns. “We’re optimistic about our multi-year effort to develop new privacy-enhancing technologies that minimize the amount of personal information we process, while still allowing us to show personalized ads and measure their effectiveness,” he wrote in a blog, while adding that these efforts “will take time.”
  • A seventh-straight weekly decline in domestic crude supplies sent U.S. crude oil futures surging 2.5% to $72.23 per barrel.
  • Gold futures eked out a marginal gain to settle at $1,778.80 an ounce.
  • The CBOE Volatility Index (VIX) plunged 13.9% to 20.97.
  • Bitcoin rebounded 3.4% to $43,428.16. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
stock chart for 092221stock chart for 092221

Have Investors Dodged a Bullet?

Monday’s fears that China’s Evergrande could turn into another Lehman Brothers-esque meltdown has – if stocks’ motion since then is any indication – all but vanished, at least for the moment.

That doesn’t necessarily mean investors are in the clear.

Brad McMillan, chief investment officer for Commonwealth Financial Network, noted earlier this week that “the Evergrande news is probably the trigger, but not the cause, of the small pullback we have seen.” Indeed, the market has gone months without a significant drawdown, and risks remain, including high stock prices, COVID concerns and a looming debt ceiling.

So don’t be fearful, but stay on guard.

Those looking for protection might consider the sturdy blue chips of the Dow Jones Industrial Average, or low-volatility strategies that prioritize defense.

A little pruning might be in order, too. A broad market decline doesn’t punish all equities equally – particularly expensive stocks frequently bear the brunt of the selling. We’ve recently evaluated 10 stocks that might be on a precarious perch – while there are no glaring faults in their underlying companies, a combination of mediocre growth prospects and sky-high valuations make them appear especially vulnerable to a steep fall.

Source: kiplinger.com

Retirees, Transform Your House Using Smart Home Technology

Hank Norsworthy was tired of having to walk down a dark hallway to get to bed. Diagnosed with multiple sclerosis about 40 years ago, he uses a rollator (a walker with wheels) to get around. After several friends adopted smart home technology to automate certain features, he decided to give it a try.

A few months ago, he bought an Echo Dot as well as some smart lightbulbs and smart plugs to help automate his lighting. With these adjustments, he can now ask Alexa to turn his lights on or off without having to walk down a dark hallway. Norsworthy has been so happy with the results he’s considering getting a smart lock for his front door and more smart lights for his garage. “This beats the little motion detector lights I was using before,” says Norsworthy, 77, of Jacksonville, Fla.

With no small keypads to squint over or an intimidating selection of buttons to press, more older adults are discovering and adopting easy-to-use, voice-activated smart home technology because it relies on something all of them know how to do: speak. The percentage of adults 50 years and older that own smart home technology nearly doubled in just a year, from 10% in 2019 to 19% in 2020, according to AARP’s report “2021 Tech Trends and the 50+.”

Using the system may be easy, but the real challenge is choosing which one you want from the three tech giants — Amazon, Google and Apple — dominating voice activated smart home technology. Because it isn’t always interchangeable across platforms, consumers can get locked into buying only one company’s products and accessories. So think about which smart home features you want and why before investing in a system. “People need to make technology choices based on their use patterns,” says Tom Kamber, founder and executive director of Older Adults Technology Services, which trains people to use technology through its flagship program Senior Planet and is affiliated with AARP.

Deciding on a Smart Home Technology Brand

Those functions will be determined in part by which ecosystem you want to use. There are three main ecosystems or brands: Amazon’s Alexa Smart Home, Google’s Nest and Apple’s HomeKit.

Each company offers smart speakers — such as Echo for Amazon, Google’s Nest Audio and HomePod mini for Apple — that let you pose questions to a virtual assistant or give it voice commands. To do this, you start the question with what’s called a “wake word.” For example, for an Amazon device, you could say, “Alexa, what’s the temperature outside?” For Google Assistant, you would say, “Hey Google, what’s today’s date?” The wake word for Apple is “Hey Siri.”

Beyond these speakers lies an entire universe of smart home products, including thermostats, doorbells, lighting and locks. Each ancillary product comes with its own app that you can control through your smartphone. You can also control these products through the smart speaker.

Although using voice commands to control smart home technology is not required, many older adults find that feature helpful if they have shaky hands or declining vision, which makes a smartphone app harder to use, says Richard Caro, co-founder of Tech-enhanced Life, which looks at how aging intersects with technology, including smart home products for seniors. “They like it partly because it’s a different way to interact with things,” Caro says.

Not every ancillary product will work with each ecosystem. Typically, a product will work with Amazon’s and Google’s technology but not necessarily Apple’s. If you want a specific smart doorbell or lighting system, check if it’s compatible with the ecosystem you are considering.

If you already own one piece of smart technology, it’s best to stick with that ecosystem, says Wade Yarbrough, who teaches seniors how to use the technology through virtual classes at GetSetUp, an online educational community. Otherwise, it’s often costly to make the transition later.

With Google, Apple and Amazon all offering comparable products, the ecosystem is mostly a matter of personal preference, experts say. But Amazon does dominate the space. In February 2020, eMarketer estimated that about 68% of U.S. smart speaker owners would have Amazon’s Echo this year and about 32% would choose a Google-branded product. Almost 19% would use another brand, including Apple’s HomePod. (The numbers exceed 100% because some smart speaker owners use products from more than one company.)

Your smartphone may play a role in your decision, too. Google and Amazon’s products work on Android systems or an iPhone, whereas the smartphone app for HomeKit is only compatible with Apple products. “I’m biased toward Amazon because I have been using Alexa smart speakers for years,” Yarbrough says. “I think Alexa is a little better than the other two in terms of commands. But it’s more what people got started with and got used to. Some people like Siri better, and there is a strong loyalty in the Apple community.”

Smart Home Products Retirees Should Consider

Many smart home products have potential to help seniors age in place. For instance, Amazon last year launched its Care Hub, a free service “designed to help aging customers maintain independence and provide assurance and peace of mind to their family members,” says Nicolas Maynard, senior manager for Alexa for Everyone at Amazon. By connecting their Alexa accounts, a caregiver can check in on a family member remotely. One feature even includes an alert if the other person’s Alexa has not been used by a certain time. Google and Apple did not respond to a request for comment for this story.

Experts recommend smart lighting for older adults because turning lights on and off with your voice or an app can help prevent falls. Philips produces a line of smart lightbulbs, whether it’s a single white bulb or a pack of three that change color.

You can also buy smart plugs that work with almost anything, such as lamps or coffee makers, and that let you control the appliance with your voice through a smart speaker. Because they’re fairly inexpensive and easy to use, smart plugs are a good way for a beginner to try out smart home technology without making a significant investment.

Experts also like video doorbells, particularly for seniors. These doorbells allow the homeowner to see and speak with a visitor at the door without having to walk over and open it. Here, too, Amazon dominates with Ring, a brand that has captured about 40% of the video doorbell market, according to research from Strategy Analytics. Google accounts for only about a quarter of that same market.

But aging in place isn’t the only reason seniors adopt smart home technology. “Older people play too,” Kamber says. “They want to see these amazing new things.”

Technical Support for Smart Home Technology

Most of these products are fairly easy to install, experts say. There are also plenty of video tutorials online about setting up a smart speaker. Amazon has gone a step further with its “Certified for Humans” stamp of approval on any products it considers easy to set up, though you can always hire someone to do it for you.

Anyone can learn new technology, no matter their age, says Susan Corbett, director of the National Digital Equity Center, which provides technology classes to older adults. For instance, her organization taught an 80-year-old to use videoconferencing to attend board meetings during the pandemic. Now he uses Google Earth to “travel the world from his recliner,” she says. “If someone wants to learn, they can.”

Otherwise, local libraries, senior centers and organizations such as Senior Planet often offer technology courses. GetSetUp provides classes on a range of topics, including one on the basics of smart home technology and several on using Alexa. Norsworthy, who worked in IT before retiring, says taking a class about Alexa through GetSetUp “supplied the last bit of knowledge” he needed before buying his Echo. His advice for other seniors: “Just go for it.”

Source: kiplinger.com

Stock Market Today: Stocks Finish Mixed Ahead of Fed

Stocks were on track to stage a modest bounce in the wake of Monday’s drubbing as bargain hunters swooped in to buy the dip.

A solid reading on August housing starts and building permits – which rose at higher-than-expected sequential rates of 3.9% and 6%, respectively – only lifted the collective mood on Wall Street for most of the day.

The Nasdaq Composite held onto its gains through session’s end, adding 0.2% to 14,746. The Dow Jones Industrial Average (-0.2% to 33,919) and S&P 500 Index (-0.1% to 4,354) weren’t so resilient, slipping into negative territory by the close.

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In focus tomorrow: the Fed’s latest policy announcement.

Danielle DiMartino Booth, CEO and chief strategist of Dallas-based Quill Intelligence, isn’t expecting a taper announcement just yet considering there are several “unresolved issues” in Washington D.C. at the moment. “Between the debt ceiling, budget resolution and potential for a government shutdown, there are plenty of political reasons for the Fed to not change policy,” she says.

Other news in the stock market today:

  • The small-cap Russell 2000 added 0.2% to 2,186.
  • Walt Disney (DIS) was the worst Dow stock today, shedding 4.2%. This came after the entertainment giant’s CEO Bob Chapek warned of slowing Disney+ subscriber growth in the fiscal fourth quarter, which ends on Sept. 30. Speaking at the Goldman Sachs Communacopia Conference, Chapek said he sees paid subscribers growing in the “low single-digit millions.” For the sake of comparison, DIS added 12.4 million net new Disney+ subscribers in its fiscal third quarter.
  • Uber Technologies (UBER, +11.5%) was a notable gainer after the ride-hailing firm boosted its third-quarter guidance. For the three-month period, UBER now expects gross bookings to land between $22.8 billion and $23.2 billion – up from its prior forecast of $22 billion to $24 billion. Additionally, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is projected to range from a $25 million loss to a $25 million profit. The previous estimate was for Q3 adjusted EBITDA to arrive somewhere ahead of a $100 million loss. CFRA analyst Angelo Zino maintained his Strong Buy rating on the stock after the update, noting “this partly reflects an improving supply driver network, which will allow UBER to taper investments.”
  • U.S. crude oil futures rose 0.4% to settle at $70.56 per barrel.
  • Gold futures gained 0.8% to finish at $1,778.20 an ounce.
  • The CBOE Volatility Index (VIX) fell 5.3% to 24.36.
  • Bitcoin retreated 4.1% to $42,014.08. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
stock price chart 092121stock price chart 092121

“Stay Calm and Carry On”

Should U.S. investors add Evergrande (EGRNY, -11.7%) to their growing list of worries? Not at the moment, says Brad McMillan, chief investment officer for Commonwealth Financial Network.

Yes, a debt default from the Shenzhen-based real estate developer could disrupt Chinese markets, but it would likely have a minor impact on U.S. investors. Instead, Monday’s drop represents “normal behavior for markets on bad news” and was a “rational response to real, but contained risk,” McMillan says.

So while it’s prudent to pay attention to the news, he advises investors “keep calm and carry on.”

One way to stay the course is with the market’s blue-chip stocks. A number of these names can help guard against volatility-inducing headlines by providing reliability and stability over a long-term horizon – with many offering a healthy and growing dividend to boot.

Certainly there are some Dow Jones stocks that are more attractive than others right now, and we’ve taken a fresh look to see how Wall Street analysts rate the 30 blue chips. Here’s what the pros have to say.

Source: kiplinger.com

China’s Evergrande Crisis: A Real Threat to U.S. Stocks?

Many investors had probably never heard of Evergrande (EGRNY, $10.90) prior to Monday morning. But once the massive and massively indebted Chinese real estate company sparked a selloff sweeping from Asia through Europe and on to the U.S., anxious chatter about contagion and a potential global credit crisis seemed unavoidable.

Evergrande, you see, is facing a liquidity crisis. And it very well might default on coupon payments owed to foreign bondholders due in just a matter of days. 

That could be just the beginning, the fearful thinking goes. After all, Evergrande’s total pile of debt comes to $300 billion. A default or series of defaults could spread panic in credit markets well beyond China’s shores.

Pessimists see these developments and say we’ve been here before – and not that long ago, either. A worst-case scenario, the bears contend, is that China lets Evergrande implode in a scenario similar to what befell Lehman Brothers almost exactly 13 years ago. The fall of the once-mighty Wall Street titan wreaked havoc on global markets and became a sort of ground zero for the Great Financial Crisis.

No wonder, then, that the S&P 500 was off as much as 2.9% at one point in the trading session, and the Dow Jones Industrial Average lost more than 600 points by the closing bell.

But market strategists for the most part argue that although Evergrande presents a threat, and uncertainty reigns supreme, a Lehman moment is a remote possibility. True, the Chinese government appears more likely to make an example of the company than to save it – but that hardly means global disaster is preordained.

Is Evergrande About to Be Another Lehman Brothers?

Evergrande isn’t just enormous, but sprawling. Thus, its $300 billion of debt is just one area of concern.

The company is a property developer at its core but also has subsidiaries and investments in health, autos, sports, media and finance, among other ventures. To get a sense of its scope: Evergrande recorded $110 billion in sales last year; owns $355 billion worth of assets across 1,300 developments; employs 200,000 people; and hires 3.8 million workers every year for project developments.

In other words, Evergrande’s woes have serious implications for China’s economy in addition to its global creditors. But even the pessimists aren’t ready to commit to the “L” word quite yet.

Over his long Wall Street career, David Rosenberg, chief economist and strategist at Rosenberg Research, has been known for his generally bearish take on markets and macroeconomics. He notes that Hong Kong-traded shares in Evergrande tumbled 19% Monday due to default concerns, and that its bonds are trading at 30% of face value. 

“It feels like an ominous repeat of what happened when the Asian property bubble began to burst in the summer of 1997,” Rosenberg writes in a note to clients. But he adds that “it may not exactly be a Lehman moment.”

More positively, there’s Dr. Ed Yardeni, president of Yardeni Research, who says Evergrande will more likely end in a restructuring similar to that of Long Term Capital Management in 1998, rather than a Lehman-type failure. 

“Some fear a Evergrande meltdown will have systemic risks on par with the impact Lehman Brothers’ demise had on the U.S. stock market,” Yardeni writes “While we don’t see the Chinese government saving Evergrande, we’d expect it will provide enough liquidity to make the company’s retail creditors whole. Or at least we hope so.”

The Global Macro Strategy team at UBS Global Research takes much the same view, with restructuring being more likely than collapse. 

“While our base case is now that a credit event for Evergrande seems unavoidable, the extent to which we get spill over into other markets will be contingent on whether Evergrande restructures or fully liquidates,” writes UBS strategist Kamil Amin. “As of today, we remain confident that the former is a much more probable outcome.”

Amin advises clients to keep an eye on upcoming coupon payments on Evergrande’s offshore bonds, “as this could be the trigger for a credit event.” Payments are coming due on Sept. 23, Sept. 29 and Oct. 11, he notes.

Doug Peta, chief U.S. investment strategist at BCA Research, wouldn’t be surprised if the Chinese government allows the situation to get much more intense – if not downright ugly. But an increasingly messy state of affairs needn’t morph into catastrophe.

“Our China strategists believe that the government wants to make an example out of Evergrande to impose some discipline on investors and developers,” Peta writes. “Some onshore investors may be bailed out, but party officials will have no qualms about leaving offshore investors holding the bag.”

Importantly, however, brinkmanship does not equal bankruptcy.

“The bottom line is that we do not view Evergrande as China’s Lehman,” says Peta. “Policymakers may want to make an example of it but not to the point that they will stand by in the face of a broad contagion. The fall of an overextended Chinese property developer is unlikely to push the U.S. out of Goldilocks and into too-cold territory.”

And as counterintuitive as it might sound, a Lehman-type event could ultimately help U.S. investors, the strategist adds.

“Even if it did produce a credit event that rippled across Asian EM markets and tempered investors’ enthusiasm for risk assets, U.S. markets would benefit in a relative sense befitting the dollar’s status as a defensive currency, Treasuries’ status as the predominant risk-free asset and the S&P 500’s low-beta nature,” Peta says.

Just an Excuse to Sell?

Perhaps the most interesting observations come from strategists who say Evergrande isn’t the real issue at all.

David Bahnsen, chief investment officer at The Bahnsen Group, for example, says Evergrande’s bond prices have been collapsing for some time, it’s troubles apparent to all. The company on Monday happened to become a convenient excuse to unload equities, rather than an actual cause. 

“While the Evergrande situation is front and center, the reality is, stock market valuations are overstretched and the market has enjoyed too long of a break from volatility and stock market declines are not surprising,” Bahnsen says. Indeed, in Yardeni Research’s weekly look at stock-market fundamentals, the S&P 500’s 20.8 forward price-to-earnings (P/E) multiple remained near levels last seen ahead of the dot-com crash. The index’s price-to-sales (P/S) multiple of 2.8 is as high as it has been since data was first available in 2004.

“I don’t see any systemic risk for the global economy, but there doesn’t need to be any systemic risk in order for markets to be affected because there isn’t enough clarity on how Evergrande’s challenges may affect the global economy and that uncertainty is enough to spook markets,” Bahnsen adds.

Jamie Cox, managing partner for Harris Financial Group, concurs wholeheartedly. After all, investors have plenty on their plates at the moment. And that’s apart from the fact that September is historically the worst month for market performance.

“The Evergrande situation, although big and impactful, isn’t the reason for this selloff,” Cox says. “Rather, stalemates in Congress on the debt ceiling, worries on policy changes or mistakes in monetary policy, and a litany of proposed tax increases have dampened the mood for investors. 

“When this occurs, corrections happen.”

Source: kiplinger.com

10 Ways You Could Avoid the 10% Early Retirement Penalty

Retirement is something each of us must plan for. Not surprisingly, you want to make sure you’ll have enough income to last throughout your lifetime. Theoretically, if you plan well, you could even retire early. Perhaps you’ve sold your business for a profit, maximized your retirement account contributions, invested in non-qualified accounts, and own multiple rental properties. 

In such a perfect scenario, you could take a blended distribution from various accounts and investments, allowing your money to continue to grow in tax-sensitive ways. On the other hand, taking distributions from your retirement accounts before age 59½ could cause you to owe the IRS a 10% early distribution penalty. However, there are a few conditions in which the government will waive that 10% early retirement penalty.

Before I continue, I’d like to make one thing clear. The purpose of this article is to inform you of ways you might be able to avoid the 10% income tax penalty. If you take money from your qualified retirement accounts early, you will still pay ordinary income taxes on that money. You cannot avoid that.

With that out of the way, let’s take a look at some of the ways you might be able to avoid the early retirement penalty.

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No. 1: IRA Withdrawal for Medical Expenses

A piggy bank with a stethoscope.A piggy bank with a stethoscope.

Life is full of surprises. Some are great, but others can cause major problems. Oftentimes, surgeries, hospitalizations and accidents are unpredictable circumstances. Adding to the stress of these moments are the significant medical expenses they can bring. Although your health insurance should offset some of those costs, you could still owe hundreds or even thousands of dollars out of pocket. What do you do if you’re on a tight monthly budget? How do you pay for those expenses if billing companies won’t accept small monthly payments?

Fortunately, you can make a withdrawal from your traditional IRA for significant medical expenses without having to pay the 10% early withdrawal tax penalty. Keep in mind that there are a few stipulations. You don’t want to withdraw small increments of money from your IRA to pay for medications or occasional doctor visits. Instead, those expenses should come from your normal monthly budget.

To withdraw money and avoid the 10% penalty, your medical expenses must exceed 10% of your adjusted gross income. Likewise, you must use the money to cover expenses that your health insurance did not cover.

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No. 2: IRA Withdrawal to Pay for Health Insurance

File folders with one labeled insurance.File folders with one labeled insurance.

Similarly, you can pay for health insurance premiums using IRA dollars if you meet certain conditions. IF you lose your job AND collect unemployment compensation for 12 consecutive weeks, you can use funds from your IRA to pay for health insurance for you, your spouse and your dependents.

Once again, there’s a catch. To use IRA funds for this, you MUST take the distribution within the same year you received the unemployment compensation.

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No. 3: IRA Withdrawal for Disability

A man in a wheelchair raises his arms in celebration.A man in a wheelchair raises his arms in celebration.

Unfortunately, many of my clients have had to take early distributions from their IRAs due to disability. If you become disabled, you may be eligible for Social Security Disability Insurance (SSDI) and/or Supplemental Security Income (SSI) benefits, but most SSDI recipients receive between $800 and $1,800 per month. The average monthly benefit for 2021 is only $1,277. Anything is better than nothing, but if you’re a business owner, you’re probably used to taking home significantly more than that. 

Therefore, if you become disabled AND you have a physician who signs off on the severity of your condition, you could take money out of your IRA, penalty-free, to supplement your SSDI income. While I hope you never have to use this option, at least you know it’s a possibility.

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No. 4: IRA Withdrawal for a First Home Purchase

A young woman celebrates inside her new home.A young woman celebrates inside her new home.

On a more uplifting note, you can take an early withdrawal from your IRA for the purchase of your first home without incurring the 10% penalty. I know you may be nearing retirement, but it’s possible that you’ve never owned a home. Perhaps you’ve rented apartments or houses your entire life due to work-related travel, commutes or other circumstances. I’ve even seen instances where a person has lived in a house they inherited from a family member and then sold it before moving into a smaller home for their retirement.

 If you’re buying or building your first home, you can withdraw $10,000 if you’re single, or $20,000 if you’re married (if you both have IRAs) from your traditional IRA.

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No. 5: IRA Withdrawal through a 72(t) Calculation

A red change purse.A red change purse.

According to Rule 72(t), section 2 of the Internal Revenue Code, IRA owners can withdraw funds penalty-free, IF they take them as annuity payments. To do this, you must have an actuary run calculations to determine what the substantially equal periodic payments (SEPPs) will be. Additionally, you must take the payments for the greater of either five years or until you turn 59½.

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No. 6: 401(k) Withdrawals

A piggy bank is overflowing with cash.A piggy bank is overflowing with cash.

If you have a 401(k) at your job, but leave or retire from that job, between the ages of 55 and 59½, you could avoid the penalty by keeping your money in the 401(k) and making withdrawals from it. This strategy is often called the Rule of 55. However, if you roll the funds into an IRA, you would no longer be able to withdraw them without subjecting yourself to the early retirement penalty. 

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No. 7: 401(k) Loans

A man pulls his pocket inside out and it's empty.A man pulls his pocket inside out and it's empty.

Another method you could use is to take a loan from your 401(k). Loan provisions apply to 50% of your account balance, up to $50,000. Therefore, if you have an account at work that has $100,000 or more in it, you can take out a loan for up to $50,000. However, if you only have $20,000, your maximum loan, from that 401(k), is $10,000.

I actually used this method with a client once. He retired at 58 years old, only one year from 59½ and needed a little bit of money.  So he borrowed money through a loan provision in his work 401(k). Instead of paying taxes on his withdrawal when he took the loan (because he was in a much higher tax bracket because of his pre-retirement income), he waited until he rolled over the 401(k) into an IRA at 59½. Then, he paid taxes on the rollover.

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No. 8: Inherited IRA Withdrawals

Hands cradle a knitted red heart.Hands cradle a knitted red heart.

Inherited IRAs are becoming more and more common. If you’re not familiar with this method, let’s say that your parents or an aunt or uncle passed away and left you an IRA for an inheritance. If you receive that before you are 59½ years old, you can take the money out of that inherited IRA penalty-free. You will still have to pay ordinary income tax, but you’ll be exempt from the 10% early distribution penalty.

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No. 9: Roth IRA Contribution Withdrawals

A gold egg labeled Roth sits in a bird's nest.A gold egg labeled Roth sits in a bird's nest.

Any money you put into a Roth IRA is after-tax money. Because you’ve already paid taxes on that money, you can pull your contributions out of a Roth IRA tax-free and penalty-free anytime. However, you can’t take your earnings (money that has grown from your contributions) out before age 59½ or before the earnings have been in the account for five years. On the other hand, you can always withdraw from your Roth IRA contributions.

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No. 10: Roth IRA Qualified Education Expense Withdrawals

A college student reads a book on some stairs.A college student reads a book on some stairs.

Last but not least, you can pull money from your Roth IRA to pay for qualified education expenses for yourself or your dependents. As I stated in method No. 9, you can always pull your contributions out. However, in this case, you can also pull your earnings out early and penalty-free if you follow the rules.

If you’re blessed enough to be able to retire early, that’s fantastic! But make sure you let your pre-planning work for you. You obviously want to have enough income to last throughout your retirement, but you also need protection from events as they happen in your life. Whether you need to cover unexpected medical bills or send your children to college without racking up mountains of student debt, know your options.

While you can’t avoid paying ordinary income taxes on early retirement account withdrawals, there may be ways you could avoid paying the 10% penalty. Speak to your financial adviser to determine if any of these methods are right for your unique situation.

Founder & CEO, Financially Simple

Goodbread is a CFP, CEPA and small-business owner. His goal is to make the world of finance easy to understand. He loves digging into complex issues and explaining the details in simple terms.

Source: kiplinger.com