Financial Wellness

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How Long Can the Housing Market Stay This Hot?

I’ve recently written about receiving two unsolicited offers to buy properties I own which may have seemed incredibly strange just a few years ago but is becoming increasingly common. The housing market is white hot and industry insiders aren’t anticipating significant near-term changes in demand due to the ongoing low inventory. The catch with the offer for one property (which was never meant to hold a family of four) is that the aforementioned low inventory means there aren’t many next-size-up properties in the areas we’d prefer.

I’m not sure what to make of this situation. On the one hand, from our vantage point, it’s certainly nice to already own residential real estate and not be first-time homebuyers right now. I feel for those who have been priced out and/or cannot find something suitable within their budget.

On the other hand, it seems the housing market is undergoing a structural change that could put what were once reasonable homes (a relative scale, for sure) out of reach. This is due to the confluence of both demographic and pandemic-induced changes.

The rising generations, that for so long did not seem interested in buying, now are. And the throngs of people who previously needed to work in and around major urban areas are suddenly free to go wherever they wish without any geographic-related salary reduction (at least for now).

My examples of offers for homes in Vermont and Rhode Island aren’t outliers. The same trend in the housing market appears to be happening around the country. We are currently visiting my in-laws in North Carolina. Their development typically sees 12 new homes built every year. There are 38 under construction this very moment.

Stepping back, this scenario is reminiscent of the dramatic structural shifts in work-from-home stocks that began roughly a year ago. That trend caught fire quickly, burned intensely for several months, then began to cool. But it is far from being snuffed out – work from home and the wider group of Internet, e-commerce, cloud, digital, etc. stocks, while well off their highs, are still up significantly from where they were pre-pandemic.

Will the housing market follow a similar curve?

Real estate is far less liquid than equities. Whereas stocks offer little to no utility (maybe dividend payments, in some cases), real estate offers it in spades. In many ways homeownership represents a form of consumption with a (usually) appreciating asset.

The strength in the housing market helps illustrate just how dramatic and widespread the trend shifts are as a result of the Covid-19 pandemic.

As we move forward the simple and often repeated narrative of “everything will go back to normal once enough people have been vaccinated” will likely prove to be far from accurate. More likely is that a new normal will emerge, and it will be different from what was expected.

As investors we need to keep our eyes open and ears to the ground as we seek out opportunities to participate in what that new normal could be.

Reader Response
Here are some of the comments I have received since first writing about the surging real estate market. I’ve edited for clarity and brevity, and removed certain personal details.

“Hi Tyler, my husband and I live in Michigan. We built a home on 45 acres and moved in December 2019. Even when we built, Trump’s policies made lumber from Canada and door handles from China soar in price. We have friends building now and prices of new home building have shot up. This makes existing homes seem like a bargain, even at much higher than usual prices. Even if President Biden can repair some of these relationships, it seems prices never retreat as quickly or to the level from which they started. Our friends said a sheet of plywood has tripled in cost. This pressure on the existing home market will probably last some time.”

“Santa Fe is a bit of a boutique real estate market with a somewhat fixed amount of inventory. A small uptick in demand quickly sends prices higher. The CofC did a study finding that the city was 8,000 housing units short of what was needed due to employer needs. In the most desirable areas people are buying homes online without ever seeing them in person and prices are exceeding $500/sf., which previously was considered top of the market. Marry the above with the fact that Santa Fe is likely a great climate change pick due to its 7,000′ elevation and the fact that there are no natural disasters, and you have a city in great demand.”

“Tyler, the Nashville market has been an anomaly for 12+ years but now it fairly represents the recipient cities who are benefiting from the flight to the red zones, as I call them. As a developer, builder, glazing subcontractor to the construction industry and owner of a large commercial property portfolio, I think I have a pretty good handle on the real estate side of life, the answer is … flip a coin. Just like the stock market, there is simply more money in the world than there are safe/reasonable places to put it. This is causing prices to rise for no good other reason other than supply and demand. With the flight from crowded cities and blue cities and a realization that there is more to life than 60 hour work weeks, really nice areas and red areas are going to win out. As for you, if someone offers you stupid money for your primary residence and you can find something to rent for three years, it is probably worth doing. Once things calm down and you have a chance to re-evaluate your life [to fit] the ‘new norm’ (which will not be known for at least two to three years) you will be able to put your money back into a replacement home that fits your new life circumstances.”

“We live in a gated community in Palm Beach County, 1,622 homes. Normally there are 90-120 for sale. Today … 15, and all lower priced. Last home in our village went for about $150,000 more than I thought it was worth. Friend in Concord, Mass., just had a bidding war on his home which went for some $120,000 over ask. Bottom line: People are leaving the cities, working at home, enjoying a quieter life.”

This is Tyler again. I’m interested to hear what you all think of the residential housing market right now, and the underlying trends behind the strength and re-distribution from cities to more suburban areas.

If you have thoughts to share and/or observations of your own, along with some indication of where you live, please share below.

Planning for Your Financial Freedom

Happy New Year! I know you’re as pleased as I am to put 2020 to rest. But with the new year—drumroll please—it’s time to make our Resolutions for 2021!

Yes, it’s true, resolutions are made to be broken. And I’m just like the 94% of people who don’t keep theirs (according to uabmedicine.org). Every year, I make the same ones—lose 10 pounds and save and invest more money. Although, I have to say, I have stuck (mostly) to my exercise program (didn’t lose any weight!) and I did make some progress on the saving and investing angle.

How did you do?

The Top 10 New Year’s Resolutions
According to goskills.com, here are the Top 10 New Year’s Resolutions:

1. Exercise more
2. Lose weight
3. Get organized
4. Learn a new skill or hobby
5. Live life to the fullest
6. Save more money / spend less money
7. Quit smoking
8. Spend more time with family and friends
9. Travel more
10. Read more

Those resolutions vary greatly by state.

As you can see in the following map, zippia.com reports that therapy is the most popular resolution in 12 states (including my state of Tennessee). I guess that makes sense, with the increase in the focus on mental health during this COVID-19 crisis. Eight states cite weight loss as their number one goal. Seven wish to quarantine and chill. Four just want a good night’s sleep. And only Iowa, Mississippi and North Dakota want to save money!

Why our Resolutions Fail
So, why do only 8% of our population keep their New Year’s Resolutions? It turns out that the answers are the same as for those who fail in their financial goals—or really any other ‘wish list.’

According to BusinessInsider.com, they are:

Your resolution isn’t specific enough. You see, just saying you will “lose weight,” “save more,” or “learn a new skill or hobby” sets you up for failure, as you have not set up a system to mark your progress. As a business owner, if I say to myself, “I want to hire some good Realtors this year,” it probably won’t happen. But if I say, “I want to hire 5 new agents who each produce at least $2 million in annual sales,” I can make that happen, by outlining a plan to find and hire those agents, and then train them to succeed. Without planning, creating and following the steps needed to attain that goal, and acknowledging my small wins along the way, I probably won’t stay motivated and I won’t reach my goal.

Solution: Make your goal specific and achievable: I’m going to exercise 30 minutes, three times a week. I will go to Starbucks twice a week instead of every day and I will save and invest that $100 extra per month. I will sign up for a virtual French class in January.

You are not looking at your goals positively. We may want to “stop eating junk food” or “wasting money,” but those words are negative, and they dwell on what you’re trying to stop, which often makes them more attractive. Just thinking about junk food makes me want to find the chips!

Solution: Focus on the positive things that will come to you when you stop those behaviors, such as weight loss, feeling healthier, and saving more money.

Your resolution isn’t about you. Sometimes, our New Year’s resolutions are not what we really want. Oftentimes, we are influenced by what our husbands, mothers, and friends want us to do—like lose weight, dress better, or stop watching so much television.

Solution: You must want and set your own goals if you are to be successful, otherwise, you will fail. If you love to watch five hours of TV every day, and your wife wants you to reduce that viewing time, it probably won’t work. But if you decide three of those hours could be used for something more productive—that you like to do—you are more likely to buy into the plan and be successful.

The point is, you can make and achieve your resolutions—you just have to go about it the right way. I’m going to give you some great tips on just how to do that—as well as the tools you’ll need to steer your course.

New Year, New Beginning
But first, let’s talk about new beginnings.

2020 dealt a devastating financial blow to many of us. The unemployment rate peaked in April, at 14.7%. As of December 13, there have been 610 corporate bankruptcies in America.

But one bright spot that COVID brought us is this: people in the U.S. are saving more now than they have in decades. Also, in April, our national savings rate peaked at 33.7%, according to Statista.com. It has since dropped to 12.9% in November, but that is the highest savings rate in more than 60 years, and well above our average, which has generally hovered in the 7% range.

Now, we’ve arrived at 2021. The year ahead shines brightly, as a beacon of hope—hope that we will toll the death knells on the coronavirus, boost employment, and nurse our travel, restaurant, retail, and small businesses back to health.

After the financial interruption of the coronavirus, saving and investing more should be right at the top of everyone’s New Year’s resolutions. Think of it this way—cash gives you a lot of flexibility. It can make your life a whole lot easier if you suddenly find yourself without a job or with a medical emergency. Saving/investing can buy you some really nice vacations, pay for your children’s or grandchildren’s education, purchase your dream house, or help you start a business. And most of all, it will provide you greater mental health, as you will have a cash cushion that stops the worrying that comes with financial instability.

So, number 1, define your savings/investing goal, and as my dad used to say, “pay yourself first.” That means—even if you don’t think you can afford it—save something, and then build on that. Here are some ways to make your savings grow.

5 Easy Steps to Creating a Budget
Create a budget. There are five steps to developing a budget.

1. Calculate your net income. Most of us know how much money is coming in. Of course, if you are self-employed, or commission-based, that varies month-to-month. So, you can start with what your minimum monthly intake will be.
2. List monthly expenses. What are you buying? The best way to figure this out is to keep a record of all your expenses for a minimum of one month. You’ll be surprised and amazed at where your money is going. Write it all down: $5 at Starbucks, $10 at the grocery store for impulse buys (that’s why you need to make a grocery list before you go shopping!), $17.99 for Netflix, $80 for your hair cut and style, $40 for that scarf you didn’t need, utilities, auto and health insurance, gas, auto repair, HVAC tune-up, childcare, gym memberships, dining out, entertainment, and loan and mortgage payments—yes, write it all down—no matter how small!
3. Label which expenses are fixed, and which are variable. Fixed expenses are just like they sound; you have to pay them. These are bills like rent/mortgage, utilities, transportation, insurance, food, and repaying loans. Variable expenses are items that you may not need, like your daily Starbucks run, eating out three times a week (like we used to, pre-COVID!), or the gym membership that you don’t use, or those regular shopping sprees to make you feel better. In other words, these are the expenses that you have the opportunity to reduce or eliminate completely which can be the source of your new savings/investing initiative.
4. Determine average monthly costs for each expense. Your fixed expenses should be about the same each month, but things like groceries and utilities may vary. So, if you have the patience, look at your checking account and see how much you’ve spent on these items in the last year, and average them out. Then put that number into your budget. Some months you’ll be ahead and some you won’t.
5. Make adjustments and start saving. If you’re outspending your net income, you’ll need to find some expenses that you can reduce or cut completely. And this is also where you will allocate your monthly savings. If you are spending less than you make, drop the overage into savings. You can set up one or more savings vehicles—for vacations, education, and retirement. But first…

Making Saving and Investing a Priority
Create an emergency fund. According to a November survey from listwithclever.com, three in five Americans (61%) say their emergency savings won’t last through the end of the year or that they have already run out of savings. Historically, experts have advised that you have three to six months’ worth of living expenses in your rainy-day fund. COVID-19 has shown us that our emergency funds should probably cover at least one year’s expenses.

Automate your savings contributions. If your paycheck goes automatically into your checking account, ask your employer to divide it, so that some of your income is allocated to your savings account. And every time you get a raise, add at least a portion of that to your savings. If you are self-employed, sign up for an automatic monthly debit from your checking to your savings/investing accounts. If you do that, your money will grow exponentially. The sooner, the better, as when it comes to savings, time is your friend, as you can see from the following chart.

If you’d like to play around with different savings and interest/investment rates, try this calculator: helpfulcalculators.com/compound-interest-calculator

Boost your retirement savings. This is the most important part of your financial plan. Depending on Social Security is not a great (or livable) goal. The average Social Security benefit is $1,503 per month. That will barely cover rent or mortgage expenses for most people.

If you have a 401(k), maximize your contribution—especially if your employer matches some or all of your contributions. Do that now! Do not leave any “free” money on the table. In 2020, you can contribute up to $19,500 into a 401(k). And if you are 50 or older, that contribution goes up to $26,000.

Consider contributing to or maximizing your IRA. The maximum contribution for 2020 is $6,000, or $7,000, if you are over 50 years of age.

Invest more. Don’t just stop at retirement savings, although many of those are tax advantaged. After you’ve maxed out your retirement accounts, create another investment account at a brokerage house, in which you make regular deposits. There’s no limit to what you can save! Commissions are almost non-existent today, and these accounts can be as liquid as you desire. And if you are new to investing, start with mutual funds and ETFs.

Ways to Reduce your Spending
Ok, that takes care of the saving/investing portion of your New Year’s resolutions. Now, let’s talk about expense reduction resolutions.

Refinance your mortgage and/or your student loans. According to Bankrate.com, the average 30-year mortgage rate is now 2.87%. If you plan to stay in your home for more than a couple of years, and your rate is at least 1% higher than that, you should definitely refinance. Let’s look at a couple of examples.

Mortgage balance: $200,000
Payment at 2.87%: $829
Payment at 4.50%: $1,013

Mortgage balance: $400,000
Payment at 2.87%: $1,659
Payment at 4.50%: $2,027

Just ask yourself, “What could I do with an extra $184-$368 (or more) per month?”

Pay down credit card debt. As I mentioned earlier, saving is on the rise in America, and credit card debt is dropping. As you can see in the following chart—this is the first decline in eight years!

And that’s a great thing! The average interest rate on credit cards is 17.98%, according to wallethub.com. Imagine how much money you would have if you had zero credit card debt—and how much faster you could bring up your savings/investing accounts.

If you feel snowed under with credit card debt, there are two popular strategies to gain control of it:

1. The debt avalanche method—paying off your highest debt first
2. The snowball method—paying off your smallest amount of debt first

I know many financial advisors who advocate the first strategy, and that’s fine. But often, baby steps work best when getting your financial house in order. That’s because after each step, you’ll feel that you’ve accomplished something. And for that reason, #2 is my favorite strategy. Each time you pay off one of those lower balances, you’ll feel rewarded, and ready to tackle the next step.

Use the Island Approach to separate your credit charges. This means you will have different credit card accounts for different financial needs—a chain of islands, so to speak. For example, everyday purchases can be paid for with a rewards credit card that gives you airline miles, cash back, gift cards, etc. Alternatively, if you sometimes carry a balance, you will benefit from a 0% APR card. Comparecredit.com gives you a list of the best 0% cards (at least until 2022). The top five are:

1. Citi Diamond Preferred (18 months interest-free on balance transfers)
2. Citi Double Cash (18 months interest-free on balance transfers + double the cash back)
3. Blue Cash Everyday from American Express (15 months interest-free on balance transfers)
4. Bank of America Cash Rewards (12 months interest-free on balance transfers + rewards)
5. Discover It Cash Back (14 months interest-free on balance transfers + 5% cash back)

Improve your credit score. Most credit scoring companies rank credit scores from 300-850. According to FICO, the average credit score in the U.S. is 695. If you want to apply for a mortgage, FHA considers the minimum score to be 580. Your credit score is critical when you need to borrow money. Generally, the higher your score, the lower your home mortgage (or consumer debt) interest rate will be. And that means a lower payment and more money in your pocket, instead of your bank’s.

Before you apply for any credit, it’s imperative that you find out your credit score. You can go to AnnualCreditReport.com to get a free copy of your credit report and score. I recommend that you do this at least once a year—whether or not you’re seeking credit—just so you can check your report for any errors. (It won’t count against your credit score).

The good news is, if you don’t like what you see, it’s possible to increase your credit score.

Cook more meals at home. I know, COVID-19 has sort of forced this on us. But not only is eating at home better for your pocketbook, it’s also healthier. According to the USDA, from 1978 to 2012, the share of daily calorie intake from food away from home (FAFH) rose from 17% to 34%. You can blame our addiction to fast food for most of that. And, honestly, most restaurant food has more butter, salt, and fattening ingredients than most home chefs use. And don’t forget the temptations, including all those fatty foods and desserts (which I rarely eat at home, but love to gobble up at a restaurant!).

If you don’t believe me, just look at this chart from Infoplease.com:

Source: Infoplease.com

So, if you’ve cut down on eating out in 2020, stick with it in 2021. Your bank account and your waist will love you for it!

This may be something you’ve already begun to do with many restaurants around the U.S. being limited to takeout only. Keep it going into 2021.

Pare your expenditures. Once you see your budget in black and white (and all that stuff you are spending money on!), I have no doubt that you can eliminate a few categories. Be brutal—wouldn’t it be a lot more fun to see an extra $1,000 or two in your savings/investing account at the end of the year than those magazines you don’t read, those 40 pairs of black shoes, or 365 empty coffee cups?

If you’ve Cut Spending as much as Possible, Consider…
Look for ways to boost your income. In my November issue of Financial Freedom, I talked about different methods to increase your income, including second careers and side hustles.

Last year taught us some hard lessons, and one is that financial uncertainty can happen in the blink of an eye, and even when you think you have a steady income, that can quickly disappear. So, leaning on your entrepreneurial side can be beneficial—long and short term. You can do any number of side jobs—freelance work, dog walking, cleaning homes and/or offices, and even investing in rental properties.

Some Last Financial Resolutions
Review your insurance policies. Lots of things changed this past year, so make sure you have enough coverage—on your automobile, health, and property. And don’t forget to update your beneficiaries.

Update your will and medical directives. Family dynamics often change, so review these documents so that they are in line with your current relationships.

Check your withholdings. In 2019, the IRS created a new W-4 form to help you calculate your withholdings. You don’t want to let Uncle Sam use your money interest-free, so make sure you review your deductions.

Use Technology to Keep your Financial Life on Track
Fortunately, we no longer operate in an Ebenezer Scrooge environment, where bookkeepers toiled by kerosene lamps over their green ledger books!

Today, it’s pretty easy to let technology do most of the work. Sure, you can set up a spreadsheet in Google Sheets or Excel. That works just fine for a lot of people. But the downside of that is those spreadsheets don’t come with a lot of data tools to help you figure out exactly where you stand, financially.

However, there are plenty of technology solutions that will help you create and stick to a budget, tell you when an expense is getting out of line, and give you ideas on reallocating your income for maximum results. Most are pretty inexpensive, too.

I can recommend Quicken.com. It works great for personal financial planning and execution, and you can interface it with your bank accounts. You just create the accounts and direct your income and expenses to the right one. Once you have those initially set up, most of your data will be automatically updated from your bank accounts.

I graduated about a decade ago to Quickbooks.com, which I use for business. I’ve used it for about 10 years, and it contains really good tools to decipher where your money is going to help you get control of your budget.

Most of these programs also offer apps for your phone (yes, there’s an app for that!). I’m still old-school and don’t do a lot with phone apps, but the younger generation prefers to do almost everything on their phones, and they have plenty of apps to choose from, including these from nerdwallet.com:

For budgeting:

1. PocketGuard, for a simplified budgeting snapshot
2. Mint, for budgeting and credit monitoring
3. YNAB and EveryDollar, for zero-based budgeting
4. Goodbudget, for shared envelope-budgeting
5. Honeydue, for budgeting with your partner
6. Personal Capital, for tracking wealth and spending

For personal finance:

1. Mint: Best Overall
2. You Need a Budget: Best for Debt Payoff
3. Personal Capital: Best for Wealth Management
4. Clarity Money: Best for Managing Subscriptions
5. Prism: Best for Bill Payment
6. Spendee: Best for Shared Expenses
7. Mobills: Best Visuals

We’ve discussed our 2021 Financial Resolutions: creating a budget, scrutinizing your expenses, boosting your income, and tracking all the above, so that you are 100% on top of your finances. But we still need to talk about how to make those resolutions come true. Don’t worry; it really isn’t that difficult. You just need to create some new habits.

I think these tips from uabmedicine.org on keeping your resolutions are excellent:

Start with specific micro-goals: Baby steps! Think of it as a marathon, not a sprint. Set small, measurable interim goals that will keep you driving toward your ultimate resolutions.

As I said earlier, set resolutions for goals that you—not anyone else—desire: That way, they will be far easier to keep.

Document your progress: It’s like making a list and checking it twice. Don’t you feel good when you can scratch something off your list? You will build confidence in your end goal by seeing—in black and white—your progress. Some folks find a journal is a great way to do this.

Practice patience and forgiveness: Just like with a weight loss program, you’re going to have “bad” days. So, forgive yourself and move on.

Schedule time to achieve goals: You schedule your business meetings, family birthdays, lunches with friends. Schedule your time to get on track with your resolutions, too!

Embrace the buddy system: Sometimes, it takes a village to achieve great things. And having a buddy to discuss your progress (and once in a while, to hold your feet to the fire!) can help you accomplish your goals.

Reward yourself for achievements: Big or small, cut yourself a break and build in a reward system for meeting your goals.

I feel sure that 2021 is going to be a much better year, and by taking these steps to create, monitor, and achieve your financial resolutions will result in our ultimate goal—Financial Freedom!

6 Tips for Becoming a Successful Investor…and Golfer

This year has been turned upside down in many ways. That includes the sport of golf. In recent years, golf has seen its active player numbers steadily decline as baby boomers age and youngsters eschew this traditional country club sport.

So who would have thought that its popularity would surge during a pandemic? In 2020 golf rounds played were up almost 9% as golf is the rare sport that can be played while maintaining social distancing.

How to Invest in Golf Stocks
Golf stocks such as Callaway Golf (ELY) bounced backed from the COVID-19 pandemic and are posting strong sales and profits well ahead of 2019 as golfers with cabin fever escaped to golf courses across the globe.

One area of growth are golf club and ball sales, said Callaway Chief Executive Chip Brewer, while the company’s apparel brands remained “resilient” in the wake of the economic downturn.

“The golf business is experiencing unprecedented growth and is in a position of strength, and our brands are very strong,” said Brewer in a conference call with Wall Street analysts. For its third quarter, Callaway reported a sales increase of nearly 12%, to $476 million, with profits soaring 69% from last year.

Acushnet Holdings (GOLF), which owns Titleist and FootJoy, is another golf stock that indicated a big turnaround, and CEO David Maher recently told analysts that “the game and business of golf have been incredibly resilient over the past few months.” The company said that demand for golf balls had been particularly strong, indicating a pickup in rounds played.

6 Tips for Being a Successful Investor and Golfer

1. Get organized with a smart, conservative strategy and realistic goals

This is very important. To get ahead, you must get organized. Great golfers always have a strategy in mind for every hole before they begin. They carefully chart a course and set specific targets that can be adjusted for different weather conditions. Unfortunately, amateurs (dare I say hackers) give little thought to strategy and usually have no plan at all.

2. Keep your head when things get rough

The roguish, stylish and flamboyant Walter Hagen usually arrived on the first tee in black tie and always expected to hit three or four poor shots a round. This relaxed attitude led to him staying calm when the inevitable shot went astray. Remember, golf and investing are not games of perfection. When stock picks go south, cut your losses and get back into the game.

3. Be deliberate, patient, and play the probabilities

In golf and investing, patience and consistency is the magic formula. Having one great round or a few good stock picks in a row will not lead to success. The greatest golfer of all time, Jack Nicklaus, always played the percentages to keep his ball in play.

4. Proper preparation prevents poor performance

Professionals – in golf and investing – prepare carefully and follow a set and steady routine. Investors would do well to carefully emulate the pros. Don’t jump at every stock pick that comes your way. Do your research, find and stick with a proven investment strategy that suits your personality, time frame and financial goals.

5. Build a talented team

If you go to the Masters or any other professional tournament, you will notice that a pro does not go it alone. Most have swing coaches, sports psychologists, sports agents, financial consultants and of course professional caddies to help them play at their peak potential. The same goes for investors. Get a good CPA and lawyer, plus some talented investment help from trusted and independent sources like us.

6. Look overseas for value and growth opportunities

Golf has always been an international game, and no tournament is more international than the Masters. Are you equally open to scouring the globe to find companies trading at value prices all over the world?

Remember, investing, like golf, is not a game of perfection. Having the right mindset, strategy and preparation simply increases the probabilities of success.

Tax Planning Time

It’s not yet time to pay your 2020 taxes, but it is the perfect time to get started on your year-end tax planning. By paying attention to the details of tax law changes and taking advantage of strategies to defer income, you can significantly reduce or defer your income tax bill.

If you practice tax-smart investing, this graph from Fidelity.com shows you how long-term tax smarts pay off by utilizing 4 simple strategies, and the sooner you get started, the bigger the difference it will make:

• Tax-loss harvesting
• Managing capital gains
• Managing distributions
• Tax-smart withdrawals

2020 Tax Law Changes
We’re going to talk about each of those strategies, plus many more! But let’s get started by reviewing a few of the recent changes to tax laws that you need to know before you file your 2020 returns:

Tax brackets were adjusted to keep up with inflation.

The 2020 income brackets for single filing status, according to the IRS, are:

• 37% tax rate: Applies to taxable income of more than $518,400
• 35%: More than $207,350 but not more than $518,400
• 32%: More than $163,300 but not more than $207,350
• 24%: More than $85,525 but not more than $163,300
• 22%: More than $40,125 but not more than $85,525
• 12%: More than $9,875 but not more than $40,125
• 10%: Income of $9,875 or less

For married filing jointly:

• 37% tax rate: Applies to taxable income of more than $622,050
• 35%: More than $414,700 but not more than $622,050
• 32%: More than $326,600 but not more than $414,700
• 24%: More than $171,050 but not more than $326,600
• 22%: More than $80,250– but not more than$171,050
• 12%: More than $19,750– but not more than $80,250
• 10%: Income of $19.750 or less

Standard Deduction Amounts have increased as follows:

• Married filing jointly: $24,800—up $400
• Married filing separately: $12,400—up $200
• Head of household: $18,650—up $300
• Single: $12,400 up $200

At the end of 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act. One of its features was to increase contribution limits for limited workplace retirement accounts. For 2020. the base contribution limit for 401(k) plans is $19,500, up $500 from the previous tax year. The limit for catch-up contributions (for anyone 50 and over), is $6,500, up $500.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act waived required minimum distributions (RMDs) for 2020 tax returns. Normally, the distributions are taxed. For retirees, that’s a bonus and may decrease your federal income taxes owed.

Even if you file using a standard deduction, this year, you can deduct as much as $300 in cash contributions made to charities during 2020 (also part of the CARES Act). Usually, you can only do this if you itemize deductions. And, if you do itemize, you can deduct cash contributions made in 2020 of up to 100% (increased from 60%) of your adjusted gross income (AGI).

You can increase your contribution limits to your Health Savings Account (HSA):

Self-only coverage: $3,550—($50 increase from the previous years’ return)
Family coverage: $7,100—($100 increase from the previous years’ return)

If you adopted a child in 2020, your maximum allowable credit for adoption expenses goes up by $220, to $14,300.

The Saver’s Credit is a tax credit for eligible contributions to your IRA or employer-sponsored retirement plan. This year, the income limits have been raised.

You’re eligible for the Saver’s Credit if your income is no more than:

Married filing jointly: $65,000—up $1,000 from the previous tax year
Head of household: $48,750—up $750
All other tax-filing statuses: $32,500—up $500

Here’s a chart of how much you can deduct:

2020 Saver’s Credit

Source: irs.gov

Income limits and maximum credit amount for the Earned Income Tax Credit (EITC) are higher.

You might be eligible for the EITC in 2020 if your AGI is not more than:

• Married filing jointly: $56,844—up from $55,952 for 2019
• All other tax-filing statuses: $50,594—up from $50,162
• The maximum amount that the EITC is worth in 2020 is $6,660—up from $6,557.

The Social Security income cap rose. The maximum amount of income subject to Social Security payroll taxes increased to $137,700 for 2020—up from $132,900 last year.

21 Tips for Reducing your Taxes
Now that you know how tax law changes will affect your deductions and brackets, let’s look at ways that you can defer or reduce your tax bite.

Tip #1: Accounting rules require that we pay taxes on our income in the year that it is received. But, sometimes, you can defer your income—such as year-end bonuses—into the next year, especially if you think your income will be lower then. For those who are self-employed, you can ask your customers to defer payment to you until the following year.

You can also use several strategies to defer capital gains.

Tip #2: Wait at least one year before selling an asset or a property. That way, you’ll be taxed at long-term capital gains tax rates, which are 0%, 15% or 20%, depending on your taxable income and filing status. In contrast, if you sell it within one year, your gains will be taxed at short-term capital gain rates, which generally correspond to ordinary income tax brackets (10%, 12%, 22%, 24%, 32%, 35% or 37%).

Tip #3: Take advantage of the IRS’ Primary Residence Exclusion. If you’ve owned and used your property as your primary residence for two out of the five years immediately preceding the date of the sale, individuals can exclude up to $250,000 of capital gains while a married couple can exclude up to $500,000. However, you’re only eligible if you haven’t taken a capital gains exclusion for any other property sold at least two years before this current sale.

Tip #4: If you are subject to the capital gains tax for selling your property, and you know your income will be lower next year (due to retirement, changing jobs, etc.), you may want to hold off on the sale until then. And if you will need to pay capital gains, make sure you keep track of home renovation and selling expenses (like real estate commissions) you’ve made over the years. If they increase the value of your home, they can also add to your basis in the property, which means lower capital gains when you sell. See: irs.gov/taxtopics/tc701

Tip #5: Use a 1031 Exchange when you buy and sell a rental or investment property. With the exchange, you can defer paying capital gains tax by reinvesting funds from property sales back into your next real estate purchase. The rules can be quite complex, so please consult a tax advisor. You can find details at: irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips

Tip #6: If you have investment property, there are extensive rules and regulations about deductions. The IRS says that “you can deduct the ordinary and necessary expenses for managing, conserving, and maintaining your rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities, and insurance.

“You can deduct the costs of certain materials, supplies, repairs, and maintenance that you make to your rental property to keep your property in good operating condition.

“You can deduct the expenses paid by the tenant if they are deductible rental expenses. When you include the fair market value of the property or services in your rental income, you can deduct that same amount as a rental expense.

“You may not deduct the cost of improvements. A rental property is improved only if the amounts paid are for a betterment or restoration or adaptation to a new or different use.”

Please see: irs.gov/businesses/small-businesses-self-employed/tips-on-rental-real-estate-income-deductions-and-recordkeeping#:~:text=If%20you%20receive%20rental%20income,expenses%2C%20depreciation%2C%20and%20repairs.&text=You%20may%20not%20deduct%20the%20cost%20of%20improvements.

Tip #7: Accelerate deductions. You can lower your tax bill by increasing your charitable deductions: donating appreciated stock or property, instead of cash. And if you’ve owned the donated asset for more than a year, you can deduct the property’s market value on the date of the gift and you avoid paying capital gains tax on the built-up appreciation—sort of a 2-for-1 tactic! Just make sure you have a receipt. The old rule that you only needed receipts for a $250 or more charitable contribution is no longer valid.

Additionally, you can accelerate these expenses:

• Estimated state income tax bills due January 15
• Property taxes due early next year
• Medical bills

Tip #8: Don’t automatically assume that you don’t have enough deductions to itemize. The IRS says 75% of taxpayers take the standard deduction, but many could reduce their taxes by itemizing.

One valuable hint: if you’re close to the standard deduction limit, you might consider a ‘bunching’ year-end tactic. This means timing expenses to produce lean and fat years. One year, you take as many deductible expenses as possible, using the above strategies. And then, the next year, you’ll have a ‘lean’ deduction year, and will take the standard deduction.

Tip #9: Contribute the maximum to retirement accounts. And, if you have an employer who matches some or all of your contributions, do it now! Do not leave any ‘free’ money on the table. As I said earlier, in 2020, you can contribute up to $19,500 into a 401(k). And if you are 50 or older, that contribution goes up to $26,000.

Tip #10: Consider contributing to or maximizing your IRA. The deadline for IRA contributions is April 15, but why wait? The way the stock market has been performing of late, if you wait, you’re likely to miss out on some appreciation. The maximum contribution for 2020 is $6,000, or $7,000, if you are over 50 years of age.

Tip #11: If you are self-employed, consider a Keogh plan or a Simplified Employee Pension Plan (SEP-IRA). A Keogh plan is a tax-deferred pension plan. For 2020, you can contribute up to 100% of compensation, or $57,000. A SEP-IRA allows you to contribute 5% of your net earnings from self-employment to your employees (not including contributions for yourself), up to $57,000 for this year. The rules are a little more complicated for your own contributions. See here: irs.gov/publications/p560

Tip #12: Do a Roth IRA Conversion if you expect your future income to be taxed at a higher rate. And unlike Roth Contributions, there is no income limit to convert a Roth, nor is there a cap on the conversion amount.

Tip #13: Sell investments that have declined in value to offset gains from your winners. This is called tax loss-harvesting. You realize losses on the losers and then offset them dollar for dollar against the gains on your winners. And this goes even further than offsetting gains. If your losses are more than your gains, you can use up to $3,000 of excess loss to offset other, ordinary, income. Further, if you have more than $3,000 in excess loss, you can carry it over to the next year. You can carry over losses year after year for as long as you live.

Tip #14: Exercise Stock-Options if you expect your 2021 income to rise. You can recognize the taxable income that is generated by the difference in the current price of your stock and what you paid for it.

Tip #15: Avoid the kiddie tax. In the past, parents would often try to shift the tax bill on their investment income from their high tax bracket to a child’s low bracket. Not anymore! For 2020, the kiddie tax taxes a child’s investment income above $2,200 at the same rates as trusts and estates, which are typically higher than rates for individuals. If the child is a full-time student who provides less than half of his or her support, the tax usually applies until the year the child turns age 24. One caveat: gifting stock to pay college expenses can backfire. If the appreciation sends the child’s unearned income above $2,200, your tax bill might be a lot higher than you bargained for.

So be careful if you plan to give a child stock to sell to pay college expenses. If the gain is too large and the child’s unearned income exceeds $2,200, you could end up paying taxes at the same rates as trusts and estates.

Tip #16: Make sure you’ve spent your money in your flexible spending accounts. The money you deposited escapes both income and Social Security taxes. But if you don’t use it, you lose it. You may need to make some last-minute purchases to ensure the account is cleaned out.

Tip #17: Gifting. You can give $15,000 to each of your heirs without it counting toward the estate tax calculation. The lifetime exclusion for 2020 is $11.58 million per recipient. If you’re married, you can each give that much. Medical gifts and tuition gifts do not count against your lifetime exemption or the annual exclusion. And you can also pay the provider directly for medical and education bills for your family.

Tip #18: Home office deductions. With more than 42% of the workforce currently working at home, according to the Stanford Institute for Economic Policy Research, this question, naturally has come up. Under current law, you’re not allowed to deduct these expenses—unless you’re self-employed. However, things could change if Congress grants additional COVID-19-related tax relief.

Here’s the rule: A home office qualifies as your principal place of business if most of your income-earning activities occur there. It can also be your principal place of business if you use it to conduct administrative or management functions, such as bookkeeping and processing invoices, and you don’t conduct those functions at any other fixed location.

Self-employed expenses that are directly allocable to the home office space, such as repair and maintenance costs, are fully deductible as long as you don’t run afoul of the business income limitation. That rule limits your allowable home office deductions to the gross income from your business activity reduced by:

Other expenses for which deductions are allowed in the absence of business use (such as home mortgage interest and real estate taxes), and business deductions that aren’t allocable to the use of the home (such as advertising and supplies).

You can also deduct indirect home office expenses, including:

• Utilities
• Property taxes
• Casualty insurance premiums
• Homeowner association fees
• Security monitoring
• Depreciation for a residence that you own
• Rent for a rented residence

A percentage of these expenses can be allocated to the home office space based on square footage or the number of rooms in the residence (assuming all the rooms are of similar size). Indirect expenses are also subject to the business income limitation.

Please see irs.gov/credits-deductions/individuals/home-office-deduction-at-a-glance for more information.

Tip #19: Invest in Opportunity Zone Funds. Opportunity zones were designated by the U.S. government in 2017. They are distressed areas that the government wanted to revitalize by inducing investment in housing, small businesses, and infrastructure. They encourage investors with capital gains to invest in low-income and undercapitalized communities.

According to the Tax Policy Center, they offer these three primary benefits:

1. Temporary deferral of taxes on previously earned capital gains. Investors can place existing assets with accumulated capital gains into Opportunity Funds. Those existing capital gains are not taxed until the end of 2026 or when the asset is disposed of.

2. Basis step-up of previously earned capital gains invested. For capital gains placed in Opportunity Funds for at least 5 years, investors’ basis on the original investment increases by 10 percent. If invested for at least 7 years, investors’ basis on the original investment increases by 15 percent.

3. Permanent exclusion of taxable income on new gains. For investments held for at least 10 years, investors pay no taxes on any capital gains produced through their investment in Opportunity Funds (the investment vehicle that invests in Opportunity Zones).

Rules and regulations have changed since 2017. So, please consult your tax advisor for the most recent information. Here is a link to the IRS site: irs.gov/credits-deductions/businesses/opportunity-zones

And this link will help you locate opportunity zones: irs.gov/pub/irs-drop/n-18-48.pdf

If you don’t want to be an individual owner, you can invest in Opportunity Zone Funds that buy older buildings in Opportunity Zones, renovate them at a reinvestment cost, then manage them as rental properties. This link offers information on 218 Opportunity Zone Funds: ncsha.org/resource/opportunity-zone-fund-directory/

Investing in Opportunity Zones can be advantageous for active real estate investors who buy and sell multiple properties that generate revenues, accompanied by higher tax high tax brackets.

What not to Do
Tip #20: Beware the Alternative Minimum Tax (AMT). This tax can turn your ‘hoping for a refund’ into a tax nightmare. So, you have to make sure you don’t trigger it by accelerating your tax deductions too much. The AMT is figured separately from your regular tax liability and with different rules. It was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. Folks with high incomes have to calculate their taxes twice: once, under the regular income tax system, and once under AMT rules. They then have to pay whichever tax bill is higher. For 2020, the AMT exemption amount is $72,900 for singles and $113,400 for married couples filing jointly.

Some accelerated deductions, such as state and local income taxes, and property taxes are not deductible under the AMT. Please check with your tax advisor.

Tips #21: Avoid Purchasing Mutual Funds in late November or December. This will help you avoid ‘phantom’ costs. These are two-fold: Capital gains (for the full year) on investments in funds must be paid out prior to the end of the year. So, if the funds you are buying are in the black, you will get a capital gain, which will be taxed—even if you just bought the fund at the end of the year. You will have to report that gain to the IRS, even though you still own the fund. Secondly, when the year-end distribution is paid, the share price of the fund drops on the distribution date by the amount of the payout. So, if a fund pays a $1-per-share capital gains distribution and the share price is $10, the price will drop to $9 on the day after the distribution. The $1 difference is the payout, or taxable amount. You get a double whammy; your share price has dropped by $1 and you are being taxed on that $1.

And, finally, some special considerations for 2020 and beyond.

Are Stimulus Checks Taxable?
You’ll be relieved to know that you won’t have to pay taxes if you received that $1,200 check from Uncle Sam. And it won’t reduce any future tax refunds you are owed.

What about Taxation on Paycheck Protection Program Funds (PPP)?
That’s an excellent question that is way beyond the scope of this article. It seems the rules are changing daily, so please consult your tax advisor.

What to Expect after the Election?
Well, we’ve covered the tax rule changes for 2020, as well as how to take advantage of all the legal deductions and deferments to which you are entitled. Now, let’s move onto next year and try to decipher how the rules may change as a result of the presidential election.

Let’s first look at the proposals from the candidates.

A Trump Win. During his term, Trump did manage to lower top individual tax rates, from 39.6% to 37%. The standard deduction was also increased, so a lot of folks no longer had to go through their shoe boxes, counting up all their expenses. The child tax credit was increased to $2,000, and the estate tax exemption rose to $11,580,000 for 2020.

After 2025, all of these changes are scheduled to revert back to their previous levels.

If reelected, Trump says he will do this:

• Make the changes permanent,
• Reduce the capital gains rate
• Enact a capital gains tax “holiday”
• Enact a 10% middle-class tax cut, reducing the 22% marginal tax rate to 15%.

A Biden Win. Biden says he will revert all of these changes back to the old tax rate levels. He also would like to:

• Raise the childcare credit for daycare expenses to $8,000 for one child and $16,000 for two or more, with a phase-out of the credit for couples making more than $125,000
• Enact a $5,000 credit for caregivers
• Enact a refundable, $15,000 tax credit for first-time home buyers
• Exclude forgiven student debt from taxable income
• Enact a renter’s tax credit
• Raise the top tax rate back to 39.6% for income over $400,000
• Expand the 12.4% social security tax on earnings over $400,000
• Raise the tax rate on capital gains and qualifying dividends to 39.6% for those with income over $1 million
• Limit the tax benefit from itemized deductions for those with income over $400,000
• Eliminate the stepped-up basis on transfers of appreciated property at death. Currently, instead of paying taxes on the difference between what you paid for an asset and the current value when you transfer it to an heir, the cost basis of the asset is considered the price when you transfer it, thus reducing taxes on any gains.
• Reduce the estate tax exemption to $3.5 million. It is currently $11.18 million for singles and $22.36 million for married couples.
• Eliminate the ability to exchange real estate using the tax deferred section 1031 exchange
• Increase the tax on corporate income from the flat 21% to a flat 28%

Of course, any proposals will have to be approved by the House and the Senate. If the House stays under Democratic control, and the Senate under Republican control, many of these proposals will be nixed. If, however, the Democrats manage to snag control of both Houses, we can expect more tax changes.

Whoever wins, you can count on it—there will be tax reform. And government spending will almost certainly increase. Our infrastructure needs are huge. The American Society of Civil Engineers says we would need to invest $3.6 trillion into U.S. infrastructure by 2020 just to bring our 1.6 million miles of aging water and sewer pipes to acceptable levels. And not much has been done to tackle this issue. As well, healthcare is always on the agenda, and costs are rapidly escalating as our population ages (not counting the drastic needs relating to COVID-19). Renewable energy is likely to require additional government funds, and Social Security reform is on almost every President’s wish list.

Bottom line: someone (you and me) is going to have to pay for it. That will mean certain tax reform. Stay tuned!

Second Careers and Side Hustles

More than 22 million jobs were lost due to the coronavirus. Experts say some 22% of those jobs are gone forever.

As you can see from the following graph, the hardest hit industry is the service economy—especially Leisure & Hospitality. The service sector accounts for 40% of the permanent job losses the country has suffered. According to Yelp, nearly 16,000 restaurants and almost 5,500 bars and nightclubs have closed permanently. That leaves millions of people unemployed, and in industries that will take years to recover.

The government stimulus programs have provided temporary relief. And Congress is working on another stimulus pact but that, too, will be temporary. As those funds run out, unemployed and underemployed citizens need to figure out, “what’s next?”

Fortunately, there are lots of options. None are overnight solutions, but with thought and investigation, it is possible for a new—and even better—beginning.

I have some experience with this—a devastating loss that turned into an entire new career.

In the early 90s, I was in the banking industry. I was a Vice President of a Florida bank, managing a branch, developing business, and making loans. During that period, mergers and acquisitions were rampant in many industries. That was mostly predicated by the 1990-1991 recession the country was undergoing, as well as a move to deregulate banking, trucking, long distance telecommunications, airlines, and energy, that started in the 1970s.

Banking was particularly hard hit, by both the recession and the merger frenzy. In fact, from 1989 to 1994, there were 169 bank mergers. The recession and the mergers led to massive layoffs in the banking industry. And after eight years in the industry, my job was axed when a larger, regional bank bought out my bank. In fact, all of our branch managers lost our jobs as the new owner merged branches which were ultimately run by its own managers.

But the carnage didn’t stop there. In the late 1990s, there were 370 bank mergers. Those mergers led to lots more job losses—accounting for about 11% of the total job losses in 1998 alone. That year, Merrill Lynch & Co. Inc. fired 5% of its workers—about 3,400 people, and Citigroup laid off 10,400 folks, or 6% of its workforce, according to outplacement firm Challenger Gray & Christmas.

So, I had lots of company. Just like the folks who are now without jobs.

However, once I got over my initial shock, I was actually relieved. You see, I hated my job. The industry had changed so much since I began my banking career, and—in my opinion—not for the better. And yet, inertia just kept me working there. So, when the layoffs arrived, I was ready for something new—I just didn’t know what that would be.

Outplacement to the Rescue
I was truly fortunate that the new bank owner provided outplacement resources for those of us who were laid off. That consisted of 3 days, one-on-one, with an outplacement counselor, who tested my skills, and asked me lots of questions about the kinds of tasks that I liked and didn’t like about my all of my previous jobs. He then helped me redesign my resume to pursue those jobs that included most of the tasks I liked to do. The result—a brand new, tailored resume and a list of careers that intrigued me. That experience led to my entry into the investing world.

I haven’t heard much about companies that are offering outplacement services to their laid-off workers today. And since many of the lost jobs are in the service industry—in small mom-and-pop businesses, there probably are not going to be many such benefits.

Fortunately, there are still outplacement companies you can use, although you may have to pay something for their services. And for folks who aren’t sure what their next career step should be, I think a good outplacement service can be invaluable.

Here’s what you can expect from using outplacement resources:

1. Self-assessment tests to help you explore new careers and create a new strategy
2. Develop marketing materials, including a resume and LinkedIn profile
3. Enhance and grow your personal brand so that you and future employers can understand the value you offer to their organizations
4. Identify your ideal job and duties
5. Develop a networking strategy to expand your job search
6. Hone your interviewing skills
7. Learn how to negotiate and evaluate job offers

Source: thejub.com

Outplacement Services
And these are some of the top-ranked businesses offering outplacement services, according to thejub.com:

VelvetJobs
Offerings:

• Career Coaching
• Curated Job Matching
• 1:1 Resume Writing and Job Interview Preparation
• Proven Global Solution with Millions of Users
• Job Placement Guarantee
• Affordable, Starting at $500 Per Person

RiseSmart
Offerings:

• Career Coaching
• Resume Writing and Branding
• Professional Branding
• Customized Job Leads
• Dedicated Team of Three Career Professionals

Right Management
Offerings:

• Career Coaching
• Dedicated Account Team From Start to Finish
• Targeted Job Leads
• Access to Local Job Resources
• Resume Writing Assistance

Lee Hecht Harrison (LHH)
Offerings:

• Active Placement
• Career Transition for Senior Executives
• Redeploying Talent Internally
• Advanced Technology
• Talent Sourcing
• Virtual Career Fairs

Mercer
Offerings:

• Career Coaching
• 24/7 Access to Award-winning Platform
• Designed for Adult Learners
• Social Network Integration
• Subscription-Based Model

Finally, the book, What Color Is Your Parachute, by Richard Nelson Bolles—whether or not you use an outplacement service—is a wonderful resource. The book was first published in 1970 and is still in print. I think it is a tremendous resource. You can probably find it in your library, but you can also buy it at any major bookstore or online.

The book—like an outplacement service—focuses on defining who you are, not what you do as the starting point to a new career. It preaches networking as the best way to find a new position, rather than sending out resumes in bulk

Side Hustles
And speaking of who you are, if you are currently facing a layoff—or still have a job but looking to change careers—why not look into a side job (side hustle), one that is custom-made for your talents and interests?

Again, if you’ll indulge me for a moment, I’d like to share how I turned my real estate interests into a second career.

You see, I’ve always loved real estate—I’ve bought and sold numerous properties. And since I was a young woman, I have spent many weekends visiting open houses—to get design/decorating ideas, as well as to learn of new building and technology innovations that I might want in my next home.

When I was in the process of interviewing Realtors to sell my mother’s house after she passed away, the agent asked me if I had considered a real estate career. I thought that was funny, as I had long had many friends in the real estate business, but never really considered it for myself. I was a securities analyst and an investment newsletter writer! What did I want with a real estate career?

But I couldn’t get the idea out of my head. And after careful consideration, I thought, “well, if nothing else, I can save myself some money on commissions when I’m buying and selling my own properties.” And it was an opportunity to learn something new, which I’m always ready to do.

So, I went to real estate school and got my license. That was in 2005; the market was great, and I thought “boy, this is an easy way to make money.” Of course, you can guess what happened when the real estate market crashed in 2007 and we entered a two-year recession. However, that, too, was a great learning experience. I survived, went on to get my broker’s license, managed a real estate company, and then opened my own. Today, real estate is still my second career.

Now, I pretty much fell into that job. But millions of people are making money from their hobbies and special interests. I know several real estate photographers who started out snapping photos with a Polaroid instant camera and who now own cameras, lenses, tripods, and fancy screens that cost in the tens of thousands of dollars—the tools of the trade for a very lucrative career.

A good friend began collecting antiques back in the early 70s. Once he retired from his day job as a graphics artist, he opened an antique store. That led to estate sales, and now, he and his wife own one of the busiest—and most profitable—eBay sites for reselling antiques.

A work colleague who is a successful Home Warranty salesperson is now also driving for Uber and pulls in a couple of thousand dollars per month.

A neighbor’s daughter was a pet groomer for years. Then, she invented a ‘hoodie’ for animals that made the grooming process less terrifying to animals. She now sells that product to companies around the world.

The point is, your hobbies or interests can help lead you into—at the very least—a sideline that is fun and earns money—and maybe offers a new career direction.

Here are some other ideas for side hustles:

Deliver food for someone like Grubhub, DoorDash, or Uber Eats.

Are you a savvy social media user? Lots of companies need help with that. Websites like Fiverr can help you market those skills.

Clean houses. Busy people appreciate a good house cleaner and will pay handsomely for one.

Design logos for someone like 99designs.com. In this world, new small businesses will be popping up, and most people don’t have a clue how to design a logo.

Develop a dog walking service or a mobile pet grooming service.

Become a Mystery Shopper. Some of the highest-ranked companies that you might want to investigate are: BestMark, Second to None, and Market Force.

If you like to cook and have an awesome specialty, why not start a food truck?

Wash and detail cars. This is a much-wanted service, and pretty lucrative. Just about every web site is looking for content, so if you can write, you can probably find someone who needs your services.

Do you have organizational skills? Consider becoming a virtual assistant. Lots of small businesses need help with administrative tasks but can’t afford a full-time employee. Fiverr.com or upwork.com are just two of the companies that market virtual assistants.

Transitioning to a New Career
If you do decide to transition into a whole new career, that may require some additional training. You may need to take some classes at a college or vocational school. If you have a degree, check with your Alumni organization to see what they may offer. Lastly, you can ask a mentor in your chosen field to allow you to shadow him to see if his position/industry may be right for you.

And here are some additional resources:

CareerOneStop: sponsored by the U.S. Department of Labor where you can explore careers and find training opportunities.

ApprenticeshipUSA: also sponsored by the Department of Labor. It has 65,000 available apprenticeships and on-the-job training opportunities.

Microsot Virtual Academy: for free, on-demand technology courses.

Lastly, some state unemployment offices offer free training for career transitions.

Remote Jobs
Some side hustles can be done while sitting at your computer. But as the coronavirus pandemic has shown us, there are many full-time jobs that are also being done remotely.

The National Association for Business Economists (NABE) surveyed 12,000 professionals in the U.S., Germany, and India, and found that 40% of them are now working remotely. I’ve talked to countless friends and associates—almost all of whom are working remotely—and many of them tell me that—even after coronavirus—their companies plan to make their remote option available on a permanent basis.

Research firm Gartner found that 74% of the 317 CFOs and business finance leaders it surveyed said they are transitioning their previously on-site workforces to permanently remote positions after the pandemic. And in a recent study, Harvard Business School noted that companies who moved some of their employees to remote workers since the pandemic believe that at least 16% of them will continue to work at home post COVID-19.

The biggest reason: the cost-saving benefits of working from home—for both employee and employer. FlexJobs has reported that remote employees are saving an average $4,000 per year on commuting expenses, office meals, and other miscellaneous costs. And even before COVID-19, Sun Microsystems said remote working was saving it $68 million annually in real estate costs, and both Dow Chemical and Nortel have reported savings of more than 30% on non-real estate costs.

All sizes and types of companies are embracing the remote work trend. Here are just a few of the businesses that have switched to long-term remote work—all names you will recognize:

• Adobe
• Aetna
• Amazon
• Capital One
• Facebook
• Mastercard
• Microsoft
• Nationwide Insurance
• PayPal
• Salesforce
• Shopify
• Square
• Twitter
• Zillow

So, if you think that remote working might be a good option for you, know that from the second to third quarter of this year, there was a 53% rise in companies recruiting remote workers.

And just from July to August, there was a 12% increase in remote job listings.

Some of the top companies that have greatly increased their available remote jobs are: Amazon, Shopify, and UnitedHealth Group. And these 10 companies posted the highest number of remote job listings between March 1, 2020 and September 15, 2020:

• Robert Half International
• Randstad
• Kelly Services
• VocoVision
• Aerotek
• Kforce
• UnitedHealth Group
• Amazon
• Keywords Studios
• Atlassian

And here are the fields in which remote jobs are rapidly growing:

• Computer/IT
• Customer Service
• Accounting & Finance
• Project Management
• Marketing
• Sales
• Mortgage & Real Estate

Some of the job titles include accountant, bookkeeper, customer service representative, developer, teacher, writer, virtual assistant, business development manager, copywriter, marketing manager, and product manager.

Is Now the Time to Start your own Business?
Perhaps you’ve always dreamed of having your own business. I can tell you that starting a business from scratch is not easy. There’s the legal costs and more paperwork than you may want to deal with, to register your business with your state, county, and city; logo and branding development costs; website development; 5-year business plan; start-up and ongoing marketing costs; location and demographic research; various licenses; and lots more.

Is Franchising an Option?
That’s why some folks start their entrepreneurial careers with a franchise. Franchising actually dates back to the Middle Ages (from the 5^th to the 15^th century), when high church officials were granted a license to maintain order, assess taxes, hold markets, and perform business-related activities. This continued into the Colonial Period (1607-1776 in America). But today’s more modern franchises date back to the beer brewers who licensed their brews to taverns in Germany in the 1840s.

Franchising is simply when a company bestows a license to an individual or group to market its goods or services in a particular territory.

In 2019, there were 773,603 franchises in the United States. And if you can think of a product or service, there is probably a franchise for it. Think about all the franchises that you may frequent: Starbucks, Sally’s Beauty Supply, Midas Muffler, your local UPS store, Molly Maid, and Papa John’s.

They are just a few of the most popular franchises. Jobmonkey.com lists these categories as the franchises with the highest demand today:

• Automotive Franchises: General shops; specialty shops—transmissions, muffler, tires, detailing, rentals, etc.
• Beauty Franchises: Tanning, nail salons, hair salons, weight loss, cosmetics, etc.
• Business Opportunities: franchise opportunities
• Business Services: Medical billing, paralegal services, payroll, taxes, business management, consulting, pre-employment screening, and much more.
• Children Related: Tutoring, fitness, photography, games, and more.
• Cleaning and Maintenance: Commercial and home cleaning, carpet, rental, air duct and HVAC systems, etc.
• Computer and Internet: Technical services, computer games
• Education Franchises: Business coaching, tutoring for children, science programs, and more.
• Financial Services: Credit repair, financing, tax preparation, and more.
• Food & Drink Franchises: Pizza shops, juice bars, coffee shops, restaurants, fast food, and more.
• Health & Fitness: Nutrition, diet centers, fitness classes, senior fitness, drug testing, tanning centers, and more.
• Home Related: Handyman, furniture repair, lawn care, security, remodeling, insulation, roofing, painting, pest control, etc.
• Miscellaneous: Vending, laundry and dry cleaning, transportation, wedding, and event planning, etc.
• Pet Services: Pet food, pet supplies, pet care, and more.
• Photo and Video: Children’s photography, team photography, trophies, DVD rental kiosks, video stores, etc.
• Printing and Packing: Shipping, imprinting, and copies.
• Retail Franchises: Party stores, apparel, convenience stores, electronics stores, hardware, eye care stores, pharmacies, sports stores, telecommunications, and much more.
• Senior Services: Assisted living, senior care, walk-in medical clinics, and more.
• Sports and Recreation: Sportswear, nutrition, fitness centers, children’s fitness, massage and spas, campgrounds, etc.
• Travel Franchises: Cruise planning, hotel reservations, transportation, etc.

They left out the one category that I am most familiar with, and that’s Real Estate. The National Association of Realtor’s website lists 29 real estate franchises.

Here are the top 10 food franchises:

Source: qsrmagazine.com

The costs to open a franchise generally range from $10,000-$50,000. Some are cheaper; some are considerably more expensive.

Here’s a small list of the most popular franchises and how much it costs to buy in:

McDonald’s: $45,000, but you will need a minimum of $955,000 in nonborrowed, personal resources to be considered

Subway: $15,000, but you will need a total investment of $116,600 and $263,150.

Wendy’s: $40,000, and you must have $2 million in liquid assets with $5 million net worth.

Domino’s: $25,000.

Pizza Hut: $25,000, and a budget of $1.3 million to $3 million and a net worth of $1 million with $360,000 in liquid assets.

Dunkin Donuts: $40,000 to $90,000 start-up fee, initial investment of $228,621 to $1,692,314, and $250,000 liquidity and net worth of $500,000 per unit.

Source: thebalancesmb.com

But you don’t need that much money for the following franchises, according to franchise.com:

• PostalAnnex: $70,000
• Allstate Insurance; $100,000
• Claim Tek Systems (medical billing): $20,000
• ServiceMaster Clean: $36,300
• Glass Doctor: $35,000
• Huntington Learning Centers: $65,000
• AmeriSpec Home Inspection Services: $22,000
• Furniture Medic: $25,000
• Century 21 Real Estate: $25,000
• Crye-Leike Realtors: $9,500-$25,000
• Re/Max: $10,000-30,000
• United Country: $10,500

If I haven’t scared you away yet, keep reading for the advantages and disadvantages of owning a franchise, according to thebalancesmb.com:

Advantages

• Low failure rate. Statistics show that franchises have a much better chance of success than independent start-up businesses.
• Business assistance. When you buy a franchise, you receive all of the equipment, supplies, and instruction needed to start your business. In many cases, you receive ongoing training and help with management and marketing.
• Buying power. Your franchise will benefit from the collective buying power of the parent company.
• Star power. Many well-known franchises have national brand-name recognition.
• Profits. A franchise business can be immensely profitable.

Disadvantages

• Rules and guidelines. The main disadvantage of buying a franchise is that you must conform to the rules and guidelines of the franchisor.
• Ongoing costs. Besides the original franchise fee, a percentage of royalties from your franchise’s business revenue will need to be paid to the franchisor each month.
• Ongoing support.
• Buying into a well-known franchise is costly.
• Buying a little-known, perhaps inexpensive franchise can come with risks. Just because a business is offering franchises is no guarantee that the franchise will be successful.

So, if you’ve come this far and are still interested in buying a franchise, the next thing to do is to identify a franchise that appeals to you. And then begin the research and evaluation process.

You may want to start your research with these questions:

What are the real costs associated with the franchise? Fees include the franchise fee (initial costs); the build-out, which could include the cost of an architect, leasing or buying a building, remodeling and so on; extra costs such as equipment leases, monthly advertising fees, or ongoing royalty payments.

Will you have exclusivity? How large is your territory; how long is the franchise’s exclusivity commitment to you? Will you be first in line as other territories open up?

How are suppliers handled? Do you have to use the company’s suppliers; do you buy supplies directly from the company?

What kind of profits can you expect? This is not always easy to ferret out, so you will have to be very specific with your questions.

Here are a few sources if you would like to investigate franchising:

Franchises for sale.

Top 200 Franchises for 2020.

Top 100 Global Franchises for 2020.

The 11 Best Websites to Find Franchises.

Starting a Business from Scratch
As I mentioned earlier, if you feel the entrepreneurial spirit, and you have what you think is a great idea for a business, you can just start one from scratch. This country is run on small businesses. Companies that are less than 5 years old typically create nearly all of the net new jobs in the American economy.

But before you start a business, there are two primary questions you will need to answer: What kind of business do you want to start; and where are you going to get the funds?

As to the type of business, most people who create a company from scratch have been dreaming about the type of product or service that they would want to own for many years. But not always.

I have a friend who was a journalist. But she wanted to start her own company. She spent a year or so researching different types of businesses to find out where there was an unmet need that would be lucrative and fun. She created a directory for airports listing all the available space to lease, the existing tenants, traffic demographics, and leasing cost. It was a tremendous success, and one in which she had absolutely no experience. But her journalistic research skills paid off. She has since gone on to found a publication that focuses on innovations in cities around the country.

There are 106,548 real estate brokerage firms in the U.S. Most were founded by folks like me, who started out simply selling homes.

And most of the side-hustle jobs I discussed earlier could also turn into a full-time business.

But before you jump into a new business, there are a few steps (besides financing) that the Small Business Administration (SBA) recommends that you take:

Market Research

1. Demand: Is there a desire for your product or service?
2. Market size: How many people would be interested in your offering?
3. Economic indicators: What is the income range and employment rate?
4. Location: Where do your customers live and where can your business reach?
5. Market saturation: How many similar options are already available to consumers?
6. Pricing: What do potential customers pay for these alternatives?

You can find demographic and economic statistics at the SBA site.

Write your Business Plan
Your business plan should be a guide on how you will start and operated your business. It should include:

1. Executive summary
2. Company description
3. Market analysis
4. Organization and management
5. Service or product line
6. Marketing and sales
7. Funding request
8. Financial projections

The SBA provides example business plans here.

Fund your Business
Funding and financing is available from several sources, but it’s not easy to obtain. The first thing you have to decide is how much money you will need to get started—and also to operate for a few years, until you begin to make a profit. More than 45% of men say that getting the money to start a new business is difficult, but 63% of women find funding a new business to be challenging.

This SBA site will help you with funding know-how.

Here are the most popular sources to obtain funding:

Self-funding. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your 401k.

Venture Capital. Investors can give you funding to start your business, but it is usually offered in exchange for an ownership share and active role in the company. Globally, venture capitalists have funded more than $129 billion to businesses so far this year.

What you can expect from Venture Capital:

1. Focuses on high-growth companies. Statista.com reports that in the first six months of this year, the following industries have received the most venture capital funding:

• 
  
  • Internet, $11.3 billion
  • Healthcare, $6.4 billion
  • Software (non-internet/mobile), $2.9 billion
  • Mobile & Telecommunications, $2.9 billion
  • Electronics, $507 million

2. Invests capital in return for equity, rather than debt (it’s not a loan)
3. Takes higher risks in exchange for potential higher returns
4. Has a longer investment horizon than traditional financing
5. Almost all venture capitalists will, at a minimum, want a seat on the board of directors. So be prepared to give up some portion of both control and ownership of your company in exchange for funding.

Venture capital funding is very difficult to come by. Vox.com says that 80% of venture capital investment is spent in just three states: California, Massachusetts, and New York. Additionally, a Diversity VC study found that 27% of founders who receive venture capital attended an Ivy League university. Only 2% of venture capital goes to women-led firms, and just 1% to firms led by African-Americans.

Crowdfunding. The crowdfunders are not really investors, as they don’t get any equity in your company or a return on their investment. Instead, they usually offer financial support for a “gift” from your company, such as meeting the business owner or getting their name in the credits. This is commonly done for documentary producers. For the business owner, crowdfunding is really not much risk. But it’s also hard to attract money in this way.

Ondeck.com lists these 5 business types as the easiest to get crowdfunding:

1. Independent books
2. Original tech gadgets
3. Local Service Businesses
4. Home cooking tools
5. Unique (and often quirky) home inventions

Get a small business loan. This is also hard to do. And if you seek a loan, it is critical that you come prepared to your banker. You’ll need your business plan as well as a 5-year projection of your costs and profit expectations. And be prepared to offer significant collateral, such as your home.

Use Lender Match to find lenders who offer SBA-guaranteed loans. The SBA has a lot of loans and grants for small businesses. And they also provide some great training in how to start and run a business.

Small Business Administration investment programs. These include:

Small Business Investment Company (SBIC), privately owned and managed investment funds licensed and regulated by the Small Business Administration.

Small Business Innovation Research (SBIR) program, programs for companies interested in federal research and development that has the potential for commercialization.

Small Business Technology Transfer (STTR) program focuses on the same types of companies as the SBIR (above), but introduces small businesses with nonprofit research institutions in the early and intermediate stages of starting up.

Additionally, I found these state and privately funded business grants and resources for small businesses.

Federal small-business grants. Government agencies are among the biggest distributors of grants.

Federal small business information. There is no money at this site, but it includes resources for starting or growing a business, including a link which has information on the types of available federal small-business loans.

State and regional small-business grants. The Economic Development Administration provides grants, resources and technical assistance to communities to support economic growth and encourage entrepreneurship and innovation.

Corporate small-business grants. Many corporations and large companies have a philanthropic component that includes small-business grants.

FedEx Small Business Grants awards grants of $5,000. The company also sponsors a contest that awards:

• Grand prize: One (1) winner of $50,000, plus $7,500 in FedEx Office print and business services
• Silver prize: One (1) winner of $30,000, plus $5,000 in FedEx Office print and business services
• Bronze prize: Ten (10) winners of $15,000, plus $1,000 in FedEx Office print and business services

National Association for the Self-Employed: NASE members can apply for monthly small-business grants worth up to $4,000, as well as an annual $3,000 college scholarship for members’ dependents.

Additionally, there are specialty small-business grants awarded to: women, veterans, and minorities.

Pick your Business Location

If your new business will be dependent on walk-in traffic, it’s critical that you choose a location that is demographically and geographically smart. This website will give you additional tips on how to do this.

Choose a Business Structure

This choice can cost or save you thousands of dollars in taxes, so it’s important to get it right. You can find information about which business structure suits you best here.

Choose your Business Name and Register it to Protect It
sba.gov/business-guide/launch-your-business/choose-your-business-name

Get Federal and State Tax IDs
sba.gov/business-guide/launch-your-business/get-federal-state-tax-id-numbers

Apply for Licenses and Permits
sba.gov/business-guide/launch-your-business/apply-licenses-permits

Open a Business Bank Account
I know this looks pretty overwhelming, but if taken in baby steps, you can do it! In addition to the SBA, there are two other great sources of information, and even mentors to help you every step of the way.

Business incubators help new and startup companies to develop by providing services such as management training or office space. I was instrumental in founding a Business Incubator in the county where I previously resided. We sent the candidates first to the SBA for initial vetting and training. Once they completed those tasks, we taught them how to understand their financial statements and funding needs, and then how to present their company to a potential investor. And mentors were available to assist them with counseling for the first few years of their businesses. Our incubator was funded a joint effort by a local college, state, and county government.

You can find information from the National Business Incubation Association here.

The other organization is SCORE.

SCORE offers a wide array of entrepreneurship information, training, and resources, and can even help you find a mentor who has experience in the type of product or service you want to sell.

I’ve given you plenty to think about here. But know this; these resources are just a smidgen of the help that’s available to jump start your side-hustle, your new career, your franchise, or your start-up business. I hope you find it of value.

Do You Still Need a Brick and Mortar Bank?

My first job after I graduated from college was as a mortgage banker, working for a local retail bank. After a couple of years, I moved into branch banking, where I ran a branch, developed business, lent money, and oversaw operations. At that time, there were more than 22,000 individual banks in the United States.

That was definitely the heyday of banking. Because banks were prohibited at that time from expanding beyond state lines, and sometimes, even within the state, new banks were springing up all the time. In fact, it was always a joke among us managers—how long are you going to work here before you start a new bank? Back then, it was a pretty good road to riches.

And people had much cozier relationships with their local bankers. Bankers knew their customers by name; local banks sponsored high school and Little League sports teams; and your children could still open their first passbook savings account with the $5 that Grandma sent for their birthdays.

Loans were local too. When I took over my first branch, I was astonished to discover the number of ‘signature’ loans that were made to long-time bank customers, with no collateral! And I could make loans up to $100,000, without Board approval.

My, how times have changed.

Don’t get me wrong; there are still local banks with that hometown feel. But they are rapidly becoming institutions of the past.

As you can see from the following graph, the number of banks have been on a downhill trend since the 1960s.

Financial Crises Toppled Thousands of Banks
Much of the decline is a result of several bank crises:

• 1980s and 1990s: 32% of the 3,234 savings and loan companies in the U.S. failed, due to rising rates that killed their fixed-rate long-term loan portfolios.
• 1997: The Asian financial crisis began when the Thai currency was devalued and then spread throughout Asia. It almost led to a worldwide economic shutdown.
• 1998: Failure of Long-Term Capital Management (LTCM), a Connecticut hedge fund, led to a $3.6 billion bailout by 14 of the country’s largest banks in order to prevent a systematic bank failure.
• 2007-2010: The subprime mortgage crisis led to a $626 billion bailout, after housing prices fell 30%; more than 1 million homes went into foreclosure; 102 banks became insolvent in just 2008 and 2009; and 136 public companies filed for bankruptcy in 2008. Indiscriminate lending had made housing a hot market and pushed home prices up by more than 35%. When they came crashing down, so did the economy. More than 9 million jobs were lost and the five largest U.S. investment banks, with combined liabilities or debts of $4 trillion, either went bankrupt (Lehman Brothers), were taken over by other companies (Bear Stearns and Merrill Lynch), or were bailed out by the U.S. government (Goldman Sachs and Morgan Stanley).

And from 2007 through 2013, the number of independent commercial banks shrank by 14%—more than 800 institutions.

Regulatory Changes Incited an M&A Frenzy
But in addition to the banking crises, the number of community banks have also shrunk—either due to individual failure or being merged into a larger competitor. At the same time, practically no one is opening new banks (traditional brick-and-mortar banks, that is). The rate of new-bank formation has fallen from an average of about 100 per year since 1990 to an average of about three per year since 2010.

The reason for that is simple. You see, in the 1970s states began relaxing their branching restrictions. This continued throughout the 1980s and early 1990s. As depicted in the following graph, there were numerous legislative changes that spurred consolidation of the industry through the years. Then the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was passed, and that removed most of the remaining restrictions on interstate branching.

So, instead of opening new banks, the bigger institutions just bought out the smaller ones. The last bank I worked for was bought out twice in just a handful of years.

There have been more than 16,000 bank mergers in the past 40 years. Every year, there are still an average of 400.

So, between failures and mergers and acquisitions, the number of banks has dramatically declined. At the end of last year, there were 5,177 commercial banks and savings institutions in the U.S. That’s less than 25% of the total banks in existence in the 1980s.

And while not declining as quickly as individual banks, the number of branches have also decreased—after peaking during the financial crisis of 2007-2010.

Banking Reimagined
Now, the number of banks and their branches are facing an even bigger threat—fintech. That’s just shorthand for financial technology and innovation that delivers financial services in a non-traditional way. And neobanks—banks that are totally digital (online and mobile)—are one of the fastest-growing fintech niches.

Today, you don’t need to go into your nearest bank branch to open an account, get a car or mortgage loan, or even to deposit cash or your paycheck. It’s the digital age!

You can pay your bills, shop online, deposit and transfer money on your computer and your cell phone. Once security on the internet was ‘relatively’ secure, online banking exploded. And that set up the path for mobile banking, which is faster, more secure, and very convenient.

At the beginning of this year, I moved from a rural town in Tennessee to a suburb of Knoxville. I loved my local family-owned bank, but they didn’t have an office in my new town. However, just as I was in the process of moving, they entered the digital age with a new mobile banking app. Now, I’m not one for gadgets, and I’m never the first on the block to try out new technology, but I love that app! And with the coronavirus pandemic keeping me mostly at home, I can do just about all my banking with my phone. I can’t even remember the last time I went into a bank’s lobby.

As you can see from the following graph, digital banking has risen significantly—through all age groups since COVID-19 arrived.

Online banking has actually been around since the 1980s. Microsoft Money was one of the first applications. It integrated online banking and signed up 100,000 households. NetBank, created in 1996, was one of the first successful internet-only banks. Over the next decade, most major U.S. banks had some form of online banking. In 1999, Yodlee developed the first account aggregation software, assisting consumers to get the best loan rates, lower fees, and higher returns, by scouring thousands of institutions. Today, now named Envestnet Yodlee has 27 million users.

But we should distinguish here, the difference between online banking and digital banking. They are often used interchangeably, but they are really not the same. Online banking doesn’t have all the bells and whistles of digital banking. It’s actually included as one facet of digital banking.

Most of us use some form of online banking. Through a gateway accessed by our user IDs and passwords, we check our account balances, make sure our debit card transactions are listed correctly, and many of us pay our bills online. But with digital banking, all the bank’s services are gathered into a combination of online portals and banking apps, so that you can not only do all of the above-mentioned tasks, but you also have access to debt and money management, accounting and payroll applications, international money transfers, instant credit, and much more—all right on your cell phone.

The digital revolution really took off with the 2007 launch of the iPhone. With that little device, you are, effectively, carrying around your personal computer. A recent study showed that 80% of banking customers own smartphones and 60% now use mobile banking to manage their money. That number has tripled since 2012.

According to the FinTech Times, 24% of people in the U.S. now rely on digital-only banking. And just 34% of those 35 and under even carry cash! By 2022, forecasts say that more than 75% of millennials will be digital banking users. And don’t forget about the Gen-Z’ers (born between 1995 and 2015). They control $45 billion in annual spending, and account for some 60 million people in the U.S., and they grew up using their phones for everything from texting, social media, playing games, and, oh, yes, even as a telephone! Most of them will never set foot in a bricks-and-mortar bank branch.

The spread of digital banking is global. According to Oracle, 67% of bank customers around the world are now on digital banking platforms, and the World Bank says that in the last three years, 515 million global customers opened a banking account through a mobile money provider.

Digital banking is significantly changing the banking industry. In order to compete with neobanks and third party mobile money wallets like PayPal, Apple Card, and Facebook Pay, traditional banks are now investing heavily in technology and digital infrastructure upgrades. For example, to appeal to the younger, tech-savvy generation, Bank of America offers an artificial-intelligence-driven virtual financial assistant dubbed “Erica” in its mobile app. BoA has 66 million customers that interact with it 10 billion times a year, and 97% of those interactions are digital—mobile, online or through interactive voice response.

The following survey by Oracle shows the rapid proliferation of digital banking around the world.

But it’s the neobanks that are becoming the bank growth vehicles of the future. Sure, brick-and-mortar banks will still have a place in the economy—at least in our lifetimes. After all, if you need a safe deposit box or easy currency exchange, you go to your local bank (at least for now!). But over the next few decades, it’s the younger folks who will drive the banking industry. A survey by Finder.com reported that 21.4% of U.S. internet users ages 18 to 91 already used neobanks, and 8.8% of the respondents said they plan to open a digital-only bank account in the coming months.

There are plenty of advantages in using digital banking instead of physical bank branches:

• It’s a lot less expensive for the banks; they don’t have to pay for buildings that house their branch networks; they have fewer regulations than traditional banks; and little, if no credit risk.
• Most banking transactions, including balance inquiries, bill payments, and money transfers are almost 100% digital. And if you need a personal consultation, that, too, is going digital, via chats, as well as artificial intelligence (AI) and machine learning.
• Quick processing time (for setting up accounts). For example, with SoFi, you can pre-qualify for a loan and set your interest rate in a matter of minutes.
• Because the bank’s expenses are less, their transaction fees (if they have any), are less than those in traditional banking. Many neobanks have fee-free accounts, although they may charge you if you don’t keep a minimum balance.
• Digital banking can reach a wider prospect base less expensively, so people who are ‘unbanked’ or ‘underbanked’ (think of those who pay their bills through money orders or use check cashing services with huge fees) can also sign up. Right now, the FDIC estimates that 25.2% of Americans do not have a bank account.
• Almost all neobanks have a smartphone app, so you can bank anywhere, anytime.

How Neobanks Work
In the United States, Simple and Moven were among the first neobanks, founded in 2009 and 2011, respectively. Today, there are around 60 neobanks, It’s pretty easy to sign up for a neobank. Most are just apps that you download—with no reams of paperwork to complete. Some even allow you to link your traditional bank accounts to the neobank—a great way to ease into totally digital banking.

Services that a neobank may provide include:

• Checking and savings accounts
• Payment and money transfer services
• Financial education tools, including budgeting help

Most neobanks don’t offer much in the way of credit, so it’s good to maintain your back-up traditional bank or credit union for those needs. However, some neobanks do offer personal and business loans through partner banks and credit unions. Then, there are some like SoFi, who were lenders before they offered neobank features, so it offers both loans and deposit accounts. You can see the future, can’t you? The neobanks are edging their way into almost all banking functions.

Since it takes a lot of work, money, and time to become a chartered bank, there are just a few neobanks that have gone down that road. Most just create alliances with existing banks so that they can offer FDIC insurance. Banks such as Evolve Bank and Trust, The Bancorp Bank, BBVA, Choice, MetaBank, Metropolitan Commercial Bank, Wells Fargo, CBW Bank, nbkc bank, and UMB Bank have all been expanding their services by partnering with neobanks.

Still other financial institutions, like Goldman Sachs, launched Marcus, its own neobank, in 2016. GreenDot Bank, partnering with Walmart, created GoBank in 2013.

And lest you think the services are one-size-fits-all, you’d be wrong. There are neobanks targeted at a variety of different demographic groups, and offering differentiated services.

For students and millennials, and offering tools to help manage debt, increase savings, or begin investing, as well as person-to-person (P2P) payments, spending notification, rewards, early access to pay, and gamification of financial literacy (a game-based approach to make managing your money fun) are BankMobile, Dave, Digit, Chime, Current, GoBank, MoneyLion, SoFi Money, and Varo. Chime has the largest amount of consumer users, about 8 million people between the ages of 25 and 35.

For small businesses, offering invoicing; bill payment and ACH credit push and debit pull payments; integration with merchant platforms such as Kabbage, Stripe, Square, and soon PayPal; accounting and budgeting, instant credit, and early access to pay; no-fee international transfers; creation of LLCs; cash flow projections; and tools that enable the building of application programming interfaces (APIs) on top of the bank account; you can choose between Azlo, BankNovo, Current, Joust, Lili, MoneyLion, NorthOne, and Oxygen. Joust is the leader, with 4 million accounts.

Affinity groups, such as the “prebanked” (those age 21 or younger who rely on cash), business travelers, HENRYs (“high earners not rich yet”), and those who are environmentally or socially conscious can opt for the services of Aspiration, Be Money, Marcus, Revolut, Step, and Unifimoney. They offer high-yield savings and checking accounts, artificial intelligence (AI) built into investment apps, and cash-back credit cards.

Here’s a link to the list of current neobanks and their services.

Neobanks aren’t perfect. There are some cons to consider:

• Their deposit accounts are not all backed by federal insurance. You are taking a big risk if that is the case with your neobank, so I would highly recommend you make sure your deposits are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Share Insurance Fund (NCUSIF), like they would be at your corner bank or credit union.
• Neobanks are not as regulated as traditional banks. Consequently, you might not have any legal recourse if you run into difficulties with an app, services, or non-regulated third-party service providers. Or, if you have to prove potential fraud or resolve errors.
• You won’t have a local bank branch to visit. You’ll probably still be able to use a local bank that’s within your neobank’s ATM network, but you won’t have a personal banker.
• If you’re a technophobe, neobanking may not be for you. You need to have some comfort level with using mobile apps, and you can’t be afraid of exploring the app. If you only use it to deposit your paycheck, you may be missing out on all the product and service offerings that are included.

Artificial Intelligence and Machine Learning are Propelling Digital Banking
I mentioned AI and machine learning earlier. One definition of AI is, “a wide-ranging branch of computer science concerned with building smart machines capable of performing tasks that typically require human intelligence.” Wikipedia says, “it’s the study of “intelligent agents”: any device that perceives its environment and takes actions that maximize its chance of successfully achieving its goals.”

In a survey from Varo Money, 79% of adults in the U.S. believe that AI could help them manage their money better, and also said if their bank offered AI tools, they would use them. It is estimated that artificial intelligence will transform the digital banking industry and save it $1 trillion dollars in the process. Erica, the Bank of America personal assistant I mentioned earlier, uses AI and advanced analytics to track spending patterns and makes suggestions on altering them to improve the customer’s financial health.

Pre-COVID-19, digital banking was on the rise. But the pandemic has accelerated the pace. With most bank branches closed (except by appointment), many of us have become more dependent on digital banking. But the largest beneficiary of digital banking has been e-commerce, where digital payments are King. According to the Department of Commerce, $200.72 billion was spent online with U.S. retailers in the second quarter, up 44.4% year over year. And e-commerce now accounts for 20.8% of total retail sales, a rise of 14.7% from last year and 16.2% from the first quarter of this year.

I don’t expect that to decline after the pandemic ends. Those of us who weren’t big online shoppers have now caught the bug, and discovered just how convenient it is and how much time it saves us from getting in the car and checking three or four stores for what we need.

Digital banking is here to stay. The biggest challenge today—and one that deters some of the older banking customers is security. Digital banks have added layers of security to make sure the person using your device is you, and they utilize encrypted data, two-factor authentication, intrusion detection systems and firewalls to keep on top of constantly changing customer and regulatory requirements. Nothing is 100% safe, but it’s important that you feel comfortable that security is a priority at your digital bank.

Reasons for also Maintaining a Local Bank Relationship
Now, even if you are all-in on your neobank, don’t completely discount the benefits of also keeping a local bank relationship. These include:

If you need to get a lot of cash or make a large deposit. You know that ATM’s have daily cash withdrawal limits. Your local bricks-and-mortar bank branch is limited only by the amount in your account and/or the cash stored in its vault. As well, your mobile banking app can’t take a cash deposit and it may also have a daily limit as to the size of the checks you can deposit into your account. My mobile app allows me only to deposit up to $2,500 per day.

As I mentioned earlier, neobanks don’t offer safe deposit boxes. So, if you want to secure your birth, marriage, or divorce certificates or other items that would be hard to replace in case of a fire or robbery, your local bank has a safe deposit box for you.

Cashing in loose change. Sure, even my grocery store has a coin counter, but it charges for that service. At my local bank, I can just bring in my ziplock bag with the contents of my piggy bank, and they are happy to throw it into their coin counter and deposit it right into my bank account.

You need a cashier’s check for your home closing. The title companies no longer will accept your personal check, so, yes, you’ll have to get that guaranteed check at your bank branch. You can possibly get one mailed to you from your neobank, but that will take some time—not the immediate service you will receive at your bank branch.

Do you have need of a notary public? No, you can’t get that at your neobank. But if you require a notarized, witnessed signature on documents like vehicle titles, loan documents, and power of attorney forms, your local bank can probably accommodate you.

Personalized customer service. Sometimes, you just need to explain your problem or issue to a real person. My best example is the Sunday night before a long trip when I attempted to pay my bills online. To my surprise, my bank’s internet site was down for maintenance. (I’m sure they alerted me, but I didn’t, obviously, pay any attention!) I needed to transfer money from one account to the other. I called and left a message on the bank manager’s voicemail. He called me back between flights the next day. I told him what I needed, and he said, “I’ll take care of it.” And he did. With a digital bank, you’re probably going to be routed through a series of voicemail prompts, which may or may not be able to help you, and you’ll most likely spend a lot of time on hold and swearing at your phone as you try to make it through the voicemail prompts..

Even machines (and you) make mistakes. You can punch in the wrong amount for your deposit, or the camera’s picture of your check is fuzzy, and the computer at your bank can also pick up the wrong amount. A couple of months ago, when my dog kennel deposited my check for Oreo’s visit, her bank encoded the check for $50 less than the amount I wrote. The kennel called me; I called my bank; and they corrected the error. Probably not that easy at a neobank.

If your banking needs are simple—just depositing and withdrawing, by all means, try a neobank. But if you need more from your bank, why not use both—a traditional bank and a neobank (or your bank’s online, mobile, and digital app platforms). I’m telling you; that app is hard to beat!

The Top 7 Digital Banks in the U.S.
According to onlinebanking.top10.com, these are the top 7 digital banks in the U.S., and their primary advantages:

1. BBVA: High yield, award-winning mobile banking app, access to 64,000 fee-free ATMs, zero monthly fees, and a Visa Debit Card with cash back rewards, bbvausa.com/special/online-checking.html?source=affiliate&CID=ref:afl:oth:-Online+Checking_TextLink+4--:Natural+Intelligence+Ltd._2828146-apply-:13647542_9109189:::::CJ::XJVmwJag4Z::&cjevent=ee596017eca211ea822e01400a240612
2. Varo: zero monthly fees for checking & savings, live customer service available all week, automatic savings options available, earn up to 1.21% APY on savings, varomoney.com/apply-verticalp/?utm_source=Natural_Intelligence&utm_campaign=5VKApW2ost
3. Chase: premium full-service online bank, flexible, user-friendly and secure app, no fees on any financial operations, get $200 for opening a checking account, accounts.chase.com/consumer/banking/online?px=YA99297&jp_cmp=rb/663227/aff/3_94/na&CODE=pV2zaWFdRBY-DCGXQRjx8xtdqsHKDzAg8w&MSC=pV2zaWFdRBY-DCGXQRjx8xtdqsHKDzAg8w
4. Radius Bank: user-friendly app with robust features, free ATMs available worldwide, transparent information on fees, earn up to 0.15% APY on savings accounts, radiusbank.com/personal/rewards-checking/?utm_source=aragon&utm_medium=affiliate&utm_campaign=00344&pid=76&utm_term=Natural+Intelligence_
5. SoFi: checking & savings services in 1 account, 5% cash back up to $100 for new members, no fees on any financial operations, member rate discounts on SoFi loans, sofi.com/money/?adDepartment=BD&adId=864375&adName=Natural%20Intelligence%20-%20Money&adTarget=money&clickId=xl62E6XerxyOUqCwUx0Mo3YgUkiVjBxowQfFWo0&irgwc=1&partnerId=34020&partnerName=Natural%20Intelligence%20LTD%2C&partnerType=Affiliate
6. Discover: the best for frequent business travelers, 24/7 U.S.-based customer service, no hidden fees, earn 0.80% APY on savings accounts, discover.com/online-banking/savings-lng-01/?cmpgnid=affl-bk-CJ&src=S00000LIK&van=Dbank
7. CIT Bank: all types of high-yield savings accounts, special home loans services, no monthly service or maintenance fees, earn up to 0.75% APY, cit.com/cit-bank/tiered-savings-account-savings-builder-direct/?utm_source=Natural+Intelligence+Ltd.&utm_medium=affiliate&utm_campaign=9109189&utm_term=E8Ej5lk4Ma&cjevent=35e6f3e9eca311ea808301340a24060e&utm_content=savingsbuilder_000_text_brand

2 Easy Ways to Consistently Find Winning Long-Term Stocks

The world of stocks, even in the best of times, is anything but quiet and relaxing. There are always unexpected events that impact the market. And individual stocks are subject to any number of factors that can push their value up or down. From earnings to competition to scandals, you simply can’t predict what the future has in store.

This has been especially true over the past several months, as we’ve gone from market highs to historic drops to nauseating volatility. We’ve seen stable stocks crash and burn, and we’ve seen surprisingly steady climbs from newcomers. This has been, to say the least, a learning experience even for those of us who study the market for a living.

After months of analyzing and reporting on the bumper car/roller coaster/haunted house of a market, it was time for a family vacation. We packed our bags and drove from Massachusetts to North Carolina, stopping in Chapel Hill for a few days, before galloping over to the Outer Banks for a week.

With a refreshed outlook, I went back to work and noticed a common theme in my emails, especially as some stocks have begun to gyrate or shake out after earnings.

The question has to do with my thoughts on XYZ stock and whether “it should be good for the long term.” I actually have pretty strong opinions on this topic of long-term stock winners, so why not share them here?

How to Find Market Leaders No Matter What’s Happening in the Market

Listen, we all want to buy a true market leader and hold it for a couple of years or longer as it changes the world, pushing our portfolio to dizzying heights. But for that to happen you have to do two things.

The first is to aim for that ahead of time, before you buy the stock, by looking for stocks with characteristics of past long-term stock winners — sales and earnings growth, a big idea and a chart that tells us big investors are getting in—and have some rules set up to allow for the stock to work its way higher.

In my experience, too many people get in for a short-term trade—say, because of the chart or because they heard something somewhere—and if the stock doesn’t work out, they say to themselves, “Hey, it’s still a good long-term story, so I’ll hold on!” We call these involuntary investors and they usually end up being the weak hands that throw in the towel at the wrong time.

The second piece of the pie to getting a long-term winner is following what the stock is saying. We’ve been fortunate enough to latch onto many star performers, but we didn’t say, “Hey, you know what—DocuSign(DOCU) is going to be huge, probably going to triple in a year, so we’ll just hang on no matter what.” No! The stock proved itself through its own action and told us week by week that it had potential to keep going. So we held it, and it’s up big since our original buy.

The moral of the story is to just follow the plan—it’s important to aim to develop bigger winners. I’m a big believer in that, but you can’t prejudge it or make excuses for your stocks, either. The way you know a stock will be a huge performer is if it proves itself over time.

2 Examples of Winning Long-Term Stocks

One of my favorite simple chart patterns to buy off of are early-stage pullbacks. The first pullback after a breakout usually is a high-odds entry point. Alibaba (BABA) is a decent example, as the stock exploded out of a two-year-ish consolidation before setting up again. Now shares are beginning to reassert themselves. Let’s see if they continue.

Meanwhile, big, liquid stocks with great stories and earnings estimates are still being rewarded. The example here is Qualcomm (QCOM), which thanks to a solid quarterly report and (even more so) a big deal with Huawei, has exploded to new highs on huge trading volume. That isn’t your neighbor buying 50 or 100 shares—those are big, institutional investors plowing in because they think Qualcomm’s earnings power in the years ahead is going to be massive (analysts see the bottom line up more than 60% next year!).

Of course, all of this can change at any time—and, to be fair, we have begun to see some selling on good news in stocks that have had huge runs. As always, if the facts change, then we will, too, but at this point it’s clear the buyers are still in control.

It does take a little work to find these long-term winners, but it’s well worth the effort as you watch your retirement fund grow substantially over the years. And if you buy carefully, patience is one of your biggest strategic advantages in making big gains.

8 Classic Investing Books to Alleviate Social Distance Boredom

Relaxing summer days, cool fall evenings, or just because, there’s nothing like sitting down with a good book. I love to read. But, not just any book will do. I can’t read those saccharine, written-by-formula books that we’ve all been tempted by at a (pre-pandemic) airport bookstore. I like real books, written by the top minds in the investing world. Books that engage our minds, that make us think, that show us different perspectives, and make us better investors.

Below are some of my favorite investing books (I’ve read all of them). The list includes some classics that were written long ago but are still remarkably relevant for investors of all types today.

The 8 Really Enjoyable Investing Books You Should Read

1. Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, by Jeff Gramm: Published in 2016, this engaging book recounts several of the more colorful shareholder efforts to change bad management practices. Each chapter is based on an actual letter written by an activist investor, starting with Benjamin Graham’s comparatively genteel pressure on Northern Pipeline to the highly entertaining letter written by Daniel Loeb to Star Gas wondering whether the CEO’s 78-year-old mother belongs on the Board of Directors.
2. Reminiscences of a Stock Operator, by Edwin Lefèvre: Although it was first published almost a century ago, this book inspired generations of investors. You may find some roots of your own trading philosophy in this book about Jesse Livermore, a trader who emerged in the late 1800s to make a fortune trading stocks. This book is often listed as among the most entertaining and informative investment books ever published.
3. Security Analysis, by Benjamin Graham and David Dodd: One of the most influential books on investing and originally published in 1934, it describes the timeless value investing concepts and methods of Benjamin Graham, the “father of value investing.” This read is considered the foundation for Warren Buffett’s success and recent editions include commentary by some of today’s most successful investors.
4. Fooled by Randomness, by Nassim Nicholas Taleb: The author, once considered an investment heretic but now thought of as a genius and the essence of mainstream, uses stories and anecdotes to illustrate how the world is much more random than we believe. He describes how human nature leads us to overestimate causality, which is often followed by our mistakes. This book opens the reader’s mind to a view of the world that is frequently hidden.
5. The Most Important Thing, by Howard Marks: Warren Buffett’s quote on the title, “This is that rarity, a useful book” conveys the merits of this highly-readable and brief (180 pages) book on thoughtful investing. Marks discusses how to define, recognize and control risk, and comments on contrarianism, finding bargains and “knowing what you don’t know.” Marks co-founded and runs Oaktree Capital Management and is widely considered one of the today’s icons of value investing.
6. Against the Gods, by Peter L. Bernstein: Peter Bernstein was one of the most insightful writers of our time. His book provides a comprehensive history of the efforts to understand risk and probability, beginning with early gamblers in ancient Greece, continuing through the 17th-century French mathematicians Pascal and Fermat and up to modern theory. Barron’s describes the book as “an extremely readable history of risk.…”
7. Lords of Finance: The Bankers Who Broke the World, by Liaquat Ahamed: This text tells the story of how four central bankers once dominated the world of finance in the early 1900s. Not only does Ahamed provide fascinating insight into their personalities, he also illustrates how these men were all too human, using tools and methods they believed were effective, yet they were unable to prevent the financial crises that plausibly led to World War II. Highly readable, this book remains relevant in our own time as central bankers continue their experiments with global monetary policy.
8. Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor, by Seth A. Klarman: Considered one of the most insightful books on value investing, Klarman’s book describes the foundations of his philosophy that led him to become one of the most successful (and unheard of) value investors. Klarman still oversees the $27 billion in assets held by the Baupost Group. This out-of-print investing book on “buying low” ironically sells for $1,194 on Amazon, but probably is worth the price.

With so many of our usual activities cancelled and postponed these days, these books are good ways not just to fill some of that time, but also to learn valuable investing lessons. If nothing else, a few of them are highly entertaining. So save money on that streaming television subscription and pick up a book. You’ll be glad you did.

How to Prepare Your Portfolio for the November Election

No matter your politics, the stock market can’t help but move in relation to a major election. Presidential and midterm elections almost always impact the financial markets.

And even though coronavirus numbers are currently getting most of the attention in the stock market, the changing odds of who will win this November’s presidential election are surely going to be market moving in the weeks/months to come. Joe Biden’s odds of victory are rising (according to the betting markets), and investors are starting to wonder what a Biden presidency would mean for the stock market.

Now before I dive too deeply into the political landscape please know I will never give you my own opinion on political issues as my personal thoughts/beliefs do not matter to you. Instead, I wanted to share with you a couple of bearish ideas for hedging your portfolio or playing a downside market move based on a Joe Biden or Donald Trump victory.

Though the results of the election are still to be determined, as is often the case when the narrative/odds change before an election, traders often position to get ahead of a potential outcome.

How to hedge the presidential election with options

If I was concerned with one outcome or another and wanted to hedge my portfolio risk, I might look to buy a put option that would give my portfolio bearish exposure in time for the election. For example, I could:

Buy to Open the S&P 500 ETF (SPY) November 320 Puts (expiring 11/20/2020) for $15.

The most I could lose on this trade is the premium paid for the put, or $1,500 per put purchased, if the SPY were to close above 320 on November 20. However, if the market declined meaningfully this put option would explode in value.

Or, if I wanted to hedge the Nasdaq for the presidential election, I could:

Buy to Open the Nasdaq ETF (QQQ) November 260 Puts (exp. 11/20/2020) for $14.

The most I could lose on this trade is the premium paid for the put, or $1,400 per put purchased, if the QQQ were to close above 260 on November 20. Similar to the SPY trade, if the market fell this put option could be sold for big profits.

Similarly, you could play upside/downside moves in a specific market most likely to be impacted by a win by one party or another by buying calls (bullish) or puts (bearish) in the November expiration cycle. For example, one might assume the Healthcare (XLV) and Financials (XLF) sectors will be volatile based on the election results, and buying calls/puts could potentially be very lucrative if you were to pick the right candidate to win.

For example, if I thought the XLV will be trading higher based on the presidential election, I could:

Buy to Open the Healthcare ETF (XLV) November 104 Calls (exp. 11/20/2020) for $5.

The most I could lose on this trade is the premium paid for the call, or $500 per call purchased if the XLV were to close below 104 on November 20. Should the XLV trade higher my calls would have big upside profit potential.

While many TV pundits and hedge fund titans have made dire predictions of the market falling 40%-50% on a Joe Biden or Donald Trump presidential victory, I would recommend largely ignoring the noise and political theater over the next several months and instead focus on the actual price action of leading stocks and the stock market.

Defensive ETFs Can Protect You from the Next Market Crash

From an evolutionary perspective, we humans have a lot to worry about. Our brains developed fear and worry as a survival mechanism. If you were living with a community of hunter gatherers some 150,000 years ago, fear is what helped you realize that you needed to run from that 240-pound dire wolf heading your way. I don’t know about you, but that’s one thing I’m glad I don’t need to worry about.

Worry, however, can have benefits for savvy investors who know how to take advantage of it. You’re probably familiar with the old Wall Street adage that says “bull markets climb a wall of worry.” This bromide has certainly been proven since the U.S. stock market bottomed earlier this year, and there is currently no shortage of things for investors to worry about. But as long as the market’s technical backdrop remains strong, the bull should be able to feed off this worry (which typically creates a rapid pile-up in short interest that can quickly ignite short-covering rallies).

But what happens when the market’s internal condition eventually begins to weaken and those widespread worries show no sign of diminishing? This was precisely the condition that precipitated the late-February sell-off in the major averages, as investors’ fears over the spreading coronavirus served to fuel the selling pressure, which only intensified in March. That double-edged sword of worry, as it pertains to the stock market, is a good reason to hedge your portfolio against another fear-driven market decline. It’s never too early to prepare a strategy to protect your portfolio from the next market correction.

One of my favorite indicators for gauging the internal strength or weakness of the broad market is the number of stocks making new 52-week highs and lows. The new highs-lows reflect the incremental demand for equities, and in a healthy market environment, there should be fewer than 40 stocks making new 52-week lows on a daily basis. New 52-week highs, by contrast, should ideally outnumber new lows by a ratio of 3:1 or greater.

When the daily number of stocks making new lows on both the NYSE and the NASDAQ is below 40, that tells us that selling pressure is virtually non-existent. But sooner or later, the new lows will begin to increase while the new highs will contract. Once the new lows rise above 40 for several consecutive days, you’ll know it’s time to begin “pulling in the horns” by trimming laggards from your portfolio, raising protective stops on existing long positions and looking at potentially attractive defensive stocks and ETFs to rotate into.

The danger of a market in which new 52-week lows are above 40 (and rising) is that stocks in general become far more vulnerable to negative headlines and worries. While stocks typically ignore bad news and feed on fear during a strong market environment, in a market characterized by internal weakness, investors’ fears can become self-fulfilling as selling begets more selling (with no one interested in buying the dips).

Fear, then, can be beneficial for stocks in an internally strong environment, but detrimental to stocks when the market’s backdrop is technically weak.

When the new 52-week lows are steadily increasing, fear is most likely to drive stock prices lower.

4 Defensive Investments to Hedge Against Worry
One of the first things you should do when the market starts showing signs of internal weakness is to look for areas of the market which were ignored during the rally phase. Underachieving sectors and industry groups often (though not always) become the new leaders once a market correction has ended as institutional investors typically seek out-of-favor stocks to rotate into. And if these ignored sectors happen to be defensive in nature, it increases the odds that such stocks will rally during—or immediately after—a market downturn.

Utility Stocks
One such group that has been largely ignored during the latest phase of the bull market is utilities. Utility stocks have a long-established history of being among the most defensive stocks since we all need water, gas and electricity regardless of the business climate (even in a recession). Utility companies have the added attraction of benefiting from the lower interest rates that are prevalent right now.

I expect that utility stocks will begin outperforming the major averages once we’ve entered another down phase in the market.

Consumer Staples
Another traditionally defensive area of the market is consumer staples. Consumer staples typically perform well in a recession; after all, people will always need to buy things like shampoo, toothpaste and toilet paper. The staples also tend to outperform when high-flying leaders—like the big tech names—come under selling pressure.

Gold
Another way to benefit from a fear-driven market is to watch the asset class that has always historically served as a hedge against a weak stock market. I’m referring, of course, to gold, which typically benefits when worries abound. Accordingly, gold is one of the ultimate safe haven assets which investors should consider owning in a fear-driven market.

While it’s commonly believed that gold always trades inversely to the stock market, that hasn’t been the case in recent years as both gold and equities have simultaneously risen for extended periods. The reason for gold’s persistent strength is plainly evident in the daily news headlines, which continue to reveal spiking coronavirus cases in the U.S. There are also lots of geopolitical risks and worries over the strength of the global economy. With such worries abounding, gold should have a built-in psychological support for months to come.

U.S. Treasury Bonds
A final consideration for a fear-driven market is U.S. Treasury securities, which are normally in high demand during periods of heightened stock market volatility. T-bonds have benefited from safety-related demand in recent years, and it’s not likely this demand will diminish anytime soon.

The sectors should be able to benefit from a fear-driven market environment. At the next sign of broad market weakness (characterized by an increasing number of stocks making new 52-week lows), investors should expect these defensive sectors to show relative strength compared to the major averages.

How to Profit from the Coming Social Disruption

The world is on a precipice of an amazing revolution that will take years (decades, centuries, maybe) to evolve. The first wave of the change is the coronavirus pandemic, and the second—and more important part of that wave—is the Black Lives Matter (BLM) movement. And both have created —and will continue to create—phenomenal social disruptions.

There have been many articles recently written about the opportunities that the pandemic has brought to streaming, e-commerce, and online education. And there will most likely be even more wealth distributed to those businesses as the pandemic rages on.

But today, I’d like to focus on the potential social and economic changes and opportunities that will arise from the Black Lives Matter movement.

Social disruption is defined as “the alteration, dysfunction or breakdown of social life, often in a community setting. Social disruption implies a radical transformation, in which the old certainties of modern society are falling away and something quite new is emerging.”

To be sure, it’s an exciting time—and one from which we can take our cues from previous historical disruptions.

Throughout our history, we have witnessed many social disruptions that have forever altered 1) our way of thinking and relating to each other; 2) expanded global economics; and 3) have given birth to new technologies, industries, and cutting-edge companies with tremendous investment opportunities.

And now we are on the cusp of radical changes that—if we look far enough ahead—will not only enhance our collective lives, but will also drive some fantastic opportunities to invest on the ground floor.

Before we talk about those opportunities, let’s take a walk back through history and look at a couple of examples of the social disruptions that have come before, the societal changes they have forced, and the resulting wealth that was accrued for those investors who were savvy enough to realize the economic potential that they offered.

The Women’s Movement
It may be difficult to imagine today, but women have only had the right to vote since May 21, 1919. Alternatively, white male landowners were granted that right in the late 1700s. The National Women’s Suffrage Association was formed in 1869 to help women get the vote, but it took 50 years to make it happen. Most women who worked outside the home were housekeepers or schoolteachers. With the advent of the Industrial Revolution in the 1840s and 1850s, factories needed more workers, so it wasn’t long before 10% of women began working outside the home. By the end of World War I, that number had increased to 25%. Then, World War II boosted the demand for war machinery, and the Rosie the Riveter campaign recruited women to fill those jobs, pushing the percentage of women in the work force to 37% by the end of the war. In the 60s, the Women’s Liberation Movement focused on giving women the right to an education and the right to work. In 1900, there were 85,338 female college students in the United States; by 1940, there were 600,953, and today, 56% of college students are female. And today, 48% of women are in the workforce.

None of these efforts was easy. Protests, centering on women’s supposed lack of expertise and mental capacity, threatened each state of progression. You can see from the following chart that even today, just 22% of the C-suite (CEO, CFO, COO, etc.) are women and we still have a long way to go for true equal rights, but as the Virginia Slims cigarette commercial used to say, “We’ve come a long way, baby.”

Women Inventors
It’s no doubt that women in the workplace have drastically changed the world. We have women to thank for many of our most useful inventions, including:

Without women’s efforts throughout history, none of these inventions would be made—and utilized daily. While many women worked for larger corporations who adopted their inventions, others went on to found their own businesses.

Women-founded Companies
More than 12.3 million American companies with $1.8 trillion in sales, are owned by women.

The number of women-owned businesses is on the rise, increasing 58% since 2007, growing at an annual rate of 21% (more than two times as fast as total new businesses) and can be found in every sector of the economy.

Here are some examples of women-founded businesses that most of you will easily recognize:

• Rent the Runway was started in 2009 by Jennifer Hyman and Jenny Fleiss as a way for women to rent dresses for special occasions. Today, its selections include everyday wear—including work clothing—rented via member subscriptions. Last year, T. Rowe Price $125 million in the company, and it is now valued around $750 million.
• Skin care company Proactive was created by Dr. Kathy Fields and Dr. Katie Rodan in 1995, and is now worth $1 billion. In 2002, the doctors started Rodan Fields, a skincare company focusing on older women. The brand has been ranked the #1 skincare company in the U.S. several times, by Euromonitor International Ltd. which publishes the world’s most comprehensive market research on the skincare industry.
• Millions of women love Sara Blakely for her company Spanx, which she launched in 2000. The shapewear company is now worth $1.1 billion.
• If you want to know who you are related to, you can consult 23andMe, the genetic testing company created by Anne Wojcicki and Linda Avey in 2006. Today, the company is worth $2.5 billion.
• In 2014, Whitney Wolfe Herd launched dating app Bumble (now with a $1 billion market value), in which women make the first move after matching.

As you can see by the following graph, the data is clear that women entrepreneurs and workers vastly improve a country’s Gross Domestic Product.

Consequently, it’s no surprise that venture capital investors are beginning to catch on. Their investments in all-female founding teams rose to $3.3 billion last year, amounting to 2.8% of capital invested in U.S. startups. It’s still way too small, but that’s an improvement from $3 billion in 2018 and $2.1 billion in 2017.

Women-founded businesses still do not get the support that those created by men enjoy. But some do become public companies, and their shareholders have few complaints from their gains.

Here are a few who have made it into the big time:

The Civil Rights Movement
Like the Women’s Movement, Civil Rights have come a long way, but we have miles to go. The movement dates back hundreds of years, but reached a tipping point in the 1860s, when the disagreement over the enslavement of Black people propelled the Civil War. The war lasted from 1861-1865, and heated up further after President Abraham Lincoln’s Emancipation Proclamation, or Proclamation 95, a presidential proclamation and executive order on September 22, 1862. The proclamation freed more than 3.5 million enslaved African Americans in the secessionist Confederate states. Once the war ended, the remainder were freed by way of the Thirteenth Amendment to the United States Constitution, ratified in December 1865.

The Reconstruction era of 1865 to 1877 brought plenty of challenges as seceded states were brought back into the Union and the country grappled with the legal status of African Americans. Widespread discrimination persisted, leading to Congress enacting the Fourteenth Amendment in 1868, affirming that everyone born in the United States, including former slaves, was an American citizen and declaring that all male citizens over twenty-one years old should be able to vote. Then, the Fifteenth Amendment in 1870 affirmed that the right to vote “shall not be denied…on account of race.” (Notice, gender was not mentioned).

As we know, those actions did not end discrimination. Decades of unrest followed, with horrible examples of racism, both overt and subtle, by individual as well as government action. On September 9, 1957, President Eisenhower signed the Civil Rights Act of 1957 into law, the first major civil rights legislation since Reconstruction. It allowed federal prosecution of anyone who tried to prevent someone from voting and also created a commission to investigate voter fraud.

But my the mid-1900s, the Black community—along with many white supporters—had had enough. Protests, sit-ins, and marches took place across the country, and leaders like Dr. Martin Luther King, Jr., Malcolm X, Rosa Parks, and Rep. John Lewis, moved to the forefront of the movement, and led the charge to desegregate schools and to the passage of the Civil Rights Act of 1964, which prohibited discrimination based on race, color, religion, sex, and national origin by federal and state governments as well as some public places.

In 1965, President Lyndon Johnson signed the Voting Rights Act, which banned all voter literacy tests and provided federal examiners in certain voting jurisdictions. Following that, the Civil Rights Act of 1968 (also known as the Fair Housing Act) prohibited discrimination in sale, rental, and financing of housing based on race, creed, and national origin.

Most of the social disruption from the Civil Rights Movement took place between 1945 and 1970, but the struggle for equal rights continued. The Civil Rights Act of 1990 was the last piece of major civil rights legislation in the U.S. It provided the right to trial by jury on discrimination claims and introducing the possibility of emotional distress damages, while limiting the amount that a jury could award.

Over the last few decades, the Black community—while still underrepresented in business and education—has continued its struggle for equality. But some progress has been made.

As of 2019, there were more than 2.5 million Black-owned businesses in the U.S. But just 2%, or 124,000, of the 6 million employer firms in the U.S. are Black-owned. More than 30% are in health and social services. And as my previous chart showed, just 14% of C-suite executives are people of color.

Black Inventors
Black inventors have been mostly unsung heroes who have been responsible for some significant inventions, including:

These inventions are just the tip of the iceberg of the cutting-edge products developed by Black inventors. Many more have made their mark by starting their own businesses.

Black-founded Companies

According to BlackEnterprise.com, the top 100 Black-owned companies produce more than $25 billion in revenues and employ more than 70,000 workers. The top 5 include:

• World Wide Technology, with revenues of $11.28 billion, founded in 1990 by David Steward and James Kavanagh, is a technology service provider, and counts 70% of the Fortune 100 corporations as clients.
• Act 1 Group was founded by Janice Bryant Howroyd in 1978 and provides employment, workforce management, and procurement solutions in 19 countries around the world, and has annual revenues of $2.8 billion.
• Ron Hall, Sr. founded Bridgewater Interiors (now run by his son, Ron Hall, Jr.) in 1998. The company makes automotive seating and assembles systems across 15 distinct car models for four automotive manufacturers, and brings in almost $2 billion in annual sales.
• Troy Taylor owns the Coca-Cola Beverages Florida franchise, which he founded in 2015. It’s a family-run entity and is the third largest privately held Coca-Cola bottler and the sixth largest independent bottler of Coca-Cola products in the United States. The company has annual revenues of $1.31 billion.
• Modular Assembly Innovations, with $1 billion in annual sales, was founded in 2011 by Bill R. Vickers. The company supplies tires and wheels for Honda and also produces other products such as automobile center console modules, powertrain accessory modules, chassis assemblies and engine components.

But you can’t invest in any of these businesses as they are not publicly-owned. The majority of African American-owned businesses have just one employee—the founder, and 38% are female-owned. So, they tend to be small businesses, with total revenues of about $150 billion.

One of the reasons many Black-owned businesses remain small is due to lack of funding. In 2018, just 1% of venture capital dollars went to Black-owned startups, and there were only 227 venture-backed Black companies out of the 9,000 or companies were funded in 2018. So, it’s difficult for these companies to achieve the critical mass needed to become public.

I wasn’t able to find a definitive list of Black-owned companies that trade publicly. A couple of sources reported that there were only 12 on the New York Stock Exchange, but that is unverified.

Here is a small sampling of publicly-traded Black-owned businesses:

Obviously, there’s a lot of work to be done to promote Black-owned entrepreneurship.

Educational Opportunities are Improving, but Not Fast Enough
And while education for Blacks is on the rise, as you can see from the picture below, the second graph shows that graduation rates among Blacks is still lower than other races.

Consequently, with Black-owned businesses generally being smaller than and producing fewer sales than the majority of white-owned businesses, coupled with a lower graduation rate, means that there continues to be a big wealth gap between the races.

But look at the next graph, which shows what could happen to our nation’s GDP if that gap was narrowed.

That’s a pretty picture, isn’t it? And it should help stoke our interest in promoting Black-owned enterprises, as well as supporting efforts for providing strong educational opportunities.

Black Lives Matter—on a Cusp of a Monumental Socio-Economic Change
And that’s why the Black Lives Matter movement is so important. Now a global organization, BLM was founded in 2013 following the murder of Florida teen Trayvon Martin. It has grown exponentially, propelled by ongoing social injustices, specifically, the increasing number of young Black men who have been falsely accused, arrested, and murdered by the police.

The BLM movement is bringing needed attention to the racial inequities and discrimination that still exist, 155 years after the Civil War and decades after the Civil Rights movement. But it is morphing into something even more far-reaching that will have a lasting impact. And that’s its focus on the lack of financial support in improving Black communities and boosting Black-owned businesses.

Finally, we are seeing big businesses recognize this inequity, many of whom have begun donating funds to BLM. They include, among others: Walmart, Target, Home Depot, EA Games, Square Enix, Etsy, H&M, Tom’s Shoes, Amazon, Spanx, Levi’s, GAP, Warby Parker, Lululemon, Nike, McDonald’s, Wendy’s, Coca-Cola, United Health, and Peloton.

As well, venture capital and investment firms are waking up, too. In the past few weeks, Work-Bench, Initialized Capital, Backstage Capital, Eniac Ventures, Spero Ventures, Hustle Fund, Precursor Ventures, MaC Venture Capital, and Upfront Ventures, have all announced initiatives to assist Black-owned firms.

And addressing the social injustice side of the equation are the more than 400 companies, including Coca-Cola, Target, Volkswagen, Adidas, Dunkin’ Donuts, Hershey, Ford, Lego, Microsoft, and Clorox, who are boycotting Facebook, ceasing their advertising (which could add up to $70 billion) as a result of how Facebook handles hate speech and other harmful content.

Money talks. And that’s why you shouldn’t ignore the corporate activity surrounding BLM. If the money flow continues, the opportunity for real change will be incredible. And that will lead to enormous investment potential.

In fact, I’m going to label this movement as the next phase of Socially Responsible Investing (SRI)—also called ESG, Environmental, Social, and Governance Investing.

SRI/ESG is not a New ‘Thing’
Lest you think that socially responsible investing is a new ‘fad’, you would be wrong. The concept actually dates back to biblical times, when Jewish law mandated ethical investing. In the U.S., the Methodists—in the 18^th century—were advised to resist investing in “companies manufacturing liquor or tobacco products or promoting gambling.” Today, many religions advocate some sort of socially responsible investing, but the idea has expanded well beyond religious teachings.

In the 1960s—the Vietnam War era—protesters called on universities to cease investing in defense contractors. As the antiapartheid movement in the late 1960’s and early 1970’s geared up, there was a global outcry to halt investing in South Africa, and that led to the establishment of the first SRI fund—Pax World Fund, created in 1971.

In the 1980s, the Bhopal, Chernobyl, and Exxon Valdez disasters created more interest in environmental investing.

The concept has evolved to include companies that fight against climate change, advocate renewable resources, want to create a more equitable world, eschew ‘sin’ stocks (gambling, alcohol, tobacco, guns, even marijuana), and those that promote positive impacts such as ethical work practices, a diverse Board of Directors, and gender equality.

And now we can add promoting Black-owned businesses to the SRI concept.

Socially responsible investments account for over 25% (over $12 trillion) of all assets under professional management in the U.S. That number is expected to rise due to the more socially aware millennial generation. And in a survey from Morningstar, 75% of Americans said they have moderate to high interest in impact investing. I think we’ll find those numbers increasing as investors see the opportunity from BLM.

And you needn’t worry about the returns from SRI. Countless studies have shown that SRI fund/ETF gains are not materially different from similar non-SRI investments. In one of the latest studies, S&P Global Market Intelligence reporeds that from January 1 to May 15, 2020, 14 out of 17 ESG-focused ETFs and funds outperformed the S&P 500.

How to Invest in SRI/ESG
According to Cerulli Associates, 26% of the $46.6 trillion in total assets under management are now invested in socially responsible investments.

According to the IMF, from 2010 to 2019, the number of ESG-dedicated funds has risen from 913 to 1931, with assets growing from $352 billion to $856 billion. According to Morningstar, sustainable funds in the U.S. saw record net flows last year, four times the previous high. So far this year, there have been 23 new ESG funds created.

Right now, you won’t find many Black-owned businesses in those funds, but give it time. As more firms obtain funding and eventually go public, there will likely be plenty of dedicated, as well as diversified, funds that will attract investors.

But before that happens, investors will find opportunities in existing companies that will benefit from BLM, including companies in the following sectors:

• Secondary education
• Body, dashboard cameras
• Street cameras
• Corporate and government training addressing institutional racism
• Entrepreneurial funding
• Entertainment
• Personal care products

A Few Stocks Poised to Benefit from the Social Disruption
I took a look at a dozen or so companies in these sectors that might have potential. But most were just not yet ready for our money. We’re probably too early in the BLM investment cycle to determine which individual investments are worth buying. Except for…

Axon Enterprise, Inc. (AAXN) makes the body cams that policemen wear. That market is going to rise exponentially, and the stock looks good. The company is expected to grow at an annual rate of 30% over the next five years.

Alternatively, you could, of course, invest in any of the companies that have pledged funds to BLM. Of those I mentioned earlier, these four look interesting and seem to be technically attractive right now:

Home Depot (HD), a perennial investor favorite, has been a hot stock since the March market rout and nine analysts have boosted their EPS forecasts for the company in the past month.

Lululemon (LULU), the athletic apparel maker, just announced that it is paying $500 million for home fitness startup Mirror. Its e-commerce investments have paid off during the pandemic, driving the shares higher. Eight analysts have recently increased their earnings estimates for the company.

Crafty online marketplace Etsy, Inc. (ETSY) is a beneficiary of the ‘stay-at-home’ coronavirus orders. But look for it to continue growing as more folks—looking to start sidelines or make a little extra money, begin to participate. Five analysts have raised their EPS forecasts for the company in the past 30 days, and expect it to produce almost 40% annual growth in the next five years.

Amazon.com, Inc. (AMZN) is already super-hot due to its growing fortunes in the e-commerce and streaming, due to COVID-19. Now the company is making a big play to support Black-owned entertainment. Analysts expect AMZN to grow at a 34% annual rate over the next five years.

Most of these stocks have risen pretty quickly, so you may want to wait for a pullback before adding any of them to your portfolio.

As the Black Lives Matter movement progresses, there will undoubtedly be many opportunities to invest in the companies that will help provide the tools to affect this social disruption. And we will be waiting and ready to bring them to your attention as they develop.

Where to Put Your Money Now for Safety and Growth

As I write this, the Nasdaq Composite is three points away from record highs; the Dow Jones Industrial Average has recovered more than 8,500 points from its March lows, and is just 2,000 points away from its all-time highs; and the S&P 500 is now less than 200 points from its record high.

The underlying strength and resurgence of the markets has surprised many investors as well as investment ‘gurus’ who had predicted a long road to recovery. But what many of them neglected to realize is what I’ve been saying for months—unlike the 2007 economic recession and market rout—the March market dive was not a reflection of our current economy. It was caused by a temporary—albeit tragic—event called coronavirus. So, it’s no surprise, as the economy continues to reopen—state by state—that we would see a big bounce in the markets.

Of course, we are not out of the woods yet—economy-wise. More than 100,000 small businesses in the U.S. have already shuttered their doors permanently. Our unemployment rate is over 16% (about 3% higher than initially reported due to a Bureau of Labor Statistics computational error). But that is still a big improvement—and considerably less than the 19.7% economists had been predicting.

The tentacles of a rising unemployment rate have, naturally, affected home sales. As you can see from this chart, home sales were down 33.8% in April, compared with April 2019.

The good news on that front is that prices have remained fairly stable and there are signs that the market is beginning to recover. Median listing prices rose 2% in May, to $330,000. And while inventory is down almost 20% from last year, we are beginning to see more houses come to market. The National Association of Home Builders (NAHB) Housing Market Index (HMI). a measure of builder opinion on the relative level of current and future single-family home sales—while, at 37, is still below the 50+ magic number indicating a positive outlook—has risen 7 points from April’s numbers.

As well, the ISM Manufacturing Index—a seasonally-adjusted composite index that gives equal weighting to new orders, production, employment, supplier deliveries, and inventories—rose to 43.1% in May, from 41.5% in April. And the ISM Non-Manufacturing Index—a survey of more than 400 non-manufacturing (or services) firms’ purchasing and supply executives, within 60 sectors across the nation—also increased, to 45.4% from 41.8% in April. Again, if equal to or above 50, both indices indicate economic expansion, so we still have a ways to go, to get our economy back into boom mode, but we are on the right track.

The New Normal will come with Many Investment Opportunities
That phrase has been bandied about—ad nauseum. But, in truth, I think coronavirus is the lightning bolt that has already begun to change many sectors of our economy for the better.

As I noted in last month’s Financial Freedom issue, we are on the precipice of a sea-change in our educational system, due to not only coronavirus, but trends such as less-than-stellar graduation rates and escalating costs that have kept a college education out of the reach of many of our young people. Online education—already benefiting from coronavirus—will become a much larger part of our education environment, and will offer some significant investment opportunities.

The key to this educational revolution is technology. Companies in the online meeting space such as Zoom (ZM) have seen their fortunes rise dramatically, due to the rise in meetings outside the office and education alternatives, in the face of the stay-at-home orders. Zoom’s stock is up 204%, year-to-date. As more companies enter this space—and become public—we will see tremendous investment ideas.

Ditto for video marketing opportunities. Video is here to stay, and while many companies have been using it for years to relay messages to their consumers, we are on the tipping point of this industry, and will see a major trend in companies communicating with their customers and training their employees utilizing video. I’m certainly finding it very beneficial in both my real estate and investment businesses.

One area that will continue to offer investors solid potential is e-commerce. The Department of Commerce reported that e-commerce sales grew 14.5%, to $146.47 billion, in the first quarter—and that was just at the beginning of the pandemic. They were up 49% in April, led by a 110% increase in online grocery sales. One of the biggest beneficiaries of this trend is Amazon (AMZN), whose shares have risen 30% in 2020. But other companies who took e-commerce seriously—before coronavirus—like Target (TGT), Best Buy (BBY), and Walmart (WMT)—have also benefited. Sellers of wines and spirits have seen their online sales climb 74%. Earnest Research reported that online pet supplies have soared, noting that April sales at Chewy rose 42.5%, Petco, 41.8%, PetSmart, 36%, and Pet Supplies Plus, 76.4%. I could go on, but you get the picture. And while, certainly, folks are going to return to their favorite retailers in-person, people like me who have never been online shoppers, have suddenly seen the time savings (and sometimes money savings) from ordering needed items from my easy chair. In other words, e-commerce has attracted lots of new buyers who are going to continue ordering online. And that spells opportunities for investors.

That’s the good news; the bad news is that the pandemic has decimated brick-and-mortar retailers. So far this year, 14 retailers have filed for bankruptcy, including J.C. Penney, Tuesday Morning, Neiman Marcus, J. Crew, and Pier 1. It is expected that 15,000 stores will be shuttered by the end of the year. Many more will likely fail, so investing in primarily brick-and-mortar retailers is a no-go.

Another idea changing the medical world is telemedicine. Since doctors didn’t want us in their offices and hospitals were too busy with COVID-19 patients, the world of telemedicine has substantially expanded. There are lots of private companies in this space, as well as some of the bigger names like United Healthcare (UNH) and Humana (HUM), but pure-play Teledoc (TDOC) has stood out from the rest during this pandemic. Its fortunes have multiplied, and so has its stock, now tripled from this time, last year. Expect more companies to come public in this arena, but also don’t forget about the software companies that make telemedicine possible.

All of the above technology evolutions will require more data at faster speeds, and that’s where 5G will come in. 5G, the next generation in connectivity, is expected to be nearly 100 times faster than 4G. Translated into real life, that means you could download a two-hour film in fewer than 10 seconds, compared to the seven minutes it takes with 4G. As you can see in the following graph, estimates are for the 5G market to reach $47.8 million by 2027, a 67.1% CAGR from 2019. Asia-Pacific is forecasted as the fastest-growing region for 5G infrastructure.

The primary movers and shakers in 5G infrastructure are Intel Corporation (INTC), MediaTek Inc (2454.TW), NTT Docomo Inc (DCMYY), AT&T Intellectual Property (T), Vodafone Group (VOD), Cisco Systems Inc (CSCO), Huawei Technologies Co Ltd (private), Verizon (VZ), Orange (ORAN), Qualcomm Technologies Inc (QCOM), Nokia (NOK) and Samsung (005920.KS). But those aren’t the only companies to invest in; think of all the businesses making the components that go into 5G infrastructure, many of whom may be small cap companies—chip makers, base stations, wireless networks, phone manufacturers, and cell tower providers. The potential is immense.

Coronavirus vaccines and treatments are boosting companies like Moderna (MRNA), which is one of some 15 healthcare firms working on a vaccine. It has seen its stock price more than triple this year. There are 23 companies working on coronavirus treatments, including Gilead Sciences (GILD), whose shares are up 18% year-to-date.

As I mentioned earlier, the housing market will come back, and already, the Home builder’s stocks, as evidenced by the SPDR S&P Homebuilders ETF (XHB), have almost fully recovered from their March lows.

Along with home builders, as the housing market springs back, the Mortgage REITs should recover. Right now, as represented by the iShares Mortgage Real Estate Capped ETF (REM), they are still trading at a discount.

As the economy recovers, post-coronavirus, two of the hardest hit sectors—Energy and Financials, should be interesting. Right now, energy stocks are down 23.6% and financials have lost 14% since the beginning of 2020. These sectors will probably take a while to recover, so these would be long-term bets.

Cybersecurity is a growing need. There is a hacker attack every 39 seconds; 300,000 new pieces of malware are created every day; the average cost of data breaches will be about $150 million in 2020, and the U.S. cybersecurity budget is $14.98 billion. Pretty scary, huh? But, for investors, these attacks create opportunities for the companies that are in the fight.

So far this year, Gold has had a nice run, as you can see in the following graph. Despite a slight downward movement after the better-than-expected unemployment numbers last week, gold is still up about 12% for 2020. While I fully expect stocks to continue their upward movements (albeit, with some healthy pullbacks along the way), gold investments should remain a good hedge for your more speculative equities, and will help diversify your portfolio.

Lastly, as the economy begins to get back to normal, and unemployment declines, consumer and corporate spending will accelerate. That means that Consumer Discretionary and Industrial companies should be back in the black and provide some good investment ideas for us.

Investment Styles will also Rotate
Lately, in the market, it’s been all about Growth investing, particularly large cap growth. Year-to-date, large cap growth stocks have returned 8.2%; midcaps, 5.6%; and small caps, -1.6%. Alternatively, Value stocks are all in the red, with large caps losing 10%; midcaps, -12.1%; and small caps, -17.5%.

Growth stocks are companies that have higher-than-average growth rates that usually come with larger returns. In our world today, those are often technology and biotech companies. Instead of paying big dividends, these companies are more likely to reinvest those monies back into the companies to foster more growth. Examples of Growth stocks include Amazon, Apple (AAPL), and Facebook (FB). These stocks also tend to come with higher risk than Value stocks.

Alternatively, Value stocks are stocks that are inexpensive relative to fundamental measures such as earnings, sales, book value and cash flow. They tend to have slower growth rates than Growth stocks, but are generally more stable, and the kinds of companies that many long-term investors favor. And many of them pay healthy dividends. Examples of Value stocks can be readily found by looking at Warren Buffett’s portfolio. His choices include Bank of New York Mellon (BK), General Motors (GM), Davita (DVA), Kraft Heinz (KHC), and American Express (AXP), to name a few.

As the market recovers, I think we are beginning to see some style rotation. Value stocks have begin to rise, and we have started to see some energy from small cap issues. The Russell 1000 Value Index went up about 4%, and the Russell 2000 Value Index (the small cap stocks) gained some 9%.

Small cap stocks are companies with market capitalizations of $300 million to $2 billion; midcaps range from $2 million to $10 million; and large caps are considered to be companies who market caps are more than $10 billion.

In investor-think, large cap companies are traditionally thought of as more stable than the other two categories, but also will be slower growers. The small caps have more risk, but when they are hot, they are really hot, and investors can make some great returns.

It’s an interesting dichotomy, having both Value and Small Caps rising. They don’t always move in the same direction, so investors should be extra careful when choosing to rotate into these two categories. And that brings me to my next question.

Is this Rally Sustainable?
It sounds like alphabet soup, but as usual, economists can’t agree on how this recovery will work itself out. Some factions are calling for a V shape (a dramatic bounce back); others say, no, it will be U-shaped (a prolonged bottom as the economy gradually reopens); still others vote for a W shape (up and then back down, possibly after another wave of the virus); or, lastly, an L shape (stuck at low levels as safety concerns limit activity).

After a degree in finance and minoring in economics in college, I still don’t understand when economists speak, so your guess is as good as mine!

What I do know is that it appears the economy is recovering faster than a U or L, but not quite a V. Time will tell if a W shape is where we will be, dependent upon a possible recurrence of the coronavirus, and also how corporate earnings shape up.

According to FactSet, second quarter earnings are forecasted to drop by 43.3%. If that turns out to be true, it will be the largest year-over-year decline in earnings reported by the index since earnings declined by 69.1% in the fourth quarter of 2008—right before the recession ended. And, as you know, earnings typically drive the stock market. But the market right now seems to have taken this estimate in stride, believing it to be a short-term event.

Declining earnings are driving a drop in gross domestic product (GDP), now estimated to decrease by 5.8% this year.

No doubt, we will have a lot of catching up to do. And most economists figure it will be mid-year 2021, before we really begin to see a major economic turn.

Nevertheless, the stock market is—no matter which alphabet graph you use for the economy—proving that we are emerging from the depths of the pandemic with great optimism. The underpinnings of the economy and market are strengthening, and that the rally will continue, with periods of volatility. That being said, in the last month or so, you could have almost thrown a dart and made money in the market. I believe those days are now on the short list. And now, it is time to go back to basics—stock-picking—buying

1) fundamentally strong companies with good growth, trading at reasonable P/Es, low debt, and good cash flow; and/or

2) companies that have great momentum in a favored sector, on an excellent growth curve.

That’s right—I like both Value and Growth and stocks. So, let’s talk about some of the measures you’ll need to determine which ones are right for your portfolio.

Characteristics of a Good Value Stock
Let’s start with Value stocks, where your analysis will depend on the fundamental health of the company. Here are some of the characteristics of a Value stock with good investment potential.

1. Institutional activity. Pension funds, mutual funds, hedge funds, insurance companies and corporations that buy and sell huge blocks of shares can create tremendous volatility in prices. To lessen this risk in your investments, try to buy shares in companies where institutions own less than 40% of their shares. You can find this information at http://financeyahoo.com, in the Holders section.
2. Analyst coverage. Another indication of future share volatility is the number of Wall Street analysts covering a stock. Analysts—like the big institutions—have a herd mentality. When one sells, often, so do the rest, resulting in great numbers of shares changing hands, and usually leading to price declines. It’s best to avoid companies with more than 20, or fewer than 2 analysts following them. (You need some analyst interest, or you may be waiting a long time for price appreciation, even in the strongest and most undervalued company). You can locate the number of analysts at http://finance.yahoo.com; then select Analysis. Many times, the companies in which you are interested will also publish which analysts cover their stock, on their Investor Relations page.
3. Price-earnings ratio (P/E). The price of one share of a company’s stock divided by four quarters of its earnings per share (usually the last four quarters; the trailing P/E ratio), the P/E ratio is of utmost importance in determining if a company’s shares are over- or under-valued. For the best perspective, go to https://www.reuters.com/finance/stocks/overview, enter your stock symbol, then select Financials and compare the current P/E of the company to its average P/E for the last 3-5 years, to its estimated future P/E and to the average P/E of its industry or sector.One note: If a company’s P/E is more than 35, it might be too pricy in many cases. You may want to stick with companies that are trading at lower P/Es, particularly if you are fairly new to investing. Almost any financial web site will feature trailing P/E ratios and forward P/E ratios for a given stock. (Reuters has almost 50 comparative ratios on its site.)
4. Cash flow. One of the most important parts of a financial report is its Statement of Cash Flows, which is a summary of how the company made and spent its money. Go to http://finance.yahoo.com, Financials, then to Cash Flow and select Annual or Quarterly, depending on which period you want to review. Then find Total Cash Flow From Operating Activities, which represents the cash the company took in from its primary business operations. If it sells clothes, it’s the cash collected from selling clothes.It’s important that this number be positive, or at least trending positive over the course of a year. After all, if the business isn’t making money from its primary product—not from investing in real estate or the stock market—then you probably want to pass it by.
5. Debt/equity. This ratio is how much debt per dollar of ownership the business has incurred. Compare the firm’s historic debt/equity ratios, so you can find out if its debt level over the past few years has been rising too rapidly. Debt isn’t bad, as long as it is used as a springboard to grow sales and earnings. Next, contrast the company’s ratio with its competitors and its industry so you can further determine if your company’s debt position is reasonable. These ratios can also be found at https://www.reuters.com/finance/stocks/overview, under the Financials tab.
6. Growing sales and income. A rule of thumb that has always served me well: Buy shares in companies whose sales and net income are growing at double-digit rates. I cannot emphasize this enough, as, appreciation in stock prices is generally precipitated by growth in earnings (which usually follows expansion of sales). It’s certainly possible to buy stock in a company that has no earnings growth (a new business, or a tech company in the late 90’s, for example) and still make money on the shares—short-term—but it’s not a formula for serious, successful long-term investing. This ratio can also be found on https://www.reuters.com/finance/stocks/overview, on the Financials page.
7. Insider activity. Investors will also want to review the buying and selling activities of a company’s insiders—its top officers and directors. A sudden rush to sell large quantities of the firm’s shares may be a good indicator that the business is falling on rough times. Likewise, a large increase in purchases may mean good news is on the way. The website, https://www.nasdaq.com/, under the Insiders tab, lists all the recent insider activity at the company, as well as the number of shares remaining after the sale—an extremely important figure.

Some Value investors are also keen on dividend-paying stocks. And why not? Dividends are a great way to strengthen your portfolio. But be aware that in the past couple of months, more than 50 stocks have suspended or reduced their dividends. So, make sure your buying decision is not made strictly on a company’s current dividend policy. Also, you should know that companies that pay very high dividends are usually the first to cut and run when times are tough.

Characteristics of a Good Value Stock
Some of the above characteristics, such as Institutional Activity, Analyst Coverage, Growing Sales and Income, and Insider Activity, may also come into play when analyzing a Growth stock. Additionally, you will want to see these criteria:

1. Robust historic and forecasted growth rate, usually 10% or more.
2. Strong Return on Equity (ROE, or net income divided by shareholder’s equity). Compare the company’s ROE with it five-year average as well as the ROE of its industry.
3. Solid advances in earnings per share (EPS) or revenues, in the case of newer companies that have not yet posted profits. A subset of EPS is the pre-tax profit margin, which should surpass the industry average and the company’s five-year average.
4. Analysts’ estimated future stock price should indicated growth at least in the double digits, but true growth investors often look for a double in five years.

And whether a Value or Growth stock, you should also test the company using a few technical indicators to ascertain whether or not it’s a good time to buy the stock at the current price level. Now, with technical indicators, you can get as fancy as you want, but I’m not a technical analyst or a stock trader, so the two I really like to use are:

Moving Average (M/A) is an average of the price of a stock over a stated period. That period can be basically whatever you want it to be, but many technical analysts use the shorter periods like 20- and 40-day averages, and fundamental analysts like me, prefer longer periods, such as 200-day averages. There are four different types of moving averages: Simple (also referred to as Arithmetic), Exponential, Smoothed and Linear-Weighted. The most common and simple interpretation is this: When the price rises above its moving average, a buy signal is indicated, and when the price falls below its moving average, a sell signal is indicated. My favorites are the 50-day and 200-day moving averages. If a stock is trading above both of those moving averages, it’s a good indicator that it is trending up.

Relative Strength Index (RSI) is an oscillator that ranges between 0 and 100. It compares the average price change of the advancing periods with the average change of the declining periods. A reading greater than 70 would be considered overbought and a reading below 30 would be considered oversold. The 14-day, 9-day and 25-day RSI’s are widely used.

Some Investing Ideas
Ok; now that we have looked at the sectors and the investing styles that look interesting, let’s move onto some actual investing ideas for your consideration.

As of June 1, according to nerdwallet.com, here are the best performing stocks of the year:

Best stocks as of June 2020

I’m surely not surprised that most of them hail from the technology, biotech/biopharma, e-commerce, and gold sectors. And since I’ve done a lot of pizza ordering lately and spent time outside, it also doesn’t shock me that Domino’s and Tractor Supply are on the list.

But where do we go from here?

I ran my model, and found, lots of companies that I think are worth a second look. I’ve chosen just a few small- and midcaps for you to review.

While COVID-19 affected Vertiv’s first quarter, this maker of digital infrastructure technology for electronics that process, store, and transmit data, also attracted new business as video meetings and education increased. The company saw orders rise 13% and backlog is at a record high $1.6B

Novavax is in the race for developing a coronavirus vaccine, and the company just announced more progress—a $60 million investment from the U.S. Department of Defense (DoD) to further the advancement of its experimental vaccine candidate, NVX-CoV2373.

As the economy continues to recover, PennyMac will see its financial services in more demand. In the past 30 days, four analysts have increased their EPS forecasts for the company.

Emerging gold miner IAMGOLD is reaping the benefits of the gold rally and is adding to its operations with the purchase of The Fayolle property from Monarch Gold. The property has 39 mineral claims covering an area of 1,373 hectares in Aiguebelle and Cléricy townships, approximately 35 km northeast of Rouyn-Noranda, Quebec.

ADT just signed a big contract with Dollar Tree, to protect its businesses around the world. The company’s first quarter revenue was 10% higher than last years, and the current global social unrest will most likely increase demand for its services.

As always, these are just ideas that look good today, in light of the market’s rebound and the changes wrought to our every day lives by the impact of the coronavirus pandemic.

More changes are sure to come, and I’ll do my best to keep you apprised of those that will affect your spending and investment decisions.

The New World of Education

Coronavirus has changed a lot of things in our lives:

• Vocabulary—introducing new phrases such as social distancing, personal protective equipment (PPE), contact tracing and disease detectives
• Eating at home—getting really tired of that!
• Wearing (and making) masks—with no trick or treaters in sight!
• Bad hair and chipped nails
• A growing need to see and chat with real, live people!

But in all seriousness, the global economy is not in peak form. Many industries are suffering. Certainly, we will have a lot fewer restaurants and entertainment venues to choose from once this pandemic plays out.

Here in Tennessee, where I live, Dollywood has not yet opened for the season, and several long-term restaurants have announced that their doors are closing permanently. The tourist trade has suffered greatly. And bricks-and-mortar retail shopping will likely not recover for quite some time. But, the stock market is making some headway back after a brutal couple of months and that’s good news!

And there’s more room for optimism. There are pockets of the economy that are booming. Of course, online sales of books, dog food, and clothing—just about anything you can think of—are on fire. Online grocery sales in April surged 37%. Amazon, Walmart, Chewy and many others who have been making a big push into online sales— before coronavirus—are now reaping the benefits of that wise decision.

Streaming communication technologies such as Zoom video and Go to Meeting are in great demand. Here at Financial Freedom Federation, we’ve been streaming meetings with our staff and offering live webinars to our subscribers for years.

And while entertainment streaming services such as HULU, Roku, Disney+, Amazon Prime, and Netflix have been gaining viewers for the past decade, they are expected to add 47 million more subscribers this year, becoming significant beneficiaries of the pandemic.

Online Education is Booming!
Another industry that is soaring is online education—for all ages. It’s estimated that 1.2 billion children in 186 countries have seen their schools close due to the pandemic. And many of them are learning online right now. Come this fall—depending on the path of the pandemic—some forms of online school for K-12 may continue. Perhaps a hybrid version might be adopted.

Make no mistake, even before coronavirus, global educational technology (edtech) was a growing phenomenon. Last year, the sector saw investments totaling $18.66 billion, for a total marketplace of $187.88 billion. Online adult educational classes have been steadily rising for years, offering languages, art, history, and music classes, fitness programs, and, of course, college degree studies. More than a million students every year are enrolled in college graduate level programs online. Now, forecasts see that market growing at an annual rate of 9.23%, to reach $319.167 billion by 2025.

Sure, we’ve seen a big spike in online education due to the stay-at-home orders. I’ve watched cooking classes, a ton of marketing and sales videos for my real estate business, and even learned how to build a website! And now I’m in the process of creating training videos myself.

And while plenty of the surge in online education is due to coronavirus, most industry experts believe that this is not just a tempest in a teapot. Online learning is here to stay.

Certainly, brick and mortar schools aren’t all going to disappear, although Governor Andrew Cuomo of New York—in a controversial speech—set the education industry agog as he questioned “why school buildings still exist”, announcing that he and Microsoft founder Bill Gates are joining together to “reimagine education,” driven by technology.

Time to Reimagine Education for better Results
But reimagining education is not a bad idea. Face it, our educational system is no longer the best in the world. We’re using the same system that has been in place for more than 200 years. We graduate 93% of our seniors, but as you can see in the following chart, we lag eight other developed countries in graduation rates, as well as PISA (Program for International Student Assessment).

Soaring Prices Putting Education out of Range for Many
Since last year, the average price for in-state tuition and out-of-state public schools rose by 4%, and tuition was up by 3% at private colleges.

And, as you can see from the following graph, those numbers are clearly on the rise.

A college education is becoming unattainable for a lot of students—poor, as well as middle-class. More than two-thirds of college students in the U.S. graduate with debt, which now tops $1.4 trillion, says Experian. Only 50% of federally managed student loans are currently in the repayment process, and 12% are never are paid back.

And it’s no surprise that those numbers are on the rise. The U.S. is the second most expensive country in the world in which to go to college, behind only the tiny country of Luxembourg, as you can see here.

The cost of our education is going up, up, up, yet, we rank 19th in graduation rates among 28 countries, according to the OECD.

Consequently, I think we can all agree something has to change. And that’s where online education can help.

Distance Learning—the next Disrupter?
Throughout history, there have been several specific disruptions that have significantly changed the world.

• From the 14^th to the 17^th century, the Renaissance was an era with architecture, visual art, literature, and music undergoing significant innovation and invention.
• The Industrial Revolution from 1760-`840 brought tremendous changes in manufacturing, moving from hand tooling to machine processes, which brought fantastic opportunities to commerce and the labor force.
• In the scientific progress from the late 1800’s to the 1920’s, cars, airplanes, radio, telephone, transport, atomic physics, and quantum physics were invented.
• WWII ushered women into the workplace, particularly in manufacturing to do jobs that had previously been held only by men.
• The 60’s counterculture changed our notions about sex and war, and saw the women’s movement gain significant ground.

And since the late 1990’s, technological innovation has changed virtually every industry. Recent innovations have brought us to this age of the joining of communication and technology that is bringing us an ever more connected world.

Now, perhaps that technological innovation is going to make online education the next big disruption in our society. The coronavirus outbreak is leading to serious thought about the future of education, including:

Is the experience of a 4-year degree while living on campus really needed?
Experts are pondering, which parts of this in-person model can be discarded; what needs to be retained; and which portions can be replaced or complemented by digital technologies. Current thinking includes bringing lectures and commoditized courses online, and leaving career guidance, group assignments, global learning experiences, and faculty office hours to remain in-person activities. In effect, a hybrid model.

How much improvement to technology—and at what cost—is necessary?
As I’ve said, I’ve been doing a lot of online learning. Some is streamed; some is video recorded. And you and I both know that the technology is not perfect just yet. Buffering remains a problem, as well as consistent connectivity. I had a social gathering on Zoom video last night, and two of the participants had to log off and on a couple of times to continue our event.

As well, problems exist in bringing large gatherings together online, such as 1,000 student classrooms, which are not unheard of in today’s universities. However, the advent and adoption of 5G technology, should be a game changer here. 5G began rolling out last year, in an estimated 12 million devices. By the end of next year, that number is forecasted and to reach 170 million. And the growth in 5G network devices is projected to rise from two million units to 10 million. With its faster speeds and less latency, 5G should vastly improve streaming.

What additional training will instructors and students require to become comfortable with the technology?
The ladies who had issues with our gathering last night were older, and just getting them into the session was pretty challenging. Of course, the younger students won’t have those issues, but, as online education progresses, I’m betting that there will be many older folks who will also enjoy learning new things from the comfort of their own homes.

How do we address the behavioral changes required by online education?
I remember my college days (barely!), when sitting through a boring lecture was almost painful. Well, when you’re locked in your desk chair watching on a small computer screen, the distraction quota goes up enormously. Our attention span wanders; it’s a lot easier to check your email and text message your friends, or even surf the internet, if you don’t have to worry about the professor giving you the stink eye.

However, especially in small classes, that can be resolved. I took an online class the other day, for credit. The instructor was a sly fox, asking us participants direct questions throughout, just to make sure we were paying attention. And our camera had to remain on at all times, so the instructor and her aides could scan the gallery to make sure we remained in place.

What role do public-private partnerships play in the future of education?
STEM programs have been one successful result of such partnerships, bringing business experts and their experiences together with budding students in science, technology, engineering, and math, to create terrific learning programs. Here in my small town in Tennessee, there’s a robust vocational school, which trains young people for trades needed in local businesses.

These programs are largely funded by state, local, and federal grants and offer mechanical, electrical, automotive, carpentry, plumbing, and other “shop” training skills, as well as nursing and other healthcare fields. But their programs have been expanding, and many now provide instruction in culinary arts, music production, broadcasting, graphic design, computer programming, fashion design, cosmetology, and filmmaking. But as public funding has been declining, businesses have been increasing their contributions to the effort. These programs have been hugely successful, but are really just in their infancy.

Does it make sense to expand high school/college combination programs, internships, and service projects?
Right now, many schools are allowing high school students to get dual credit for certain advanced placement high school and college courses. The lines are becoming blurred between the two entities. Is it possible to reduce the credit hours required to finish high school, allowing students to begin taking college courses sooner? Should we offer more internships or project-based learnings so students can get a leg up on their after-college careers? Where do civic engagement and community-based service come into play—those experiences that play a huge role in a long career?

Experts agree that any changes in education should include the following qualities:

• Equity
• Accessibility
• Affordability
• A learning, learning and outcomes focus
• Flexibility
• Resilience
• Sustainability

No doubt, the genius minds in education and business can sort out these issues, in due time. Right now, and we are just beginning to see a sea-change in education that will result in the creation of another very disruptive era worldwide.

Now, we’ve been talking about the hybrid version of online learning—meaning students still go to a university, but do some portion of their education online.

Let’s turn our thoughts now to completing an education entirely online.

Vetting an Online College
There are plenty of scams with online education, such as ‘diploma mills’, which give out fake degrees. You’ll want to make sure that the school is accredited by an organization recognized by either the U.S. Department of Education or the Council for Higher Education Accreditation—at both the institutional level (the entire school) and your program level. You should be able to find this information on a school or program’s website. It’s important, as future employers will look more favorably on you with a degree from an accredited school.

There are also For-Profit and Not-for Profit Online colleges. For-Profit higher education took a hit in the late 1990s, as many of the students they accepted were not prepared for college, resulting in low graduation rates and high debt, and a not-so-good reputation. That has gotten better, but experts say admissions for for-profit schools continue to be less selective. As well, most for-profit schools have national rather than regional accreditation. Local employers generally prefer regional accreditation. Alternatively, the not-for-profit schools are typically more selective in admissions, and also offer more student support.

Online Education—Half the Cost
Here’s an example, which is by no means even an average, but just a simple comparison of prices in Florida, for an online college vs. and on-campus experience.

Online College Prices vs. On-Campus Prices
“The cost of attending college varies depending on whether students attend in person or online. Therefore, a good way to determine whether one route is cheaper than the other is to look at the figures side-by-side. The below illustrates the estimated annual costs for an actual school in Florida that offers both on-campus and online programs.”

You can easily see the cost benefit of online education. But if you want to do your own study, this website offers a calculator for comparison:

collegetuitioncompare.com/compare/tables/

Ranking Online Education
In a recent article, U.S. News & World Report ranked 353 online colleges. Here are their top 10:

You’ll notice state universities are well-represented in this list. And I hope you’ll allow me a little license here, as I give a shout out to #1, Ohio State, my alma mater—go Buckeyes!

Thank you. Now, please note a nice feature here. The Compare column gives you the ability to select a few of the colleges and compare them in more detail on the U.S. News & World Report website: usnews.com/education/online-education/bachelors/rankings?mode=table

Any way you put it; an education doesn’t come cheap. So, the next question for most parents is, how are we going to pay for it?

3 Ways to Pay for Education
Scholarships
Every year, students receive more than 1.7 million private scholarships and fellowships, worth more than $7.4 billion. Besides merit, there are endless categories for scholarships. Some of the strangest I’ve seen include:

• Prom Guide’s Cutest Couple Contest
• Clowns of America, International Scholarship
• Create-A-Greeting-Card Scholarship Contest
• Doodle 4 Google Scholarship
• Tall Clubs International Scholarship
• Wholesale Halloween Costumes Scholarship
• Zombie Apocalypse Scholarship
• National Marbles Tournament Scholarship
• Pokemon World Championship Scholarship
• The Frederick and Mary F. Beckley Left Handed Scholarship
• Gamers Helping Gamers Scholarship
• The Asparagus Club Scholarship

I attended a neighbor’s graduation recently, and one person was awarded a $500 scholarship for having red hair!

You may laugh, but most of these range between $500-$3,000, and some are much higher. And while, in today’s world, your student is going to need much more than these kinds of scholarships to make it through college, anything is a help, right?

In reality, only 1 in 8 students who receive a bachelor’s degree get any kind of a scholarship and only 1.5% of those get a ‘free ride’, or all expenses paid.

Scholarship Resources
1. The financial aid office at a college or career school
2. a high school counselor
3. The U.S. Department of Labor’s scholarship search tool: careeronestop.org/Toolkit/Training/find-scholarships.aspx
4. Federal agencies, studentaid.gov/understand-aid/types/scholarships
5. Your state grant agency
6. Your library’s reference section
7. Foundations, religious or community organizations, local businesses, or civic groups. In my community, the Rotary Club and Kiwanis Club both offer scholarships.
8. Organizations (including professional associations) related to your field of interest
9. Ethnicity-based organizations
10. Local employers
11. Online searches: There are lots of scholarship databases. Here are a couple that may be useful for you:

• collegesofdistinction.com/advice/the-mega-list-of-scholarships-you-should-apply-for-class-of-2019-2020/
• scholarships.com/financial-aid/college-scholarships/

Loans and Grants
In addition to scholarships, students may find assistance in the form of grants and loans. They can be general grants or awarded for a specific field of study, if you are a veteran, woman, a particular ethnicity, etc. You don’t have to pay grants back, and they are available through the federal government, as well as colleges and professional organizations.

Here are a couple of web sites for your search:

• collegescholarships.org/grants/subject.htm
• salliemae.com/college-planning/financial-aid/understand-college-grants/

We hear about student loans in default all the time, but face it, loans are here to stay. With college tuitions rising so quickly, loans are often the only way that students can complete their education.

In a recent article, U.S. News & World Report published this report on “The Best Private Student Loans of 2020”: loans.usnews.com/student-loans. Each lender was reviewed on product offerings, customer service ratings, eligibility, cost, and additional features.

Private Student Loan Resources

• Citizens Bank: Best Lender for Multi Year Approval

• College Ave: Best Lender for Exclusively Offering Student Loans

• Discover: Best Lender for No Application, Origination Or Late Fees

• Earnest: Best Lender for Borrowers With a FICO Credit Score As Low As 650

• Education Loan Finance: Best Lender With a Referral Bonus Available

• MPower Financing: Best Lender With No Credit History Required

• SoFi: Online Student Loans

Additionally, federal loans are available here: salliemae.com/student-loans/

Tuition for free
And many states and colleges have programs that allow residents age 65 and older to take courses tuition-free. Here in Tennessee, a state law allows this at any state-supported college. Additionally, we have a Tennessee Reconnect Grant—a last-dollar grant that pays the remaining balance of tuition and mandatory fees after other state and federal financial aid have been applied.

So, check with your local and state government—don’t leave any money on the table!

A Unique Idea—Saving for College
Lastly, let’s talk about a specific, government-given plan to maximize your education savings. That’s a 529 Plan.

Born in the 1980s as a vehicle to save for college tuition, the plan became part of Section 529 of the Internal Revenue Code in 1996. A big advantage is that there are no income restrictions to establish a 529 plan. The plan was extended to K-12 tuition by the Tax Cuts and Jobs Act of 2017, which allows families to use up to $10,000 per year of 529 plan savings to pay these tuition expenses.

The assets of the plan are not counted as part of the donor’s gross estate for estate tax purposes. As well, funds are not limited to paying tuition. They may also be used for fees, room, and board, books, supplies and equipment.

The 529 really took off when the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made qualified distributions exempt from federal income tax. Additional elements of the Act enlarged the definition of family members to whom a 529 beneficiary might be changed, and also allowed colleges, or a consortium of colleges, to sponsor 529 plans. Today, distributions of 529 plans may be used at any college, university, vocational school, or other post-secondary institute recognized by the Department of Education.

There are many advantages to the 529 plan:

First, although contributions are not deductible from the donor’s federal income tax liability, many states provide state income tax benefits for all or part of the contributions of the donor. Beyond the potential state income tax deduction possibilities, a prime benefit of the 529 plan is that the principal grows tax-deferred and distributions for the beneficiary’s college costs are exempt from tax.

Many states give the account owner a full or partial state income tax deduction or tax credit for their contributions to their home state’s section 529 plans. So far, a total of 29 states and the District of Columbia offer such a deduction. And currently these states offer a state income tax benefit for contributions to any 529 plan: Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana, and Pennsylvania.

And although funds can be reclaimed by the donor (subject to income tax and the 10% additional penalty on any gains), the assets are not counted as part of the donor’s gross estate for estate tax purposes. Thus 529 plans can be used as an estate planning tool to move assets outside of the estate while still retaining some measure of control if the money is needed in the future. A beneficiary must be designated, and the income tax savings are still only obtained if the money is eventually spent for education, though in some cases estate taxes can be reduced without spending the money on education.

The donor maintains control of the account. With few exceptions, the named beneficiary has no rights to the funds. Most plans allow donors to reclaim the funds at any time for their own use. However, if a “non-qualified” withdrawal is made, the earnings portion will be subject to income tax and an additional 10% penalty tax.

A 529 plan can provide a convenient, hands-off way to save for college. Having selected which 529 plan to use, the donor completes a simple enrollment form and makes a contribution (or signs up for automatic deposits). The ongoing investment of the account is handled by the plan, not by the donor. Plan assets are professionally managed either by the state treasurer’s office or by an outside investment company hired as the program manager. The donor will not receive a Form 1099 to report taxable or nontaxable earnings until the year of the withdrawals.

If an investment switch is desired, donors may change to a different option in a 529 savings program once or twice every year (program permitting) or the account may be rolled over to a different state’s program provided no such rollover for the beneficiary has occurred in the prior 12 months. 529 plans generally have very low minimum start-up and contribution requirements. The fees, compared with other investment vehicles, are low, although this depends on the state administering the plan.

Everyone is eligible to take advantage of a 529 plan, and the amounts that can be put in are substantial (over $380,000 per beneficiary in many state plans). Generally, there are no income limitations or age restrictions. However, that amount would make you subject to gift tax consequences, as federal law allows single taxpayers to contribute up to $14,000 in one year or make a lump-sum contribution of $70,000 to cover five years. Married couples may contribute as much as $28,000 per year or $140,000 as a lump sum.

Additionally, since the College Cost Reduction and Access Act of 2007, 529 college savings plans and prepaid tuition plans are now treated as an asset of the account owner (typically the parent), so they shouldn’t impact a student’s eligibility for financial aid. And under the SECURE Act of 2019, up to $10,000 of funds from a 529 plan can be used towards student loan expenses.

Lastly, 529 Plans allow you to transfer unused amounts to other qualified members of the beneficiary’s family without incurring any tax penalty. These qualified members include:

• Spouse
• Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them
• Brother, sister, stepbrother, or stepsister
• Father or mother or ancestor of either
• Stepfather or stepmother
• Son or daughter of a brother or sister
• Brother or sister of father or mother
• Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
• The spouse of any individual listed above
• First cousin

529 Plans are operated by the individual states to assist families with savings for future college costs. It is each state’s decision as to whether it will offer a plan and what benefits and options the plan will contain. Every state has at least one 529 plan available. Some states have multiple plans. Some states don’t offer any tax benefit; others do.

The following 22 states don’t care which state’s plan you use, so if you live in one of them, you are free to choose a 529 plan sponsored by any state in the country.

Alaska
Arizona
California
Delaware
Florida
Hawaii
Kansas
Kentucky
Maine
Minnesota
Missouri
Montana
Nevada
New Hampshire
New Jersey
North Carolina
Pennsylvania
South Dakota
Tennessee
Texas
Washington
Wyoming

You can search for 529 plans for your state here: savingforcollege.com/529_plan_details/?page=plans_by_state

529’s come in two flavors:

Prepaid
Prepaid plans are offered by states and/or educational institutions, many only to state residents. Investors purchase tuition credits in prepaid plans—quarters, semesters, or years of tuition, that are then guaranteed for the future—regardless of whatever tuition hikes occur between time of purchase and time of use. Prepaid plans generally cover in-state tuitions, but many will allow transferal of the contract to out-of-state schools, although you may not receive full value.

The performance of prepaid plans is based on tuition inflation, not investment performance, making them ‘safer’ and attractive to conservative investors.

Prepaid plans are on the way out. Right now, only 11 states still offer them, and just 10 of them provide a prepaid tuition plan that is accepting new applicants. Those states include Florida, Illinois, Maryland, Massachusetts, Michigan, Nevada, Pennsylvania, Texas, Virginia, and Washington.

Savings
529 Savings Plans are sponsored by the individual states, but not by educational institutions. Most have no state residency requirements.

The growth of 529 Savings Plans is based upon the market performance of the underlying investments in the plan. They may include stock mutual funds, bond mutual funds, money market funds, and certificates of deposit. Most plans will offer a range of age-based asset allocation portfolios, becoming more conservative as your child nears college age.

They may also offer risk-based asset allocations, keeping a fixed percentage in fixed-income versus equity regardless of the beneficiary’s age. Others are designed with a stable value or guaranteed option whose goal is to protect the account principal while offering some investment growth.

Savings plans can generally be used at any U.S. college or university and some foreign institutions. They are not guaranteed by the states and are not federally-insured. Switching among investment options is usually limited, often to once a year.

These plans may charge enrollment fees, sales loads (broker commissions), annual maintenance fees, annual distribution fees (similar to the 12b-1 fees at mutual funds, and average between .25% and 1.0% of your investment) and asset management fees (which may be waived or reduced, depending on size of the account or if contributions are automatic).

There are some disadvantages to 529 Plans. The IRS allows only a maximum of two exchanges or reallocation of assets per year in a 529 plan. If you withdraw money and don’t use it for eligible expenses, you will be hit with a 10% federal tax penalty (in addition to any income taxes owed). Lastly, expense ratios vary from plan to plan, and your state may assess higher fees than others, but you often don’t have a choice. Also, the fees are frequently not disclosed in the marketing materials. Read the fine print!

To ensure that you are maximizing your contributions and minimizing your taxes, please consult your personal financial advisor for help in creating and structuring your own 529 plan.

Here are links to one of the best sites I found for information on 529 plans. This site also includes ratings of individual plans as well as lists of eligible institutions:

• savingforcollege.com/college-savings-201
• savingforcollege.com/intro-to-529s/which-is-the-best-529-plan-available

The College Savings Plan Network created by the National Association of State Treasurers has links to most 529 plan websites.

• collegesavings.org

Deciding Which 529 Plan is Right for You
Once you’ve researched the plans, here are some questions that may help you determine which plan is right for you:

Is the plan available directly from the state or plan sponsor? What are the fees? How much commission is the broker paid? How can I reduce or waive certain fees?

What are the restrictions on withdrawals? What college expenses are covered? Which colleges and universities participate in the plan?

What investment options are offered? How long are contributions held before being invested?

Does the plan offer special benefits or tax advantages for state residents? If it charges higher fees than another states’ plan, do the tax advantages or other benefits offered by my state outweigh the benefits of investing in a less expensive plan in another state?

What are the limitations of the plan? When can I change investment options, beneficiaries, or transfer ownership of the account?

What is the past performance of the plan? Who is the program manager and when does his current management contract expire?

For additional information, you will want to review the offering circular or disclosure statements for the 529 plan. This document provides detailed information about the plan’s tax benefits, fees, expenses, investment options, financial aid, limitations, and risks. As well, you might wish to consult the prospectus of the underlying mutual funds in the plan. Prospectus information can be found at: http://www.sec.gov/edgar.shtml

Additional Resources
And lastly, the SEC has reams of helpful information on the following link:

• sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html

As a vehicle for easy college savings, 529 plans can’t be beat. But with so many plans available, it would be to your benefit to carefully compare them prior to investing, and to consult your personal financial advisor to ensure that your plan will suit your individual needs.

The world, it is a changin’, and the historical way we have viewed and conducted educating ourselves is about to take a huge leap. Stay tuned; we’ll keep you posted.

The Best Places to Retire

I live in Tennessee, which has become a favorite retirement destination. In fact, Tennessee was rated the #5 place to retire by Kiplinger last year. And why not? It’s a beautiful state, and boasts 287.9 miles—more than 10%—of the total mileage of the Appalachian Trail. Lakes, rivers and golf courses are plentiful. The cost of living is 87.6% of the U.S. average, and it has no state income tax.

But it’s not for everyone. Mostly rural, there are just 6.5 million folks in the whole state, primarily in the larger cities of Nashville, Memphis, Knoxville and Chattanooga. That means if you aren’t near one of the bigger metro areas, you most likely won’t have a lot of cultural, entertainment attractions or restaurant and shopping options.

However, folks that love the outdoor life, golfing, minimal traffic and moderate weather love it—especially those who did their research, prior to retiring.

Important Points to Consider

You see, choosing the place in which you want to retire is not as simple as throwing a dart at a map of the U.S. (or even a foreign country). There are many factors to consider before you make that important decision, beginning with what is important to you. Before making the big move, you may want to consider:

Cost of living, including income and estate taxes. While you will probably have fewer expenses, you will most likely also be living on less income. And the old advice of planning to withdraw 4% of your assets every month during retirement has, honestly, not worked out that well for a lot of folks. When you have more time, you often find more things on which to spend your money! So, making sure you can afford your lifestyle in your designated retirement location is critical. When I lived in California, the ladies I took water aerobics with—all born and raised in San Jose—confessed that they would have to move to another state when they retired; they already knew they couldn’t afford to retire in the homes they had lived in for decades.

When calculating your estimated retirement outlays, don’t forget to evaluate renting vs. buying a home, and how many autos—if any—you will retain. Both of those choices will affect the type and cost of insurance you will require, as well as maintenance expenses.

You’ll also want to consider local, state and estate taxes. As shown in the box below, there are currently eight states in the U.S. that do not tax earned income. That can make a big difference in funding your lifestyle!

For example, if you currently live in Chicago, you are residing in the city with the highest combined state and local sales tax rates in the nation, according to the Tax Foundation. Chicagoans pay the city 1.25%, the county 1.75%, the transit authority 1% and the state 6.25% – for a total sales tax rate of 10.25%. Added to that, they pay a Cook County tax rate of 5.0%, higher than the U.S. average of 4.6%. And they are also subject to the Illinois flat individual income tax rate of 4.95%, no matter how much money they make.

Now compare that to where I live in Tennessee. We have a 9.75% sales tax; I pay no county or city taxes (other than property tax) and no state income tax. If retirement cost of living is a major concern, which place would you choose?

States with no Income Taxes

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

The chart below illustrates the cities in the U.S. with the highest state and local sales tax rates.

From: https://www.illinoispolicy.org/chicago-defends-title-of-highest-sales-tax-rate-in-the-nation/

Now, if you don’t want to have to roll up your sleeves and tackle a comprehensive study of which states provide the lowest overall cost of living, this calculator will help you immensely:

https://smartasset.com/mortgage/cost-of-living-calculator

There are currently 32 states in the U.S. that do not levy estate or inheritance taxes. They are:

And here’s a link to 12 states that—in addition to Federal Estate Taxes—also impose state estate taxes.

https://www.thebalance.com/state-estate-tax-and-exemption-chart-3505462

Climate. Here in my town in Tennessee, our average year-round temperature is 55 degrees. We get about 56 inches of rain and some 13 inches of snow, on average, per year (although in the years I’ve lived here, I’ve never seen that much, and that suits me just fine!)

Climate can play a huge role in the enjoyment of your golden years. Cold, snowy, or rainy weather will keep you indoors (unless you are a cold weather enthusiast), and that can lead to adverse effects, such as loneliness and depression, which often accompany aging. As well, trying to traverse snow and ice can lead to medical mishaps.

To determine if the state you are considering retiring in has a suitable climate for you, take a look at this site which gives you the average temperatures and precipitation, state by state:
https://www.usclimatedata.com/

And here’s a link to the top 10 states with the best weather—based on comfortable temperatures, with daily highs averaging between 63 and 86 degrees Fahrenheit for seven or more months of the year, dry weather, at most 60 inches of rain a year, mainly clear skies, with sunshine for at least 60% of the time on a yearly average:
https://www.currentresults.com/Weather/top-10-us-states-with-best-weather.php

One caveat: The ratings do not consider the frequency of extreme events such as hurricanes, tornados or floods.

Healthcare. According to Fidelity Investments, it is estimated that a healthy couple retiring at age 65 this year will spend $285,000 on health-care expenses in retirement—$150,000 for women and $135,000 for men. And for many folks, proximity to good hospitals and medical providers is essential.

For many of us, in our early retirement years, we mostly need routine medical services. But, as we age, we may require significant additional services. So, if you don’t want to have to move twice as you age, you may want to consider including good healthcare as a priority when searching for a new home.

The Top 10 States with the Best Access to Healthcare

• Connecticut
• Massachusetts
• Hawaii
• Iowa
• New Hampshire
• Rhode Island
• Vermont
• Wisconsin
• Minnesota
• Maryland

Here’s a link to the 100 top hospitals in the nations, based on:

• lower inpatient mortality, considering patient severity
• fewer patient complications
• delivered care that resulted in fewer HAIs (healthcare-associated infections)
• lower 30-day mortality and 30-day readmission rates
• sent patients home sooner
• provided faster emergency care
• kept expenses low, both in-hospital and through the aftercare process
• scored higher on patient ratings of their overall hospital experience

https://www.ibm.com/downloads/cas/ZPEOP9VW

Transportation, Proximity to Airports. There’s certainly a trade-off here. Where I live, there is no public transportation and the two closest airports are 1 ¾-2 hours driving distance. If you don’t plan on keeping an automobile in retirement, you will need public transportation, although we do have Uber, even in our small town.

And for some retirees, travelling is a primary goal in their golden years, so driving this kind of distance to the airport may not be desirable. It may also be an issue if your relatives plan to make frequent visits to see you.

Recreational Activities. Consider your hobbies. How close do you want to be to your favorite pastimes like golf, boating, fishing, tennis, pickleball, or hiking?

My county is considered the ‘golf capital of Tennessee’, due to its 11 courses. We get tons of time share visitors who come just to play golf, and many of them retire here for the same reason.

Golf Digest recently rated the Top 100 Greatest Golf Courses: https://www.golfdigest.com/gallery/americas-100-greatest-golf-courses-ranking

Their rankings were based on:
1. Shot values
2. Resistance to scoring
3. Design variety
4. Memorability
5. Aesthetics
6. Conditioning
7. Ambience

The Top 10 Golf Courses

• Pine Valley G.C., Pine Valley, NJ
• Augusta National G.C., Augusta, GA
• Cypress Point Club, Pebble Beach, CA
• Shinnecock Hills G.C., Southampton, NY
• Oakmont C.C., Oakmont, PA
• Merion G.C. (East), Ardmore, PA
• Pebble Beach G. Links, Pebble Beach, CA
• National G. Links Of America, Southampton, NY
• Sand Hills G.C., Mullen, NE
• Fishers Island Club, Fishers Island, NY

And if you are an avid follower of professional sports, you might want to live in these states:

Cultural Opportunities. If you love the theater, art museums, or concerts, you’ll probably want to be near these amenities. But note that you don’t always need to be in or near a big metropolis to enjoy these niceties. Local theater and art events can be found at most colleges and universities, as well as in many small communities.

Employment Availability. If you are not quite ready to completely retire, you may want to relocate in an area with a robust economy that offers significant employment opportunities.

USA Today recently published a report by 24/7 Wall St. that listed the states with the best and worst economies:
https://www.usatoday.com/picture-gallery/money/2019/07/06/jobs-gdp-unemployment-states-with-best-and-worst-economy/39651763/

The Top 5 States with the Best Economies were:

1. Colorado
2. Massachusetts
3. Utah
4. New Hampshire
5. Washington

And the 5 States with the Worst Economies were:

46. New Mexico
47. Louisiana
48. Mississippi
49. Alaska
50. West Virginia

Proximity to Family and Friends. In my grandparent’s generation, it was common for older folks to live with their children. But as we became more mobile, and young people pursued careers far from where they grew up, families were split, with parents and their children often living hundreds—if not thousands—of miles from each other.

A new study by Meyers Research sees that trend reversing somewhat when the parents retire. In fact, 25% of baby boomers are moving to be close to their adult children and grandchildren, sometimes to assist with child rearing, as well as financial support. Many times, that’s a second move for retirees. When their children begin having babies, grandparents often want to be close to participate more fully in their grandchildren’s activities. Although that isn’t always the final solution, as young folks may continue to move around as their careers progress, causing a dilemma for the parents who have followed them.

Contrary to what the media feeds us, only some 5% of retirees actually relocate for their golden years. That’s called the senior migration rate. And if you want to be included in that statistic and you are not moving to be near family (or to live with them), you will need to consider the senior living facilities in your expected location. And there’s a facility for just about everyone. In the U.S., there are 28,900 assisted living facilities with nearly 1 million beds, according to the National Center for Assisted Living. And they can serve from 10 to 100 residents, averaging 33.

Some questions to ask of the facilities you are investigating:

1. Size and types of units available
2. Are all rooms—and bathrooms—private?
3. Are units with kitchens available?
4. Does it offer specialized care for folks with Alzheimer’s?
5. Is the facility equipped for the transition from senior living to assisted living to long-term nursing care?

There are several sources to find facilities, including your local or state Area Agency on Aging, the federal government’s Eldercare Locator https://eldercare.acl.gov/Public/Index.aspx, or 800-677-1116, or Argentum, https://www.argentum.org/, a trade association for senior living communities. Of course, a recommendation from relatives, neighbors, friends or medical providers is a great place to start.

Restaurants & Shopping. Do you like to eat out frequently, or spend your days at the local mall? Rural communities, usually, do not offer a lot of these options, so if they are important to you, you might need to live a bit closer to a metro area. And if you prefer to cook at home, consider how far away the local grocery stores are from your new home.

Political Climate. No matter in which direction your pollical views fall, if politics are important to you, you might want to reside in an area in which the majority of the people have similar political passions.

This map depicts the state of our political climate as of the 2016 elections.

Source: https://en.wikipedia.org/wiki/Red_states_and_blue_states

Tying it all Together

For a quick and dirty evaluation of potential retirement locales, Market Watch has created a neat little research tool that looks at climate, crime rate and employment rate. You can find it here:
https://www.marketwatch.com/graphics/best-place-to-retire/#division

That’s a good place to start, then you can augment that research with the categories I’ve included above. And once you have narrowed down your options, make several visits to your favorite areas, during different seasons, attend some local events, and ask the residents what they feel are the pros and cons of living there.

Lots of Lists

Every year, a host of media outlets compile their “Best Places to Retire” lists, based on many of the factors I have outlined here. The results vary considerably, depending on the angle the reporter chose.

For your research and enjoyment, I’m including some of these lists here.

The 5 Most Fun Places to retire:

Methodology: the most attractions per capita for retirees

Taos, New Mexico
Population: 5,711
Art galleries per 10k people: 50.78
Movie theaters per 10k people: 5.25
Bowling establishments per 10k people: 1.75
Colleges and universities per 10k people: 5.25

The Taos Center for the Arts showcases art and shows independent films.

Sedona, Arizona
Population: 10,069
Art galleries per 10k people: 35.75
Movie theaters per 10k people: 0.99
Golf and country clubs per 10k people: 1.99
Tennis courts per 10k people: 1.99
Colleges and universities per 10k people: 3.97

If you’ve settled down to retire in Sedona, a stay at a resort might not seem feasible, so go for a day spa instead; the New Day Spa offers all sorts of holistic, exotic treatments like hot stone massage, and facials using the Pevonia Botanica line.

Vail, Colorado
Population: 5,304
Art galleries per 10k people: 18.85
Movie theaters per 10k people: 5.66
Golf and country clubs per 10k people: 1.89
Tennis courts per 10k people: 1.89

Vail’s reputation as one of the U.S.'s ski capitals precedes itself, so before hitting the piste, pay homage to the grand sport by frequenting the Colorado Ski Museum, a must-visit place for what U.S. News & World Report coins those “powder hounds” amongst us.

Branson, Missouri
Population: 10,741
Art galleries per 10k people: 3.72
Movie theaters per 10k people: 12.10
Bowling establishments per 10k people: 0.93
Golf and country clubs per 10k people: 2.79
Colleges and universities per 10k people: 2.79

Welcome aboard the Titanic. It’s the message bearing the name of the official Titanic Museum, dedicated to the vessel ship which lost more than 1,500 passengers after sinking on its 1912 maiden voyage. The museum hosts a number of seasonal and holiday musical events, but the piece de resistance is the chance to see the authentic Hartley violin, recused from the wreckage of the real Titanic.

Hazard, Kentucky
Population: 5,279
Movie theaters per 10k people: 3.79
Bowling establishments per 10k people: 7.58
Colleges and universities per 10k people: 9.47

The other 45 “fun places” can be found here:
https://journaltimes.com/lifestyles/home-and-garden/the-most-fun-places-to-retire-in-every-state/collection_358fa4ee-daac-53b0-b783-e31a960cec69.html#1

Money Magazine’s Top 8 Best Places to Retire in 2019

Methodology: places with populations above 50,000. They eliminated any location that had more than double the national crime risk, less than 85% of its state’s median household income, or a lack of ethnic diversity. They narrowed the list by putting the greatest weight on health and safety, cost of living, housing and economic factors, as well as the percentage of residents age 50 or above.

Catalina Foothills, Arizona
Population: 53,507
Population 50-plus: 54.5%
Days of sunshine a year: 284
Median home price: $349,974

A popular place for residents and visitors to hike, walk and enjoy the beauty of the Santa Catalina mountains. Catalina Foothills is a picturesque, traditional retiree destination filled with golf, sunsets and spas. Located just north of Tucson in Pima county, it draws over a million visitors a year. The area also has lots of high-end shopping at places like La Encantada; for deals, look no further than the Tucson Premium Outlets.

Palm Desert City, California
JW Marriott Desert Springs Resort and Spa in Palm Desert, California.
Population: 53,437
Population 50-plus: 54.2%
Days of sunshine a year: 263
Median home price: $334,398

Palm Desert City is situated in the Coachella Valley area, and is the place to be if you’re passionate about the arts and love perfect weather. A standout is the Sun City Palm Desert, a 55-plus gated community with 9,000 residents that offers huge a variety of activities and classes, the renowned Mountain Vista Golf Club, and more than 1,000 acres designed with waterfalls, bocce courts and jogging trails. And thanks to its Art in Public Places program, featuring a collection of over 150 pieces, the city boasts fantastic public art projects all year around. Tours of these exhibits are free.

West Bloomfield, Michigan
Population: 65,921
Population 50-plus: 45.8%
Days of sunshine a year: 180
Median home price: $276,018

Residents of West Bloomfield are a short 35 minute drive from Greenfield Village and The Henry Ford Museum, an 80 acre indoor and outdoor history museum complex. It’s an idyllic spot to consider if you picture your retirement overlooking calming shores and sunsets on the water.

Cass Lake, the largest of Oakland County’s more than 358 lakes, sits along the northern border of West Bloomfield. Neighboring Dodge State Park, a 139-acre recreation area, offers a variety of winter and summer activities.

Northfield Township, Illinois
Population: 86,793
Population 50-plus: 47.2%
Days of sunshine a year: 189
Median home price: $471,013
Only 25 miles north of Chicago sits the quiet and scenic Northfield Township.

Residents of Northfield Township can enjoy the sights of nearby Chicago Botanic Garden all year long. Courtesy of Chicago Botanic Garden. With a true suburban community feel, Northfield is filled with parks and outdoor golf clubs. Also nearby are nature preserves, lagoons, and Lake Michigan.

While the township’s median home price ranks highest on our list, those who can afford to live there will enjoy easy access to a major city by public transportation. The trip to Chicago by commuter rail takes a little over an hour and costs about $7 one way, full fare (those 65 and older are eligible to apply for reduced fare).

Bonita Springs, Florida

Population: 54,555
Population 50-plus: 57.1%
Days of sunshine a year: 249
Median home price: $333,373

If you like sunshine and volunteer opportunities, Bonita Springs City, Fla. offers both in abundance. Located on the southwest coast of Florida in Lee county, Bonita Springs boasts beautiful nature spots like Lovers Key State Park, a two-mile long beach on barrier islands that offers walking trails, kayaking and other activities. If you’re not a beach lover, the city’s downtown offers a hub of community activities like farmers markets, local concerts and seasonal festivals throughout the year.

The residents of Bonita Springs care about giving back, and philanthropy is a huge part of the community atmosphere. At the annual Southwest Florida Wine and Food Fest, you can help raise money for all kinds of charities or simply donate food to the Bonita Springs Assistance Center, which offers support to low-income seniors.

While Bonita Springs was hit relatively hard by Hurricane Irma in 2017, the city undertook extensive cleaning and rebuilding efforts, and has begun drainage and other projects to mitigate the effects of future flooding. Bonita Springs is also just a short drive to the bigger city of Naples, which is home to a large retiree community of its own.

Minnetonka City, Minnesota
Population: 54,303
Population 50-plus: 45.8%
Days of sunshine a year: 196
Median home price: $342,198

Relishing the snow, hearty Minnesotans ride fat tire bikes in 17 degree weather to raise funds for child medical grants during the UnitedHealthcare Children Foundation’s 2nd Annual Frosty Fat Tire Festival in Minnetonka Beach, just across the lake from Minnetonka in 2018.

Minnetonka offers an ideal balance between nature and a big city. Just 30 minutes away is Lake Minnetonka, where you can stroll through the 73-acre Noerenberg Gardens or take a bike ride, hike or horseback ride along the 63-mile Luce Line Trail. The line is a former railroad that ran across Minnesota in the early 1900s that was converted into nature trails.

The Ridgedale Center has more than 100 stores, several sit-down restaurants, and plenty of space for light exercise when the weather is bad. On nice days, you can take advantage of the 95-acre Big Willow Park and stroll on one of its easy trails. And for those who love to spend a day, or several, wandering through a bustling city, Minneapolis is a mere 20-minute drive away.

Georgetown City, Texas
Population: 65,111
Population 50-plus: 46.3%
Days of sunshine a year: 229
Median home price: $289,855

An effort to revitalize the town’s main square in the 1970s established a picture-perfect downtown and a community filled with well-preserved Victorian houses, landing Georgetown on the National Register of Historic Places. It’s also home to Southwestern University, the oldest university in Texas.

The town is famous for its miles of fields of red poppy flowers. It hosts the Red Poppy Festival each year, which attracts tens of thousands of people. Gardeners can even pick up your own poppy seeds at the Georgetown visitor center and grow your own blooms.

Another well-known feature of Georgetown you can enjoy as a retiree is Sun City Texas, the county’s largest retirement community. The sprawling property is home to around 11,500 residents and features resort-quality amenities, with six swimming pools and 12 tennis courts. There’s a community library and a farmer’s market every Tuesday morning. One of the perks?

It’s only 10 minutes from downtown and about 30 miles from Austin—so when you want a break from suburban living, there’s a diverse city close by to explore.

Clarkstown, New York
Population: 85, 092
Population 50-plus: 44.0%
Days of sunshine a year: 213
Median home price: $405,730

Want to retire to a place surrounded by nature, without sacrificing the amenities of a big city? Clarkstown, N.Y., can give you the best of both worlds. Located in Rockland County among a plethora of state parks, Clarkstown is roughly 30 miles from New York City.

But if you’re not an outdoor enthusiast, that’s okay too. Clarkstown is near the Palisades Center, which has all of your shopping, dining and entertainment needs. The center includes a 4-level shopping mall, 15 restaurants, a bowling alley, ice rink and comedy club.

History buffs won’t be disappointed, either: DeWint House, one of George Washington’s headquarters during the American Revolutionary War, is in nearby Tappan, N.Y. At Stony Point Battlefield State Historic Site, you can visit the location of one of the last battles of the war in the northeast. And for a true historic outing, enjoy brunch at Old 76 House, the oldest tavern in New York and a national landmark.

Bankrate.com Best & Worst Places to Retire

Bankrate.com ranked all 50 states, considering 11 public and private criteria that are significant in retirement, including weather, crime rates, cultural opportunities and—most important—affordability.

Here’s a look at their 5 Best and 5 Worst States for Retirement:

Source: Bankrate.com

And to see the results for all 50 states, go here: https://www.bankrate.com/retirement/best-and-worst-states-for-retirement/

Bankrate.com also offers an interactive online tool—a map that you can click on to check out each state: https://best-retirement-states-widget.bankrate.com/

One Last Thought—Are you a Candidate for Retiring Abroad?

Retiring outside the U.S. is another possibility. It can make real financial sense, as the cost of living in some countries is considerably lower than at home. But the decision requires careful thought.

First, determine your suitability. Do you embrace change, speak another language, and are willing to live a possible long plane ride away from your family and friends? It’s a good idea to undertake a trial run, staying in your selected county for a few months before you move.
What are your top must-haves? These could include low cost of living, direct flights back to your friends and families, good health care, need for an automobile, a decent sized ex-pat community, and access to telephone and internet services.
Do you want to work? Working in a foreign country can be complicated, so make sure you find out the rules before you commit.
Research, research, research. You can find help on these websites recommended by Money Magazine: InternationalLiving.com, LiveandInvestOverseas.com, and ExpatInfoDesk.com for country-specific content. They also recommend Googling the country in which you are interested and include the terms “retire abroad,” “expat retiree,” or “expat blog.” Lastly, consult Expatistan.com and Numbeo.com to compare cost of living among countries.

If you decide to take the plunge:

Consider renting, as many countries restrict property purchases and long-term residence by foreign citizens. Also, real estate outside the U.S. can be very expensive, and handling contracts in a foreign language can be confusing—and costly.
Keep most of your money and your investments in the states, as banking can be more complex outside the U.S. and investing more expensive, in terms of fees and expenses. But you should have a local account, too, so that you are not killed with currency exchange and ATM fees. And, in most places, your Social Security funds can be transferred to your local bank.
Get a credit card that doesn’t have foreign transaction fees.
Since Medicare and many insurance companies won’t cover you in foreign countries, you’ll need to secure a healthcare policy, preferably a global insurance policy that will cover you in any country. Some countries subsidize healthcare costs, so that could be a plus.
Make sure your taxes are in order. If you are earning a high income in the foreign country, you could be subject to taxes on both ends. And double-check your estate plan. Even if you are residing in a foreign country at the time of your death, your last state of residence in the U.S. may tax your estate, especially if you still own property there.

GoBankingRates.com rates the following six countries as the Cheapest Countries in which to Live:

Hungary is 51% cheaper to live in Hungary than in New York City. Enjoy a meal out with a view overlooking the Danube River that’s 63% less pricey before heading back to your apartment where rent is just 15% of Big Apple prices. A bonus: Hungary is also one of the countries where citizens pay less in taxes than Americans.

In Nigeria, rents are 86% cheaper than in New York City and groceries are 64% less. From national parks with wide-open savannahs and towering mountains to a thriving Lagos nightlife, Nigeria is one of the cheapest countries to live and work.

Because it straddles the equator, Solinas-Ecuador encompasses diverse climates from the jungles of the Amazon to the Andes mountains. It’s also one of the countries with the cheapest cost of living. Rents are 89% less and a meal out costs just 30% of what you’d pay in the Manhattan.

You can live the Caribbean life you’ve always dreamed of when you move to an island or town along the Honduras coast. A bungalow costs 89% less than NYC prices, and the overall cost of living is 56% less.

The small island country of Taiwan is a shopper’s paradise because your money will go 6% further than New York. A bonus: Rents are just 15% of what you’d pay in the Big Apple.

As one of the countries with the cheapest cost of living, your budget stretches twice as far in Slovakia than it does in New York. Enjoy rents that are 81% cheaper and spend less time working and more time seeing the country’s many castles.

Most Expensive Countries to Live in

Source: expatistan.com

Whether you stay in the U.S. or go further afield, you can see that deciding where to retire is not a decision to be made lightly. But a little research can ensure that you spend your golden years in the place you want and enjoying your favorite activities.

What the Long-term Housing Forecast Means to You

In 2005, I was a stay-at-home mom, but always an extrovert, out and about dealing with people each day, keenly aware that middle class Americans were obsessed with fix-n-flip houses, that home prices were skyrocketing, and that no-money-down mortgages had become the financial scam du jour. I was also well aware (and appalled!) that the U.S. government had strong-armed financial companies into making mortgage loans to people with poor credit histories. That was a recipe for disaster, and a race to the bottom ensued with each financial company vying for mortgage business from a large pool of unqualified buyers.

Inevitably, Americans of the home-owning and investment ilk experienced the falling dominoes of real estate, bond and stock prices. The thing that amazed me, though, was that I have rarely met a soul who also anticipated the housing crash. When I talk to investors, they beg me to let them know when I foresee another major drop in housing prices. Today I am ringing that bell.

Baby Boomers are getting older. A tremendous number of them own large homes that they’re having trouble maintaining. I don’t care how healthy you think you are, one serious knee problem and you are not going to be climbing the stairs very often to the second story of your house, or descending stairs into the basement where your washer and dryer are located. You’ll also be hesitant to continue doing outdoor chores: climbing a ladder onto the roof to clean out gutters, pushing a lawnmower around, bending over to pull weeds, raking (ouch – that shoulder injury!).

A vast majority of Boomers will be downsizing in the coming decade; selling the big homes in which they raised children and buying small homes, such as condos with one level and no yard to maintain. Added benefit: they can then extract equity from their big homes with which to finance their retirement years.

All across America, but especially in the Northeast and the Midwest, Boomers will be putting their homes up for sale, and often leaving those areas for warmer climates. (And not to be morbid, but there will also be a subsection of Boomers who die, and their heirs will be selling those homes.)

Are you with me so far? Massive numbers of homes will be going up for sale in the next decade.

The youngest of the Boomers were born in 1964. They’re age 55 right now. The oldest Boomers are 73. And of course, members of the Silent Generation who still own homes are even older. They’re less physically mobile. Their bodies are not cooperating with the basics of living within and cleaning a large home and yard. They’re going to sell their homes.

If you are a Boomer and own such a home, right now you’re probably grasping at hope, thinking, “It won’t be a problem. The younger generations will buy homes from the Boomers.” Well clearly I would not bother writing about this topic if demographic projections pointed toward an evenly matched assortment of future buyers and sellers, so take a deep breath and keep reading.

Reasons Behind the Coming Housing Crash

There are a variety of reasons that Millennials and Generation Z are not expected to pick up the slack in the housing market. Off the top of my head, here are some lifestyle situations among those generations that make them different from Boomers, and less likely to purchase houses:

1. 
   
   1. They’re very comfortable with renting. In fact, they’re expected to push rental occupancy more than 20% higher than historical norms in the coming decade.
   2. They’re having smaller families. They don’t need a large house in which to raise three or 10 kids.
   3. They’re burdened with significant college debt that prohibits them from saving for a house down payment.
   4. They’re burdened with significant rental costs that prohibit them from saving for a house down payment. Current rental prices are more than 50% higher than they were prior to the housing crisis, a decade ago, while housing prices are less than 15% higher.
   5. It’s much harder to qualify for a mortgage in this post-housing crisis era. In a gig economy, it can be very difficult for the masses of self-employed workers to meet mortgage lending requirements that demand more predictable income and job stability.
   6. They’re more likely to be single parents at younger ages and possibly working in retail or lower-level corporate jobs that barely cover rent, transportation and living expenses, let alone health insurance. Home ownership can be vastly less expensive than renting, but if you don’t have cash for the down payment, then you’re locked out of the housing market.

Housing takes up much more of a family’s income today than it did when you or your parents bought houses. My father was a newspaper reporter for 36 years. He supported a family of six, and was able to own a home and a car in the 1960s, and two cars by the 1970s. Can you imagine a newspaper reporter supporting a family of six on their salary in 2019?!

The housing analysis that I read projects home buying volume to be more than 50% below normalized long-term levels in the coming decade. FIFTY PERCENT LOWER!

That means people who sell their homes very soon will get much higher prices for their homes than people who sell their homes later in the coming decade. Home values are projected to steadily fall because there will be a glut of available homes and a lack of qualified buyers.

If the bulk of your net worth is tied up in your home, and you were planning on selling in order to tap into the equity to sustain you during retirement, you need to understand that your long-term plans might be thwarted by market forces that you had not anticipated.

Get Yields Up to 15% with BDC Investments

When the market is looking uncertain, investing in business development companies may be an avenue worth thinking about.

Business development companies (a.k.a. BDCs) are similar to venture capital funds, except that they are publicly traded on stock exchanges so that anyone—not just millionaires—can invest in them. They provide financing to small- and mid-size companies that are often underserved by banks and other traditional lenders. Often this financing includes “mezzanine loans” that pay high interest rates and come with or can be converted into equity in the target company.

Two main things you need to know about investing in BDCs:

1. BDCs typically borrow funds at much lower interest rates than those paid by the smaller companies, so investors reap the rewards of the spread—although it does make these investments fairly interest rate-sensitive (which could come into play if the Fed cuts interest rates again soon).
2. Business development companies can have very high yields—frequently in the double digits—but those payouts often reflect the high risk of lending to speculative, development-stage companies. BDCs that make loans primarily to more mature businesses with positive cash flows will be safer, while BDCs that make more speculative loans to smaller businesses will be riskier—but they may also have more growth potential, especially if they take equity positions in a lot of their portfolio companies.

How to Find Out if a BDC is Risky or Safe

Looking at a business development company’s filings should give you a sense of how risky or safe their loan portfolio is. Some BDCs mostly make higher quality loans that have a better chance of getting paid back, while others will make more speculative loans that have higher interest rates but also carry a greater chance of default. You can check the interest rates on the loans for a sense of the borrower’s creditworthiness. If the BDC is able to charge higher interest rates than its peers, it’s probably making riskier investments.

BDCs also have to take on a lot of debt themselves, so they can then lend that capital at higher rates. Luckily for you, that means bankers have already looked at this company’s balance sheet and assessed its financial health, so you can take a shortcut by looking at what kind of interest rates the business development company is paying on its own debt. That will give you a general idea of how risky bankers think this company is.

Also, find out if the rates are fixed at that level or if they’re a floating rate, which can expose the business development company to more interest-rate risk. You may also want to compare the BDC’s debt-to-equity ratio to the industry average to see if this BDC has more or less financial flexibility than its peers. Some BDCs may even be rated by one of the big ratings agencies.

Tax Advantages to BDCs

One other bonus: when you invest in business development companies, there can be tax advantages. Some BDCs pay distributions that are taxed at ordinary income tax rates, but others consistently designate a portion of their distributions as Return of Capital, which aren’t taxed until you sell your shares.

Some BDCs may also designate some of their distributions as qualified dividends, which are taxed at a lower 15% dividend tax rate. How the distributions are treated depends on how the BDC earned the income. Interest the BDC earned from loans and preferred stock is taxed at your normal income tax rate, for example, while qualified dividend income from preferred stock will be taxed at the 15% rate.

Tax benefits aside, business development companies are an often overlooked method of income investing—and a great place to find high yields, sometimes as high as 15%. In the current market climate, high yields can be a nice buffer against frequent share-price fluctuations.

The New Rules of Interest Rates

What does it mean for the market when the Fed cuts interest rates? Historically, the Fed cuts rates to stimulate a slowing economy and pull the country out of recession. But that pattern might be different now.

In the midst of the financial crisis in late 2008, the Central Bank cut interest rates from a high of over 5% to less than 0.25%. The rate was left at Armageddon pricing for seven years in order to stimulate the post-crisis recovery, something never before attempted.

Finally, in late 2015 the Fed began raising the Fed Funds rate. As the economy gained sufficient independent traction in the middle of the decade, the Fed began raising rates to fend off inflation, prevent bubbles from forming, and get some dry powder to stimulate the economy. They pushed it back up to 2.25% to 2.50% in an attempt to “normalize” the rate for this stage in the economic cycle. After all, in every recovery since the 1960s, the Fed Funds rate had been raised to at least 5% as the economy strengthened.

Things seemed to be going according to plan.

The market was doing great—hitting new all-time highs—and the Fed had every intention of continuing the rate hikes. Then the market rebelled. It plunged 20% on fears of an imminent recession. Rate hikes were fine … and then suddenly, they weren’t. What happened?

The Fed reacted by first announcing a halt to the rate hikes and then two additional rate cuts of 0.25%.
To many, that kind of Fed reversal is a sign of a weakening economy. That should not be a surprise. In fact, it should be rather obvious: When the Federal Reserve cuts interest rates, it’s always due to economic sluggishness or “uncertainties.” In the long term, an uncertain economy is bad for the stock market. When the Fed cut rates in September 2007, when U.S. home prices fell, the first major leak before the subprime mortgage crisis dam broke, plunging the U.S. into its worst recession since the Great Depression.

But Central Banks have screwed up interest rates as a market indicator, and they are now operating in a brand new paradigm of their own making to which there is no historical precedent.

Some people fret about the potential for yield curve inversions, where long-term interest rates fall below short-term rates. To be fair, such a phenomenon has historically been reliably indicative of a slowing economy and the end of the recovery. But that’s when interest rates were a clear reflection of free market forces. Those days are over.

The good news is that rate cuts are no longer necessarily a reflection of slowing economic growth. That’s good news for stocks. And falling rates are especially good for dividend stocks.

At some point, this Central Bank experiment could end quite badly. If it does, you’ll want to hold as many safe, all-weather stocks in your portfolio as possible. Reliable dividend payers—and particularly dividend growers—are a good place to start.

Why Falling Rates Aren’t an Investor’s Friend

When the Federal Reserve slashes interest rates, stocks rally in the coming days. But it doesn’t last, and history shows that rate cuts are bad for stocks.

That should not be a surprise. In fact, it should be rather obvious: When the Federal Reserve cuts interest rates, it’s always due to economic sluggishness or “uncertainties.” In the long term, an uncertain economy is bad for the stock market.

Prior to 2019, the last time the Fed cut the federal funds rate was September 2007, when U.S. home prices fell, the first major leak before the subprime mortgage crisis dam broke, plunging the U.S. into its worst recession since the Great Depression.

How did Wall Street respond to that rate cut, from 5.25% to 4.75%? Favorably—the S&P 500 ticked up 2.4% in the three weeks that followed the rate cut, closing at new all-time highs above 1,560 on October 10. But we all know what happened next.

As we found out from 2007-09, interest rate cuts are bad for stocks in the long run.

During that time, the Fed slashed short-term interest rates to near zero, where they remained for seven years.

And what happened to stocks in the three and a half years between when the Fed started raising rates again, in December 2015, and 2019?

A 46.5% gain. That’s slightly less than the 53% gain in the three and a half years that preceded it, when the Fed held interest rates at zero. But remember that stocks were still digging out of the 2008-2009 market crash then; they didn’t get back to pre-recession levels until March 2013.

Want more proof that rate cuts are bad for stocks? Let’s go back to the previous time the Fed starting trimming them. It was January 2001, when the unemployment rate was at 6% and U.S. GDP growth was a mere 1%. Over the ensuing two and a half years, the Fed cut interest rates another 12 times, slashing the federal funds rate from 6.5% to 1% during that time.

Here’s how stocks behaved during those two and a half years of rate cuts: A 27.5% decline, a bona fide bear market.

So, the previous two times the Fed started reducing interest rates in the 21st century, two things have happened: they kept reducing rates until they were close to zero, and a long bear market ensued.

Are investors hoping the third time will be the charm? Are they clinging to the 1998 rate cuts, when the Fed slashed rates just three times (from 5.5% to 4.75%) and stocks continued to climb higher nonetheless? (Of course the dot-com bubble soon burst, squashing the rally and precipitating the 2001-2003 rate cuts and bear market I just mentioned.)

I doubt it. More likely, investors are focused solely on the short term. And when interest rates are cut, stocks do tend to perform just fine … for a month or so. But the real key after that isn’t the rate cuts, but the economy—if things really worsen and uncertainties crimp earnings, the bears often have their way. But if the rate cuts do engineer a so-called soft landing, the market can do quite well.

Online Dating and Investing

I tried online dating back in January 2016, but I didn’t get any dates, and I cancelled my subscription. Then a few years later, I signed up again. It can’t be any worse than having no dates at all, right? So I filled out my dating profile and hit “send.”

In the profile section where it asks you about the most important qualities that you’re looking for in a person, the first word I used was athletic. It’s not that I’m only interested in dating Dwayne “The Rock” Johnson. Rather, it’s because people live to be 100 in my family. I don’t want to fall in love with a somewhat unhealthy person who doesn’t watch their calories, doesn’t exercise, and will probably die when I’m age 70, leaving me without an excellent companion for my 30 remaining years.

I want to increase the odds that I will be able to find a wonderful person and enjoy their company for decades to come – not just a decade. So it’s going to have to be somebody who takes really good care of their health through diet and exercise.

Athletic. Remember that word.

This guy who I’ll call “Marty” responded to my online dating profile and arranged to meet me at Starbucks. (Right away my middle daughter groaned at how incredibly gauche it was that he suggested Starbucks. Whatever. I can’t micromanage everything, right?)

I went to Starbucks at the appointed hour. Marty was late. I sat next to one entrance while keeping an eye on the other entrance.

As he entered the far door, the first thing I noticed was that it had been at least several decades since Marty had been acquainted with the word “athletic.” (What on earth inspired him to decide, as he read my online profile, that he was the guy I was searching for?) So I geared myself up for spending some time talking to another human being who I would never meet with again.

The surprises didn’t end there! While online, Marty had represented himself to me as a financial professional. However, within minutes of meeting Marty, it became clear that his financial profession was, in reality, a fledgling hobby, because Marty is actually a truck driver.

What’s more, he apparently really enjoyed talking about truck driving. I listened to many chapters of Marty’s Encyclopedia of Truck Driving Experiences. Except guess what? I know a little bit about the truck driving industry, from all the research I’ve read for stocks. Marty beamed at me when he discovered that I was able to discuss truck driving. He was absolutely thrilled. (He was probably ready to marry me…yikes!)

Anyway, I asked Marty about the industry-wide driver shortage, and here’s what I gleaned:

1. The written test to acquire a commercial driver’s license (CDL) is much harder than it used to be, thus, fewer people are passing the test and becoming truck drivers.
2. Additionally, the legalized use of recreational marijuana in approximately nine states and the District of Columbia has further shrunk the pool of qualified truck drivers, because some would-be drivers cannot pass the drug tests.
3. The new mandatory use of electronic logging devices (ELD) throughout the trucking industry is exposing truckers who heretofore had their fingers on the scale, i.e. they were lower-quality employees who often misrepresented their work data to their employers.

Trucking companies have significantly increased the pay scale in their desperate search for qualified drivers, and they’re passing those operational costs on to the shippers. The booming economy has trucking companies working at capacity, except for the trucks that are sitting idle due to lack of drivers.

I finally managed to thank Marty for his company and conversation, at which point he asked me out to dinner. And it was at that point when I had to be blunt and say, “We’re not a match.”

I decided to stick with the online dating for a tad longer, instead. I kept on truckin’.

How Good—or Bad—It Could Get for Investors

The investing implications of this ongoing global pandemic are many. We will get through this and there will be plenty of opportunities. My overarching message right now is to get (and stay) in a safe financial (and physical) position to be able to take advantage of them when they do.

Think back to the Great Recession. You didn’t need to be the first investor to buy into the market when it started to rise, or to pick up attractive real estate that had plummeted in value. You just had to be in position to do it when the big-picture trends started to improve, and then act.

As for ideas on what to buy right now, next week, and next month, some reflection on the current state of the world is in order.

Most businesses out there should be working through some semblance of worst-case, base-case, and best-case scenarios for how this whole thing is going to play out and affect them. I’m trying to consider those across various end-markets and translate my thoughts into a high-level investing strategy.

It’s not an easy task. We need to try and layer in certain factors for end-markets and individual companies, including (but not limited to): (1) degree of impact/benefit to core business operations, (2) cash and/or access to capital, (3) time, (4) potential impact of government bailouts, (5) population acceptance/adherence to somewhat authoritarian measures, (6) collateral damage from unexpected financial collapses, and (7) acquisition potential.

Stepping back from stocks for a minute, the main priority for the country (and world) right now has nothing to do with spurring economic activity. Quite the opposite, in fact. We need to tamp it down.

As more people are starting to realize, the immediate goal is to limit the spread of this virus by keeping people away from one another. The point here isn’t to freak people out about a virus that for most is not life-threatening. It’s to try and ensure that the healthcare system can handle the expected surge in patients that are at risk and will need help, and to try and protect front-line medical professionals, without whom the healthcare system is truly at risk.

In other words, it’s not about saving the economy right now. It’s about saving lives and the healthcare system. The economy will rebound once this primary goal is achieved.

Absent a vaccination, which we will get in due time, physical separation for several weeks is the best way to slow the spread. If everyone follows the rules this could be mostly over and done with soon. Then the occasional flare-up can be tamped down with the same measures.

On the other hand, if citizens don’t adhere to seemingly strict measures and the healthcare system gets overwhelmed the social and economic costs will be far larger, and the duration of this crisis will be much longer.

Considering Best-, Base- and Worst-Case Scenarios
With that all said, here is my current thinking on best-, base-, and worst-case scenarios. This isn’t meant to be comprehensive, freak anybody out or be overly intellectual, it’s just some high-level thoughts to help us stay on track with so much information coming at us, and such a volatile and potentially depressing stock market (for now). Please keep in mind, I reserve the right to change my mind quickly! As things evolve so too must our thinking.

Best-Case Scenario
People do as they are told and stay away from one another for the next three weeks or so. In the most affected places where the steps taken seem draconian, people still follow this advice. Private companies, citizens and the government step up to make sure essential items and services flow quickly and freely. Healthcare organizations are able to adapt quickly to give appropriate care to those in need.

Supply chains for the big consumer goods companies, grocery stores, medical supply companies, etc., adapt quickly to support the lack of foot traffic and help people stay home without concern of running out of food, medicine, etc. Smaller businesses do curbside pickup and delivery. The government bails out small businesses across the country so people have jobs to come back to.

Widespread testing for COVID-19 ramps up over the coming weeks and the government, media and social media outlets help people understand that the following surge in positive cases is reflective of more testing, not imminent doom. It’s just numbers, guys; the more people that get tested the more results that will come back positive, at least in the short-term.

The stock market is able to stay open without interruption, markets begin to factor in all of the above and, true to its typical forward-looking form, the stock market stabilizes and begins to recover relatively soon. Business, consumer and investor confidence begins to rebound as people see that the steps we’ve all taken are actually working.

Base-Case Scenario
In a base-case scenario, just about all of the above fails to play out as well as described, but it’s not total chaos either. Too many people fail to follow what’s arguably the easiest advice ever uttered – just hang out away from other people! – resulting in more pockets around the country where extreme measures are required. This all means it takes longer to contain the virus, more people get sick, there’s a greater loss of life, it’s harder to get essential goods and services to people, the economy takes longer to recover, etc. The stock market closes for a period of time, which freaks people out, but it doesn’t last long and bounces back to a rational level when it re-opens. When it’s all over, the general consensus is that it still could have been a heck of a lot worse.

Worst-Case Scenario
I’m an optimist. Let’s not talk about a worst-case scenario!

Investing Implications
To state the obvious, in all scenarios there’s not a ton of incentive to rush out and buy big positions in a lot of stocks right this minute. There’s still just so much uncertainty. But starting to take small positions and/or add to existing positions if you have a long-time horizon can make some sense. Considering these various scenarios, there are some basic and rather obvious investing implications:

It’s not a great time to be buying hospitality, airlines, travel, restaurant, and retail stocks, unless you have a longer time horizon and/or are relatively confident in a successful bailout.

Energy and alternative energy are also tough to justify. But one could argue that solar could be an eventual bright spot once things improve and demand for more distributed energy, and energy independence, rebounds.

Consumer staples and grocery chains are likely to outperform and are relative safe havens.

Select cloud software stocks and cloud infrastructure stocks could rebound/perform relatively well given their ability to support work-from-home in the short-term and longer-term, the trend toward these types of solutions stays strong for all the same reasons it was before this, plus the added incentive of helping businesses & consumers during viral outbreaks. As always, end-market exposure matters.

Select online and internet businesses outperform for obvious reasons. For those dealing with physical goods, while some supply chain hiccups take time to address, they gain market share, and keep it, when things return to normal.

Medical device, supply and biotech stocks with select exposure do well.

What To Do Now
It’s time to be calm, measured and patient. Nothing is going to change for the better overnight. It’s time to look for opportunities to reduce exposure to stocks that aren’t likely to work, and start building positions (slowly) in those that are more likely to work.

It’s important to look beyond tomorrow, next week, or even next month, unless you’re a trader. These are the times when huge opportunities start to surface. Having the clarity of mind to recognize them and act is a challenge, but I’m confident we can succeed.

Is this Bear Market “The Big One” That Destroys Investing?

The definition of a bear market is when the market indexes fall 20% or more from the highs on a closing basis.

The last bear market was in 2008 and 2009 during the financial crisis. That was one of the worst bear markets we’ve ever had, with the S&P 500 falling more than 50%. Because of the long length of time since the last bear market and the severity of that crisis and selloff, investors are understandably concerned.

Every bear market is scary. But I think this one is scarier than most. The selloff was lightning-quick. Very recently, the market was rolling along in a familiar pattern of making new all-time highs, after a year in which the market indexes were up about 30%. Then suddenly, out of nowhere, everything went to Hell in a handbag.

It isn’t because the recovery ran out of gas. It isn’t because excesses built up and bubbles formed over the long recovery. A black swan event swooped in out of nowhere and screwed everything up. The coronavirus has destroyed this market, like a meteor hitting the planet. A weird special event has thrown the world into a tailspin and the end is still nowhere in sight.

To add perspective, the events of September 11, 2001 thrust the economy into a recession. Of course, it hit an economy that was already teetering and not nearly as strong as the pre-coronavirus economy. But the economic disruption only lasted about a week. And it was nowhere near as severe as this one.

The whole country is shutting down. Just about every state has ordered bars, restaurants, stores, gyms and every large gathering to shut down, indefinitely. In an economy such as ours, you can’t do that. We may not be in a financial crisis now. But if you shut down the economy for several months, I can assure you it will be.

How many small businesses can afford to shut down until the summer? My guess is not many. What happens when these businesses can’t pay the rent? What happens when the people that own the buildings can’t pay the mortgage?

Will these measures be over in a month or will this go on until July or August and maybe beyond? Nobody knows. At some point, the widespread suffering inflicted by the crashing economy will be worse than the virus ever was. When will we get the all-clear to go back to work?

Healthcare experts may not be comfortable until there is a vaccine available for the country’s 350 million residents. And that might be a year away. But we’ll be in a depression by then.

At what point do business and government officials decide that the economic emergency is so bad that people are better off dealing with the virus, in an election year? We will probably find out.

I believe that if the market knew a bad truth it would be much better than this uncertainty. If the market knew for sure that this Apocalyptic shutdown would last until the end of May and no longer, it would probably rally 5,000 points on the Dow. But until it can grasp the extent of the economic shock, it probably won’t be able to find a bottom.

The Thing about Bear Markets
I can’t sugarcoat things. That’s where we are. But it will pass. It may get still uglier before it gets better. But, one way or another, it will get better. It always does. This virus won’t bring down Western civilization.

Every bear market has its unique horrors. There is always a sense that this could be “the big one.” That this will destroy investing. It will finally expose stock market believers and investors for the greedy fools that they truly are. But markets always come back and prove market believers right.

Consider this: The 20th century featured two World Wars, a Cold War, a Great Depression, runaway inflation, civil unrest, many recessions and bear markets and more. Yet, the Dow Jones Industrial Average began the century at a value of about 50 and ended the century a little over 11,000.

In scary and uncertain times like this, it’s well worth looking back at the history of these bear markets. Let’s go to the video tape, courtesy of First Trust.

History shows that bull markets last way longer than bear markets. Since 1926, a bear market has come along an average of about every six or seven years. The average bear market has lasted 1.3 years and with an average loss to the bottom of 38%. And that number factors in the Great Depression. The average bull market has lasted 6.6 years with an average cumulative total return of 339%. Since 1926, it has been a bull market about 86% of the time.

We’re emotional creatures. Our emotions tell us to flee from danger. We are naturally wired to buy into a rising market and sell when things get bad. But history dictates that we should do exactly the opposite. History is crystal clear on this one. Bear markets present great opportunities to buy cheap ahead of the next bull market.

I don’t know how this will play out. It’s bad. I admit it. Things will probably get worse before they get better. But if you step away from the hysteria for a minute, you see the history. The market is already down 30%. Taking a cold and objective look at the situation, does this seem like a good or a bad time to invest? You tell me.

How Long Will it Take the Market to Recover from COVID-19?

There’s almost no precedent for this. Sure, stock market crashes happen every few years, give or take. But this current one? It’s rare. How rare? We had to dig back far into the stock market history archives for the nearest parallels: 1962 and 1987. Let’s look at them both.

Here is a chart of the 1962 market crash, from top to bottom and back again:

This chart, courtesy of Marotta Wealth Management, shows the S&P 500 crash that began on December 12, 1961, and bottomed on June 26, 1962—a 28% decline in roughly six and a half months, though the vast majority of the decline occurred over just a few weeks. From that bottom, it took just over 14 months for the market to fully recover. However, the bottom itself only lasted about five months, as stocks really got going to the upside after a re-test of the low that October when the Cuban Missile Crisis occurred.

The current market crash has, of course, already surpassed the 1962 decline in terms of depth and speed. So, perhaps the 1987 crash is a better parallel. Let’s look at the chart first:

That sudden market nosedive centered around the infamous Black Monday crash on October 19, 1987, in which the S&P fell 22% in just one trading day—still the worst one-day decline on a percentage basis in stock market history. The S&P had topped out two months earlier, but Black Monday accelerated the losses in a similar way to how the last two weeks have accounted for the worst of the current market crash. From top to bottom in 1987, stocks fell 33.5% in about three and a half months, with the bottom coming in early December—about six weeks after Black Monday.

As you can see from the chart, there was a decent bounce that December, as stocks rose 12.5% in three weeks. From there, the S&P traded in a range between 252 and 283 for all of 1988 before pushing to new all-time highs by the middle of 1989.

The bulk of the 1987 stock market crash took place in a two-month span, falling 32% from late September to late November. Typically, those types of losses occur over a longer, more drawn-out period. The worst of the 2008-09 subprime mortgage crash, for example, lasted nearly seven months, during which time the S&P plummeted more than 46%. But from start to finish, that global recession-fueled crash lasted roughly 17 months, the first 10 of which were more like a slow trickle before it became a full-on geyser in September 2008.

This coronavirus market pullback, of course, has been anything but a trickle. It’s been a geyser from the start, with wild, record market swings on almost a daily basis for the past month. Thus, it looks more like 1987 on a chart.

Will it take only two to three months for stocks to put in a bottom, like it did in 1987? Or will it take more like five to six months, like it did in 1962? Who knows. Those crashes, while similar on the chart, were caused by market-related issues. This one is caused by a single event: the coronavirus pandemic, and the massive toll it will take on the global economy. Considering that a global recession seems all but inevitable this time too, perhaps this will end up looking more like the 2008-09 recession, which slashed stock prices by more than half in 17 months.

Let’s hope for the former. Either way, know this: in all three bits of sordid stock market history I just mentioned, stocks took less than a year and a half to put in a firm bottom, before they started zooming upward again. They’ll do that again this time, and that will be your chance to make a lot of money investing.

Until then, let us guide you through this mess. We’ve seen it all in our 50 years in business, including the 1987 market crash and the 2008-09 recession. Through each downturn, we’ve helped prevent our readers from losing their shirts in the bad times, and made them a lot of money in the good times—which far outnumber the bad times.

Good times will come again. Even if it doesn’t feel like it today.

Conservative Stocks Perfect for a Crisis

While it’s emotionally wracking to see the stock market take the huge swings we’ve seen recently, it’s not unprecedented. As you can see from the chart below, which was compiled by Ned Davis Research, disease outbreaks normally roil the markets. But what the chart also shows is that these are temporary phenomena.

The chart depicts the before and after of the World Health Organization (WHO) declaring “global emergencies” during each outbreak. That happened with the coronavirus on January 30. The markets are still very much in crazy swing-mode (my own term!), which will probably continue until we reach peak stage. Global health experts believe that China and South Korea have peaked, although they warn there could be a second outbreak.

And while this virus is horrible in its impact on individuals, economies, and certain industries, it’s important to put it into perspective: the WHO says the flu kills 291,000-646,000 people every year, and we aren’t close to those numbers yet.

History tells us that this too shall end. And as the table below illustrates, historical disease outbreaks are usually followed by significant market gains.

So, what should you do now? My advice: probably nothing. Trading stocks in this kind of market can be a crap shoot, as it’s panic selling, which rarely works out well for the individual investor. Friends who sold their stocks during the 2007-2009 recession (against my advice) are very sorry today. Right now, you have paper losses; if you sell at these lower prices, you will incur real money losses.

The market will spring back—that’s what you need to know. However, it is a great time to buy, as Warren Buffett would say, when “there is blood in the streets.” But you want to be judicious in your purchases. Until this shakes out, I would avoid stocks in the following sectors:

• Entertainment
• Cruise lines
• Airlines
• Hotels

But once the market begins to show signs of sustainable growth, those sectors may look pretty interesting, as many stocks will have pulled back to very buyable levels.

Every single sector in the U.S. is currently down for the year, with Energy (-65.1%) and Basic Materials (-28.0%) losing the most and Utilities (-5.5%) and Healthcare (-12.1%) losing the least.

You could certainly take a gamble on some healthcare stocks that may be in the run for a coronavirus antidote or vaccine, but that could be a pretty risky bet (biotech stocks usually are). Or you could buy Netflix (NFLX), like many investors have, as folks are staying in right now, but that is probably a temporary bounce.

3 High-Yield REITs to Buy
Instead, in times like these, if you’re determined to buy stocks, why not bet on the tried and true—conservative stocks like these high-yield REITs?

• Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI), dividend yield 4.06%, analyst ranking 2.1
• Physicians Realty Trust (DOC), dividend yield 4.82%, analyst ranking 2
• Medical Properties Trust, Inc. (MPW), dividend yield 4.61%, analyst ranking 2.1

That way, you’ll collect some steady cash flow while we wait for the market to shake off coronavirus.

Your Most-Asked Investment Questions Amid Coronavirus Fears

As the lead analyst of Cabot Undervalued Stocks Advisor, I’ve heard from a variety of investors lately. Their emotions and investment strategies are running the gamut from, “Is it time to start buying stocks?!” to “Should I sell my stocks?!”

I am going to presume that you are an investor who’s invested in high-quality companies, not a day trader who’s simply seeking momentum. While it is true that investors might take precautions prior to a stock market correction—paring back positions in overvalued or overextended stocks, raising cash, and/or using stop-loss orders—an investor would not sell after their stocks have fallen.

Once a good stock has fallen, it’s essentially “on sale.” It’s far more prudent to “buy low” on high-quality, fallen stocks than it is to cash them in. There are, of course, exceptions.

During a market correction, you might sell shares of a great company that’s been out of favor, such as ExxonMobil (XOM), and move that money into shares of a great company that’s been exhibiting more of a thriving share price, like Apple Inc. (AAPL).

But generally speaking, if you ask me, “Should I sell my shares in this company that’s delivering growing revenues and profits?”, my answer is always going to be, “No. Why would you want to do that?”

If the answer is, “I want to sell this stock because the market’s falling and I’m scared,” I want to encourage you to do two things:

1) Hold your high-quality stock and let the market recover, which generally happens within a few months of the downturn.

2) Right now, while you’re very uncomfortable, please write down the changes to your investment strategy that you ought to make the next time the market is near a high. If you’re wildly uncomfortable right now, you don’t really want to relive this experience, right? So examine your investment strategy, and change it a bit. The change might be small: “I will increase my cash position so that I can add to my excellent stocks the next time they’re on sale.” Or the change might be huge: “I am so done with the stock market! From now on I’m putting my money into [real estate, bonds, stock mutual funds, etc.].”

For those of you who are excitedly asking me, “Is it time to buy??!!”, my answer is, “Let’s allow the market indexes to stop falling first.”

Once the indexes stop falling, they will then generally trade sideways for a bit before showing a readiness to rise. You’re not going to need to make a quick buying decision that soon. Take your time, study, and think about which stocks you’d like to add to your portfolio. Then buy the ones with the more bullish price charts … not the ones that plummeted the most. Those plummeting stocks will take far longer to deliver capital gains than the stocks that didn’t fall as much.

Remembering Two Great American Business Leaders

They were both born in the 1920s, Ivy League educated scions of business families, intellectually curious and careful not to be ostentatious. They were also creative and ambitious businessmen who passed away recently with little fanfare.

They were Amory Houghton of Corning and Whitney MacMillan of Cargill.

Amory Houghton, better known as Amos, enlisted in the Marines and then went to Harvard University followed by an M.B.A. degree in 1952. He then joined Corning Glass Works, becoming chief executive in 1964.

Corning, founded by his great-great grandfather in 1851, made Pyrex measuring cups and cookware and glass used for TV tubes, a business which accounted for 75% of the company’s sales. Then an influx of Japanese imports crushed this business forcing Mr. Houghton to cut one-third of Corning’s workforce.

Corning rebounded after it pivoted to the development of fiber optics betting that the hair-thin strands of glass would replace copper wire in transmissions of voice and data. By 2000, optical fiber and related telecommunications products accounted for more than half of Corning’s operating profits.

Mr. Houghton was unpretentious, driving a Volkswagen and eating regularly at the company cafeteria and after stepping down as CEO, Mr. Houghton served as a successful Republican Congressman.

Corning (GLW) has continued to evolve with 50,000 employees and major business segments in display technologies, optical communications, fiber optics hardware, environmental technologies, specialty materials, and life sciences businesses worldwide.

Whitney MacMillan was the last member of his family to lead the privately held food giant, Cargill. After Yale, he joined Cargill, working his way up to the top with a stint in the Philippines and some time in the pit as a grain trader.

As CEO, he expanded Cargill’s reach from primarily a North American grain trader to a global food titan with businesses and customers in every part of the world, especially in Asia and South America.

Mr. MacMillan was a globetrotter, organizing Cargill’s global infrastructure of port facilities and food processing centers and expanding into new commodity markets such as beef and cocoa.

In his two decades at the helm of this Minnesota-based company, he doubled the number of countries in which it did business and expanded its workforce from 20,000 to 80,000 while grooming a platoon of top executives that stepped in as he retired in 1995.

One of Mr. MacMillan’s last major accomplishments at Cargill was to set up an employee stock ownership plan (ESOP), which set this private company on a path toward more transparency in its financials and operations. Over his time as CEO, Cargill’s sales grew by nearly five times to $51 billion.

And Cargill continued on this growth path to become one of the world’s largest companies, with sales totaling $113.5 billion in 2019.

There are several takeaways from these two great business leaders and companies.
Unlike what is so common today, both men stayed with the same company throughout their career, learning the business from the ground up and developing a sense of stewardship.

Both Cargill and Corning evolved due to foreign competition and technology in the case of Corning and changing demographics and globalization in the case of Cargill.

Both Houghton and MacMillan put a premium on effort and growth and a penalty on complacency and inertia. Every business needs to look ahead to new markets – and competitors.

Finally, both of these gentlemen were curious about the world and for all their business accomplishments, did just as much outside of the business arena.

We are living in, and investing in, uncertain times, but as long as America keeps producing leaders like this, all will be well.

Prepare for Market Recovery

The coronavirus pandemic has created precipitous drops in the stock markets, the likes of which we have not seen since the 2007 recession. And while it’s emotionally wracking to see the stock market take the huge swings we’ve seen in the past couple of months, it’s not unprecedented. And it will pass.

As you can see from this chart disease outbreaks normally roil the markets. But what the chart also shows is these are temporary phenomena.

The chart depicts the before and after of the World Health Organization (WHO) declaring ‘global emergencies’ during each outbreak. That happened with the coronavirus on January 30. The markets seem to be trying to reach a bottom, yet they are still volatile and will probably continue in that vein until we reach peak stage of the virus.

China is beginning to slowly reopen its economy, and New York is hopeful that it has seen the peak of the outbreak. However, there are still pockets of the country that have still not seen the worst of it. And as experts warn, we need to take the return to normal slowly so that we don’t spark a second outbreak.

And while the virus has horribly impacted individuals, economies, and certain industries, it’s important to put it into perspective. It is a singular event—not a series of events that are causing a long-lasting trend in the markets.

History tells us that this too shall end. And as the table below illustrates, disease outbreaks are usually followed by significant market gains.

Get Ready for some Great Bargains!
Consequently, the worst in the markets is probably close to being over. And as Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family is often quoted as saying, “The time to buy is when there is blood in the streets.”

And I believe that time is right now. But there are a few steps that I would first recommend before you plunge back in.

First, although there may be some exceptions, you shouldn’t sell your stocks during this period of upheaval in the markets. Trading stocks in this kind of market can be a crap shoot, as it’s panic selling, which rarely works out well for the individual investor. Friends who sold their stocks during the 2007-2009 recession (against my advice) are very sorry today. Right now, you have paper losses; if you sell at these lower prices, you will incur real money losses.

As I said above, this downturn is temporary. It wasn’t caused by problems in the economy. Prior to the coronavirus outbreak, we were enjoying a bull market, low inflation, and an enviable unemployment rate. And while I can’t predict when we will get back on track, I know that it will happen.

So, for most of us, that means we should hold tight to our stocks. However, there are…

A Few Reasons to Sell
There may be a few stocks in your portfolio that you may want to sell, but not because of the recent market troubles. Your reasons should be the reasons you should sell them in any market.

In this kind of market with few endemic fundamental problems, the primary reason to sell a stock is this: If the fundamentals of the company have deteriorated to the point where you do not think it can recover after the coronavirus pandemic is over.

For most of your stocks, selling is probably not the right thing to do at this time. But if you are holding shares in companies in which the fundamentals of their business were teetering on the brink of insolvency before the coronavirus hit us, then, face it, they are the likely companies to fail and not be able to spring back once we start our recovery phase.

Some of these failing indicators would be:

• Were they losing money before the outbreak?
• Are they overloaded with debt?
• Were revenues shrinking before coronavirus?
• Are they in a sector that was suffering before the pandemic?

Now, if your stock doesn’t fall into any of the above categories, I would put it through these last three tests:

1. Are all the reasons I originally bought this stock still in place?
2. Is my price target still valid?
3. Can I make more money by retaining the stock than by substituting another investment?

If the answer to any of those questions is no, it’s time to bail, and go on to investments with greater potential.

If you are still happy with the company and satisfied with its potential, then keep the stock. If not, sell it and look for greener pastures—which, right now, are plentiful.

Look at the Big Picture
We’re not quite ready to begin a buying frenzy, but while you may have a bit more time on your hands right now, I would recommend that you sit down with your portfolio and spend some time reevaluating all of your holdings, with the goal of rebalancing and repositioning your portfolio for the coming bull market.

This is a step that so many investors ignore—to their peril, but it should be done at least once a year, and now is a perfect time to do it!

During the tech boom of the early 2000’s, technology companies were chased to the stratosphere by investors who had no idea what they were buying; they just saw triple-digit overnight gains, and jumped right in. But the signs of the bust were everywhere. I saw price-equity ratios as high as 1,500. Famed investor Warren Buffet stayed out of the fray, cautioning investors not to buy “what they couldn’t explain to their grandmothers”.

I interviewed a founder of the Real Estate Investment Trust industry during those heady days and asked him if he was buying any properties in the Silicon Valley area. He laughed, and said, “no, I wouldn’t touch them with a 10-foot pole; companies in the high-tech corridor have no cash; they want to pay rent with their stock options!”

It’s always important to look at investing from a macro point of view. It doesn’t matter if you have the greatest company in the world, if global markets and economies-or even the company’s sector—are trending down. It’s imperative—as I said above—to look at the big picture. And that means you must be flexible.

As you can see from the chart below, if the economy is in a growth stage, cyclical stocks, technology, and financial companies might be good bets. Alternatively, in a sustained recession, you might be more rewarded by buying utilities and energy.

And now that our economy and markets are truly global, that means it is essential that you also take into account what’s happening around the world and how it may impact your investments.

Do you know your Risk Profile?
But before you tackle your portfolio review and rebalancing your investments, let’s talk about you. Most investors just buy stocks willy-nilly, without a thought if they are right for them. For instance, do you consider yourself a nervous Nellie? Was your first thought after the recent market tumbles, “sell, sell, sell?”

And while no one is happy with the markets right now, are you the type of investor who is feeling pretty confident that this is just a temporary event, and you are able to just step back, take a deep breath, and realize that the market will spring back?

Another question—during the bull market of the last few years, were you able to keep cool during the periods of volatility when some of your stocks may have lost 20%-30% overnight? Or, did you jump right in to sell them?

These are serious considerations. Your investing life will be much more gratifying if you own the kinds of stocks that fit your risk profile. And I’ve designed a pretty easy quiz that will help you determine just that. Why not take a few minutes right now to figure out just what kind of investor you are?

Allocate your Portfolio Based on your Risk Tolerance
Now that you have determined your personal risk profile, it’s time to look at some ideas of how to structure your holdings to make your investing life less stressful and more enjoyable.

Here are some sample portfolios from Charles Schwab that offer some ideas on allocating your holdings according to your risk tolerance.

Your Age may also Determine your Portfolio Allocation
For many years, investment pros recommended a drastic decrease in stocks with an aggressive increase in bonds, as folks aged. Here is the conventional model:

But as the mortality rate has increased, your money has to last longer, so today, investment advisors are recommending retaining more stocks and fewer bonds as we age, as shown in this table:

Charles Schwab also has some ideas, broken down a bit further, for a few ideal portfolios structured for your golden years.

Can you see one of these working for you—maybe a bit different than your current holdings landscape, but one that might make you a happier investor?

Review and Rebalance your Portfolio
Now let’s take your risk profile and your preferred portfolio composition and compare them to your actual portfolio to see if they match up.

Don’t be surprised if they don’t, as I promise you, most investors who take these steps will undoubtedly need to make some major moves to get their portfolios aligned with their true investing risk profile.

To review your portfolio, start with a list. List your holdings by cash, bonds, mutual funds, and stocks. Next, industry/sector, market cap, U.S., emerging market, international, style: growth, value, growth and income, 3-year, 5-year, 1-year, and year-to-date returns (those will soon change for the better!), and what percentage of your portfolio that particular position holds.

For your mutual funds and ETF’s, write down the names of the companies—and how much of each the fund holds, as well as their investing style/strategy.

You can certainly do this easily on an Excel or Google spreadsheet or an easier option is on your brokerage firm’s site. If not available there, Morningstar.com has a neat—and easy—Instant X-Ray tool morningstar.com/instant-x-ray that gives you a pretty cool snapshot of your portfolio. It includes a breakdown by industry/sector, market cap, and investing style. And it shows you the year-to-date return of your holdings. To find the other returns I mentioned, you can just input your stock symbols. The site will also show benchmarks to see how your holdings are doing compared to peers. And it’s FREE!

You might also consider reviewing how your holdings are ranked compared to similar investments in the same industry. Analyst ratings are easy to find for stocks, mutual funds, and exchange-traded funds. Morningstar has a 5-star ranking system; Yahoo Finance offers a 1-5 rating scale based on Wall Street analyst reports. But consider, please that especially with analyst rankings, they are not always unbiased.

For bonds, credit rating agencies provide ratings, but know also that while they are probably better than they were prior to the 2007 recession, they are also not the be- and end-all of an evaluation.

For an unbiased review of the quality of your investments, please be prepared to use a trusted advisor or newsletter, or just roll up your sleeves, and dive in!

And don’t forget about investment fees—commissions, loads, fund fees, and potential taxes. They can make a big difference to the profitability of your holdings.

Now that you have a complete picture of your holdings, it’s time to see if they do match up with your preferred risk and age allocation.

If so, great!

If not, you may need to do some rearranging, including adding some diversification to your portfolio. Where are you over- and under-allocated? Do you have too many growth stocks, small cap stocks, mutual funds or ETFs that cover the same sectors, and maybe companies?

Now, since the markets—and probably most of your stocks—have suffered during the economic toll the pandemic has caused, please don’t start selling and buying. Let’s just get organized and ready for when the market bounces back. And as that happens, you’ll want to update your returns on your spreadsheet so that you get accurate numbers.

A couple of things to consider—once that happens. Has your current portfolio met your investing goals? If not, you’ll want to sell those holdings that are not measuring up. And don’t forget liquidity. This market rout has taught us, once again, that cash is king. So, please make sure you have liquid assets—always—of six months to one year, so that you have flexibility.

Reallocate with Sectors likely to Outperform
I took a look at the best- and worst-performing sectors and stocks—since the beginning of the year.

Best- and Worst-Performing Sectors
The best:
Sector Year-to-Date Return
Utilities -4.9%
Healthcare -6.4%
Technology -6.6%

The worst:
Sector Year-to-Date Return
Energy -42.3%
Financial Services -23.4%
Industrials -21.8%

As you can see, at this point, none of them look very attractive. But the market will spring back—that’s what you need to know.

In the meantime, I suggest that you be judicious in your purchases. Until this shakes out, I would avoid stocks in the following sectors:

• Entertainment
• Cruise lines
• Airlines
• Hotels

But if you see something that looks like a great price—and it fits in with your portfolio strategy, feel free to nibble a bit. You could certainly take a gamble on some Healthcare stocks that may be in the run for a coronavirus antidote or vaccine, but that could be a pretty risky bet (usual in the biotech industry). Or you could buy Netflix (NFLX), like many investors have, as folks are staying in right now, but that is probably a temporary bounce.

But once the market begins to show signs of sustainable growth, many sectors will look pretty interesting, as the majority of stocks will have pulled back to very buyable levels.

At that time, it will be the perfect opportunity to unload the stocks that don’t meet your needs and pick up some that will be welcome—and profitable—additions to your portfolios.

And I have a few ideas in that respect.

Some Investment Ideas
As the chart above shows, during a bull market, sectors that often fare very well are:

Transportation. I think we will certainly see the airlines and trucking companies, even railroads, spring back once the pandemic is on the downside of the curve.

Financial. These companies may take a little longer. They struggled for a while in the previous bull market and had just found their feet when the virus struck. However, there will be some—especially the asset managers—who should fare very well with a new bull market.

Technology. Certainly, there will be a lot of spending, as companies have tightened their belts right now. So, look for, some exceptional growth in this arena.

Capital Goods. Just like with tech companies, demand is pent up, and once released, these stocks should do well.

As for individual stocks, I think you’ll see that once you’ve analyzed your portfolio you may need to add a few stocks from several investment styles. So, we’ve put together some ideas for you here.

Growth. A growth stock is a stock whose earnings are expected to outpace the market average, or, often, companies that are not yet profitable, but are seeing tremendous revenue increases. Earnings growth (or the expectation of earnings growth) is the biggest determinant of stock price appreciation. Consequently, companies whose earnings are growing—or anticipated to grow at a fast pace, all other market and economic factors being equal, should also enjoy above-market returns on their share prices.

The average annual market gain for the S&P 500 Index (an index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ) is 9.8% over the past 90 years. Therefore, a growth stock would be expected to enjoy higher returns than the market average.

Growth & Income. These are stocks that have growth potential and pay a steady dividend, allowing investors to cash in in two ways: appreciation and dividends.

Value. Value investors believe that the market is not efficient while growth investors belief stocks reflect all there is to know about that company, meaning they are always priced at their true value. That’s called the efficient-market hypothesis. But successful value investors like Warren Buffett, chairman of Berkshire Hathaway, have disproved that concept many times over. They know that occasionally, stocks are underpriced or overpriced relative to their true value, providing investors with great opportunities to ‘buy low’.

Speculative. These stocks are generally higher-risk, more aggressive stocks with uncertain prospects. But they also can provide significant returns to investors, so I call them ‘my fun stocks.’ They are stocks that might turn into ‘ten-baggers’ or you may lose all of your money, so they need to be just a small portion of your portfolio.

These companies look interesting to me, and I think they all have great potential. But only you can know if they fit into your personal risk profile and investment strategy. Try a few on, and watch your portfolio grow!

7 Ways to Build and Protect Your Wealth

We’re veterans of the stock market, having been at it since 1970, and having studied (and re-studied) market history for decades. But most investors are newer to the game, having only invested for the past five, 10 or 15 years, so the 2000s have been a bit of a shock—we started out with the biggest bear market in a generation, enjoyed a solid-but-choppy bull market from 2003 to 2007, and had another generational decline in the summer and fall of 2008, followed by a bull market that lasted more than a decade…and then suddenly came to a screeching halt when the coronavirus arrived and caused stocks to lose over one-third of their value in barely more than a month!

All told, many stocks and sectors were decimated during those three bear markets, leaving most growth investors to wonder if there is any way to protect their wealth.

The answer: Yes—if you have a proven system and have the discipline to follow it. While the market is sure to be challenging, we know we have the tools and tactics to make it through in fine fashion. In fact, these rules helped us mostly avoid the coronavirus crash, and had previously helped us take advantage of the decade-long bull market.

Below are seven relatively simple steps that will help you preserve (and, more importantly, build) your wealth in the months and years to come. Nothing below is necessarily new … but that’s the whole point. Most investors look for the new, exotic system, but over time, it’s the basic, straightforward advice—and, again, the discipline to follow it—that gives you above-average returns.

1) Pay Attention to Market Timing

Years ago, when we were researching market timing systems, we came up with the Cabot Tides, which determine via a series of moving averages whether most stocks are trending up or trending down. We overlaid the signals from the Tides on top of a performance chart of our Model Portfolio and made a stunning discovery—nearly every large decline in our portfolio came when the Tides were negative, while nearly every major upmove came when the Tides were positive.

Of course, we immediately began implementing the Cabot Tides into our system, and we’re glad we did. Following the Tides guarantees that we’ll never miss out on a major bull move, and also guarantees that we’ll never stay bullish during a major drop. But most investors ignore market timing, buying into the “I must be a long-term investor” gibberish from Wall Street.

We consider ourselves longer-term investors … but if the market turns down, most stocks are heading down with it, and thus selling your weakest holdings and raising cash protects your portfolio from the possibility of a devastating decline. We did just this in early 2008, and again in 2020!

2) It’s OK to Be Wrong – But Not to Stay Wrong

Being an investor is not like being a doctor or a lawyer. In those professions, you must be nearly perfect in order to excel. But investors can be highly imperfect and still make a fortune in stocks. The very best investors are wrong 30%, 40% and even 50% of the time, as a matter of fact.

But the difference is that the best investors recognize when they’re wrong (because they have a loss), and they correct that mistake—by cutting the loss short! By consistently cutting all losses short, the smart investor is basically like a baseball team with great pitching; since the other team can’t score many runs, all it takes is a few base hits to win. Similarly, all it takes is a few mild winners to more than make up for the small losses … and a few homeruns can really goose your overall performance. So remember that it’s OK to be wrong, but not to stay wrong—cut all losses short.

3) Inverse ETFs Can Help You Hedge

In recent years, some new, exciting vehicles (dubbed inverse ETFs) have been launched by ProShares. These are exchange traded funds (they trade just like stocks) that track a given index. But here’s what’s special: Some of the funds are leveraged long funds, so if the S&P 500 rises (or falls) 1%, the fund will rise (or fall) 2%. In terms of protecting capital, there are also funds that do the opposite; if the S&P 500 falls 1%, the fund will rise 2% (and vice versa).

The benefit to you is that you can easily hedge part of your portfolio with these inverse funds. Just be aware that you only need to invest half as much, since the funds will be twice as volatile as the index. When our market timing indicators turn negative, it might pay to buy a small position of the leveraged inverse S&P 500 fund (symbol SDS), Nasdaq 100 fund (QID) or Dow Industrials fund (DXD), to hedge your exposure.

4) Take Partial Profits

All the books tell us that investors like to sell their winners quickly … but we’re not so sure. Our experience is that when a stock has been good to them, investors hate to sell. Selling effectively means the investor has given up hope that the stock will move even higher, which is against human nature.

Thus our advice is to take partial profits on the way up. If you buy a stock and it rises 15% or 20%, consider selling a small piece, maybe 10% or 15% of your shares. If the stock continues to rise, you can cash out some more. There’s no magic percentage gain at which you should sell, and you want to hold onto most of your shares if the stock is acting well, but taking a few chips off the table on the way up—called offensive selling—is a great way to book a few profits and lessen your position, making the eventual final sell decision that much easier.

5) Follow a Plan during Earnings Season

It used to be that earnings season brought about some minor changes to stock prices—maybe a small jump here, or a little decline there, but nothing too serious. But ever since Regulation FD (fair disclosure) became law a few years ago, many stocks will move 10%, 15% or more depending on how their earnings are received. If you’re running a concentrated portfolio, it can literally make or break your performance for the quarter.

There’s no perfect way to handle earnings season, but we think you should avoid buying many shares just before a firm reports its quarterly earnings (it’s just too risky). And, if you find yourself owning an uncomfortably big position just before earnings are about to be announced, there’s nothing wrong with selling some of your shares (maybe 1/4 or 1/3 of your holding) to lighten the load. Lessening your risk a little during earnings season can help smooth out your returns.

6) Strong Fundamentals are Key…

Too many investors buy a stock because they’re familiar with the company, or because the company is talked about regularly in the financial press. But the big surprise is that many well-known firms often have deteriorating fundamentals, such as decelerating sales and earnings growth, shrinking margins and increased competition. The result can be generally lackluster performance, as institutional investors slowly move out of their position in these favorites and into new, younger, faster-growing companies.

Thus, you could have protected yourself against most of the horror stories seen during the 2007- 2008 bear market by focusing on companies with solidly growing sales and earnings. (All those brokerage, bank, homebuilder and airline stocks that plunged had horrible sales and earnings, so you would have avoided such sectors.) Remember that institutional investors, who control billions of dollars, are always interested in what’s new, what’s revolutionary, and what’s showing exceptional growth. If you focus on those types of names, you’ll be fishing in the same oceans as they are.

7) … And So are Strong Technicals

Last, but certainly not least, one of the best ways to hold onto and build wealth is to focus on stocks that are acting well—those that are outperforming the market during the past few months. We know that’s counterintuitive, but the market is a contrary beast, meaning its action is very often the opposite of what you expect. Bottom fishing is always tempting; after all, our whole economic lives have generally revolved around getting a bargain. Yet studies have shown that buying beaten-down growth stocks rarely works out.

Thus, you should only buy issues that are trending higher. Historically, all our biggest winners were initially bought after they had already had a solid upmove in the prior few months. It’s true! But we don’t just buy something that’s soaring to the heavens. You should strive to buy these strong performers during normal (5% to 15%) pullbacks that generally last one to three weeks (at least if you’re in a bull market). That way, you’ll be getting into a stock that’s under strong accumulation, but is suffering from some temporary profit taking.

None of these seven tactics are secrets, or super-complex methods. They’re relatively easy to understand, but the key is following them. Too many investors buy a few stocks and then put everything on cruise control. Sometimes that can work, but you’re better off spending time reviewing your stocks, cutting all losses short, and making sure they’re all strong, fundamentally- sound names. If you do that, you’ll be ahead of 90% of investors, and you’ll be in position to not just hold onto your hard-earned money, but to earn terrific returns during bull markets.

How to Be a Successful Investor for Life

My job as a chief analyst is to pick one great investment every week, chosen from the recommendations of our team of stock analysts.

But successful investing involves much more than just stock selection, so I urge you to read the following tips, the distillation of a lifetime in this business. And then re-read them as necessary over time, so that you can truly make the best use of my recommendations.

1. Recognize that perfection in investing is impossible. Not all your investments will be winners. Losses are a normal part of the business. Your goal is to ensure that your profits outweigh your losses, and the best way to do that is to have an investing discipline.

2. Determine whether you’re dealing with a value stock,or a growth stock.

3. If it’s a value stock, buy only when the stock is undervalued. Fellow analyst Crista Huff bases her value measurements on earnings—seeking stocks with low prices but strong earnings growth, which will boost the stock’s price.

4. If it’s a growth stock, buy only if the stock’s main trend is still positive. If the news is good but the stock’s behavior is not, trust the stock. Remember that the stock market is always looking ahead, and that your best guide to the company’s future news is what the stock itself is doing today.

5. In healthy bull markets, remain heavily invested, remembering, again, to ignore the news. In bear markets, hold a large cash position, remembering that capital preservation is goal #1. And remember that bull markets always begin when the economic news is lousy, and bear markets always start when the news is good. Again, the market is looking ahead. So learn to trust stock charts.

6. With value stocks, diversification is highly recommended. Because the timing of their advances is unpredictable, holding dozens of value stocks means the average value of your holdings will appreciate over time. Contrarily, with growth stocks, concentration is advised. Five growth stocks can be plenty, particularly if they are in different industries, while 12 growth stocks is probably the maximum you should contemplate.

7. Sell your value stocks when a stock is fully valued based on the company’s earnings outlook.

8. Sell your growth stocks in the following circumstances:

1. when the stock’s uptrend ends, as signaled by a substantial high-volume drop below a previous support level
2. when the stock fails to outperform the broad market over a period of 13 weeks
3. when a profit of 100% or more has been cut in half
4. when your loss exceeds 20% in bull markets and 15% in bear markets.

9. Getting a little more sophisticated, take partial profits in growth stocks that have temporarily become highly overbought, often because of a very strong market or particularly good news about the company. Similarly, buy more shares of growth stocks in which you have profits when they have been through a normal correction and are presenting low-risk entry points.

10. Don’t fall in love with your stocks, regardless of how big your profit or how well you think you know the company. The worst place to focus your investment is your own employer’s stock, as it concentrates your risk.

Understanding Financial Statements

In my investing seminars, I make it a point to ask my audience for a show of hands to find out if they actually read the financial statements sent to them by the companies in which they invest. The answer is invariably about 3%-5% of the attendees. That is an abysmal percentage, yet completely understandable.

Just the thought of reading and comprehending the small print, convoluted charts and the seemingly-endless gobbledygook of the legalese contained in the pages of 10-Ks and annual reports can put a glaze over the eyes of even the most avid of investors.

However, the rapidly-changing, instant-information, highly-competitive age that we live in today necessitates that astute investors gain a thorough understanding of their investments. And financial reports—although historical in nature—are very important barometers for gauging just how well, or poorly, your companies are coping today, as well as good indicators of future performance. Consequently, you should learn to read them for one very important reason: to become a better and more profitable investor.

In the pages of these reports, you will find numerous tidbits that will give you a wealth of information about your company’s most recent, current, and future strategies, actions, and results. And armed with that information, you can make much better investing decisions, which will hopefully translate into increased portfolio returns.

I hope to convince you of two critical points: the importance of staying on top of the financial health of the companies in which you invest, and how easy it is to do that. Now, you may be surprised, but I promise you, once you get the hang of knowing just where to look and which parts are important, you will be breezing through the thickest of financial reports in less than an hour. So, where do you start?

Very simply, at the beginning—with the 10-K—the summary of a firm’s performance that the Securities and Exchange Commission (SEC) requires every public company to submit 60-90 days after the end of its fiscal year.

The 10-K incorporates the data from that nice, shiny-paged, colorful annual report that most investors receive from the companies in which they hold stock. If your companies don’t mail them to you, you can easily access them—for free—either through the companies’ own websites (generally, in the Investor Relations section) or through the SEC at:

https://www.sec.gov/edgar.shtml

Before you start your exploration, you need to know that the financial statements for just one year won’t give you a very complete picture of the company’s status. For a thorough review, you really do need to compare at least 2-3 years’ worth of data. So, pull up a 10-K, relax, and let’s go investigating:

The easiest way to tackle a seemingly-complex task is to break it down into manageable tasks. Fortunately, the 10-K is already divided into four primary sections:

Part I includes Business; Risk Factors; Unresolved Staff Comments; Properties; and Legal Proceedings.

This section will provide details on the company’s revenues, marketing plans, major products, competition, and risk factors. If you compare it from year to year, you will be amazed at just how much you can learn about the changes in the firm’s strategies, product lines, and where it stands among its competitors and its marketplace.

You will also want to keep a keen eye on the firm’s legal proceedings. In today’s world, it’s not unusual for a business to be involved in lawsuits. What you need to know is how much the proceedings could potentially cost or earn them, and if that amount will have a material effect on the company. If a business doesn’t or can’t answer those questions, you may want to reconsider your investment.

Part II includes Market for Registrant’s Common Equity and Related Stockholder Matters; Selected Financial Data; Management’s Discussion and Analysis of Financial Condition and Results of Operation; Quantitative and Qualitative Disclosures about Market Risk; Financial Statements and Supplementary Data; Changes in and disagreements with Accountants on Accounting and Financial Disclosure; Controls and Procedures; and Other Information.

The most important part of this section is management’s discussion of the most recent reporting period, as compared to prior years. Here, the company will provide details of the major events affecting its operations, such as divestitures and acquisitions, which, when compared to previous years’ reports, will give you a good sense of the firm’s ongoing growth strategies. Any restatements of financial statements will also be noted here, and you’ll want to make sure that will not create an ongoing problem for the business, nor is it a regular occurrence.

Next, you get to the heart of the report—the financial performance summary of the company and the events that affected it, good or bad. This will include an analysis of income and expenses, margins, changes in debt, liquidity, capital, leases, taxes, pension plans, accounting changes, related-party transactions, and executive compensation.

Here, you will want to watch for out-of-the-ordinary changes that may have a major impact on the company’s bottom line. Are expenses, as a percentage of revenues out of line? Are margins steady and growing? If the company has taken on large quantities of debt, is it funding growth of sales and earnings, or is it just creating more interest payments?

Pay special attention to the pension section to make sure the company is on top of its funding and hasn’t squandered the pension monies of its retirees. If it falls behind, one day it will have to play catch-up. Related-party transactions can also be of importance, to ascertain if a company’s shifting money among subsidiaries is on the up-and-up or suspicious. You may also find out if the firm is making unwarranted and unethical loans to upper management or directors.

Lastly, executive compensation needs to be reasonable. You will have to consult the company’s Proxy statement for complete details, but it’s a worthwhile task. Just ask yourself, is the executives’ pay (including options) in line with the revenues and earnings the company is producing?

Part III includes Directors and Executive Officers of Registrant; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management; Certain Relationships and Related Transactions; and Principal Accountant Fees and Services.

Take a good look at your company’s directors and officers. Is there a revolving door at the firm? If so, it could mean tumult in the management suite or board room and may create havoc in the company’s finances. Or has the company’s management been around too long—fat and happy—without the drive and ambition to continue making the company successful?

It’s always interesting to see the level of, and changes, in management and beneficial owners’ shares. Are they buying or selling? How many shares do they have left? Is management putting its money where its mouth is? Beware of companies whose key management members do not invest in its shares.

Next, does the company change auditors frequently? This is a potential red flag and could possibly portend doom and gloom for the financial health of the business. Note that this information may not be complete in Part III; you may be referred to the company’s proxy statement or an exhibit accompanying the 10-K.

Part IV includes Exhibits, Financial Statement Schedules.

In this section, you will find detailed financial statements. Please read them and compare them, year-over-year. Look to see how the individual accounts have changed. On the income statement, pay attention to changes in operating income, including cost of sales, and increases or decreases in selling and administrative and operating expenses, as a percentage of sales. Can the company easily cover its interest expenses? Is income growing because of increased sales, lowered expenses (including taxes), or both?

On the balance sheet, review the changes in inventories, accounts receivables and payables, which will give you a good read of the company’s efficiency. Again, run a keen eye over the firm’s debt levels. Is short-term debt growing too quickly and staying in place too long? Do goodwill and intangibles look reasonable?

The cash flow statement has one primary purpose—to show you where the company received cash and how it spent it. The most important line is Cash Flow from Operations. This is the cash that a company takes in from its day-to-day business. If it is an amusement park, the cash is from ticket, merchandise and food sales. Is this number positive; is it trending positive, from year to year? It’s great if a firm is making money from real estate sales or investments, too, but the bulk of its cash should be derived from the business for which it is in business.

Although a company’s 10-K is much more comprehensive than space allows me to review here, these pointers will considerably aid you in your search for good investments.

And I hope this information will encourage you to become regular readers of your companies’ financial statements. This process will give you greater insight into their current strategies as well as future possibilities. Once you have read a handful of these reports, you will begin to have a much better understanding of what makes a good company good and a bad company bad.