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Ask Us Anything – Part 3

Ask Us Anything - Part 3

Originally aired 7/7/2021

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You’ve got questions, we got answers! On this week’s show, we’re answering more of your questions about retirement, investments, and your money!

You’ll learn:
– What in the world is an NFT?
– Is now a good time to buy a new house or sell your home?
– Valuable market insight from Ryan Detrick, Chief Market Strategist at LPL Financial

Links:

Register here for Destination Retirement, Benton (July 29th, 2021)

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SHOW NOTES

Cryptomania

  • You’ve got questions, and we’ve got answers! On today’s show, you can Ask Us Anything!
    • And, really, we mean ask us anything! If you’ve got questions about retirement, investments, and your money, (and you’re watching us on the live stream) leave a comment and we’ll answer it live on the air!
  • What is cryptocurrency, and should I be investing in it?
    • It’s basically a digital/virtual currency.
    • The most commonly known cryptocurrency is Bitcoin, which is a decentralized, peer-to-peer virtual currency that is used like money – it can be exchanged for traditional currencies such as the U.S. dollar, or used to purchase goods or services, usually online.
    • Unlike traditional currencies, cryptocurrency operates without central authority or banks and is not backed by any government.
      • The IRS recently issued guidance stating that it will treat virtual currencies, such as Bitcoin, as property for federal tax purposes. As a result, general tax principles that apply to property transactions apply to transactions using virtual currency.
    • Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them.
      • Investments involving Bitcoin may have a heightened risk of fraud.
      • Bitcoin users may be targets for fraudulent or high-risk investment schemes.
      • Using Bitcoin may limit your recovery in the event of fraud or theft.
      • Investments involving Bitcoin present unique risks.
        • Not insured
        • History of volatility
        • Security concerns
          • A Bitcoin exchange in Japan called Mt. Gox (mount gox) recently failed after hackers apparently stole bitcoins worth hundreds of millions of dollars from the exchange. Mt. Gox subsequently filed for bankruptcy. Many Bitcoin users participating on the exchange are left with little recourse.
    • All this said, we don’t think Bitcoin and other cryptocurrencies are inherently bad, per se. But we also don’t think they are the course to financial independence for most people.
      • If you want to invest in crypto, use your fun money (vegas money) but not the money for your basic needs or retirement.
  • What is an NFT?
    • NFTs (Non-Fungible Tokens) are unique cryptographic tokens that exist on a blockchain and cannot be replicated.
      • Fungible means the interchangeability of a good or asset with other specific goods/​assets of the same type, simplifying trade and exchange processes.
      • So, unlike cryptocurrencies, they cannot be traded or exchanged at equivalency.
      • This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions.
      • NFTs can be used to represent real-world items like artwork and real-estate.
        • Much of the current market for NFTs is centered around collectibles, such as digital artwork, sports cards, and rarities.
  • Robinhood
    • FINRA fined Robinhood $57 million and ordered it to pay about $12.6 million in restitution to clients.
    • The regulator cited a litany of offenses, including communicating false and misleading information to customers and major trading platform outages.
    • The sanctions represent the largest financial penalty ever ordered by FINRA and reflect the scope and seriousness of the violations.
  • Bottom line: If you’re constantly chasing trends, you’re not constantly chasing financial independence.
    • As a general rule, if you don’t understand it, don’t invest in it.
    • Understand your risk tolerance.
    • Making sure your needs are covered is more important than a high ROI.

INTERVIEW: Ryan Detrick

  • With us today, as he is every month, is LPL Chief Market Strategist Ryan Detrick!
    • Ryan, how are you?
    • Your team was firmly behind investing in equities for the first half of the year, and that paid off with big returns in the stock market. How are you feeling as we move into the second half of 2021?
    • Okay, let’s go with the things that worry you… First, you say that year two of a bull market tends to be “choppy.” Why is that a concern?
    • Second on the list of things that worry you is “fewer stocks making new highs.” Why should investors be concerned about that?
    • The last item on the list of things that worry you is “elevated stock valuations.” To be honest, Ryan, that sounds a lot like, “the market is at an all-time high, so it isn’t a good time to invest.” Is that what you’re saying?
    • In a recent blog, the Research team said one of the biggest mistakes investors can make is not adequately understanding the risk they may be taking in fixed-income portfolios. What’s behind the team’s concern there?
    • Let’s talk economic policy for a bit. What are your thoughts on what is coming out of Washington with the announcement on a deal on infrastructure spending?
    • With the state of US debt and a debate coming in August about whether to raise the debt ceiling again, what are your thoughts?

Up, Up, Up, Can Only Go Up From Here

  • What do you think about the housing market right now?
    • How long will inflation in the housing market last?
      • Low interest rates, increased migration to the south, and inflation in new-home prices due to the surge in lumber prices has caused the housing market to be really competitive.
      • Lumber prices seem to be on a downward trend – we’re hopeful that this is the beginning of the end of the transitory inflation period in this sector.
    • Is it smart to buy/sell right now?
      • It depends.
      • Answer these questions:
        • If you sell, will you be able to find something that fits your needs without overpaying?
        • Are you buying at a premium/will you ever be able to make back what you’re investing?
        • Are you planning to relocate over the next few years?
  • How about other areas of the economy that are seeing inflation at the moment?
    • Do you expect a long-term impact on the economy?
      • The sectors experiencing high rates of inflation currently are mostly those that were drastically interrupted during the height of the pandemic, whether that was due to low activity in the industry (like travel) or supply chain interruption (like cars).
      • While these areas are seeing significant inflation, other areas are not experiencing it quite as much.
      • Because inflation rates are not terribly high across the board, we believe this period of inflation to be transitory.
  • How can inflation impact my retirement plan?
    • If you aren’t prepared for inflation, it can wreck your retirement.
    • Even during low periods of inflation, the effect of rising prices erodes the purchasing power of your money.
      • As an example, take a cup of coffee that costs 2 dollars today. The effect of a 3 percent inflation rate would have that same cup of coffee cost $3.81 in 20 years (nearly double the cost.)
      • History indicates that only two broad asset classes (Real Estate and Equities) have outpaced inflation over the long-term.
        • A reduction of your purchasing power by as much as 50% over your lifetime in retirement is truly a loss that you can’t recover from.
          • Social Security gets a COLA, but it’s not much and often goes to paying Medicare premiums.
            • If inflation isn’t handled by your Social Security benefit, where will it be covered?
    • You need a plan that accounts for inflation so you don’t have to take a pay cut in retirement.
  • Destination Retirement – Benton
    • July 29th at 6:30 pm
    • Benton Events Center
    • 7 key steps to help you work toward your destination retirement
    • Click here to register for free!

How Will I Know? (Don’t Trust Your Feelings)

  • Will Social Security be around for my retirement?
    • If nothing changes, the Social Security OASI Trust Fund for retirement benefits is projected to be exhausted by 2034.
    • That doesn’t mean everyone’s benefit just disappears.
    • If the fund depleted, the SSA would still be able to pay about 75-80% of promised benefit.
      • While a 20-25% benefit reduction is certainly bad news, you won’t lose all of your benefit.
    • All that said, all of this only happens if lawmakers don’t make changes to keep the fund solvent. And we don’t expect that inaction – politicians are in the business of getting reelected, and with about 61 Million people collecting benefits each month, that’s a lot of voting power.
  • Should I be concerned about rising taxes?
    • Your tax rate may vary widely over the years.
    • The timing and order in which you use different sources of money to pay for living expenses can make a major impact!
      • Qualified money is taxable whenever you take it.
      • Non-qualified money is subject to capital gain tax, which is generally lower (currently) than the ordinary income tax rates.
      • You can generate tax-free income from Roth IRAs and tax-free municipal bonds.
        • However, the tricky situation is how you get dollars into either of those instruments.
        • For instance: converting a traditional IRA to a Roth triggers taxation. The Roth will grow tax-free, but you can’t avoid the taxes on the principle.
    • While we can’t predict what politicians will put in place with regard to taxes, we can create a plan to help you minimize the impact of taxes as you draw income for retirement.

FINAL THOUGHTS

    • Questions are good.
      • If you didn’t have questions about your money, we’d be a little concerned.
      • If you don’t ask, you won’t know!
      • Our heart is to help you work toward financial independence, and that starts with education. If you have questions, we’re here to help.
  •  
    • Wisdom and knowledge are different.
      • There’s a lot of information out there, but cutting through the noise and finding what applies to you can be difficult.
      • Don’t make emotional decisions or follow the advice of someone who knows nothing about you and profits from your fear.
      • The news isn’t the place to build your financial wisdom.
  •  
    • The world is always changing.
      • It’s important to stay up-to-date on the things that could impact your financial life.
      • One of the best ways to do this is with the Fastest Four Minutes in Finance
        • Market updates and important info delivered straight to your inbox once a week (we promise not to flood your email).
        • Visit Fastest4.com to sign up! 
  •  
    • Destination Retirement – Benton
      • July 29th at 6:30 pm
      • Benton Events Center
      • 7 key steps to help you work toward your destination retirement
      • Click here to register for free!