Weekly Financial Market Commentary

April 12, 2022

Our Mission Is To Create And Preserve Client Wealth

Some Scary Grains of Truth

The Pain …

Perhaps we need to brace ourselves.

A slew of reputable sources are painting bleak pictures. Not just of the U.S. economy. But of the global economy. Pain peeks just over the horizon.

Bloomberg pulls no punches:

Global food prices are surging at the fastest pace ever as the war in Ukraine chokes crop supplies, piling more inflationary pain on consumers and worsening a global hunger crisis.[1]

In Ukraine, there’s the Black Sea Breadbasket Region. “Ukraine exports over 50 million metric tons of corn and wheat to the world, and Ukrainian farmers would normally be planting crops right now. With Putin’s invasion, that is unlikely to happen.”[2]

A photo in The Times of Israel shows what’s at stake.

“Farmers harvest with their combines in a wheat field near the village Tbilisskaya, Russia, July 21, 2021. (AP Photo/Vitaly Timkiv, File).”[3]

As Russian troops invaded Ukraine, breadbasket farmers were forced to neglect their bountiful fields; they had to fight or flee. The Ukrainian government announced that men 18 and older had to remain and take up arms. So farmers had to put get off their tractors and put down their scythes and sickles.

The war has thus upended “global trade flows and [has] fuel[ed] panic about shortages of key staples such as wheat and cooking oils. That’s sent food prices— which were already surging before the conflict started—to a record, with a United Nations’ index of world costs soaring another 13% last month.”[4]

And it’s not just food prices that are soaring. The inflation report of April 12 should put a pit in all our stomachs.

Inflation rose at the fastest pace in 40 years  in March as consumer prices jumped 8.5%

The consumer price index leaped 8.5% annually, the fastest pace since December 1981, the Labor Department said on Tuesday, likely cementing Federal Reserve plans for an unusually large half-point interest rate hike early next month. That increase is up from 7.9% in February and inflation now has notched new 40-year highs for five straight months.

Prices rose 1.2% from their February level, the sharpest monthly increase since September 2005. [5]

It goes without saying: The stock market does not like huge inflation numbers.

… Of No Gains

There’s pain ahead.

Russia has blockaded the Black Sea, so the strain on the global economy goes beyond food shortages.

Putin’s blockade in the Black Sea is an act of economic warfare against the world. Any shipping restrictions in the Black Sea will not only slow trade but will also make it more expensive. Countries in the Middle East and Africa rely on the Black Sea trade for critical supplies such as wheat. Even the U.S. relies on Black Sea trade to export more than $130 million of poultry products to Central Asia and other countries in the region.[6]

… Stays Mainly

Sunflowers also suffer. Who cares about sunflowers?

Sunflower oil is a key ingredient in all sorts of foods. Ukraine provides nearly half the world’s supply of sunflower oil. Russia’s invasion has set the sunflower oil industry in turmoil.

Thousands of items, also including ready meals and even wrapping paper, use sunflower oil. Prices are surging and the ingredient will only become more scarce from the summer as Ukrainian farmers may struggle to grow and export the crop. [7]

Companies like Martin’s Snacks that rely on sunflower oil will be particularly vulnerable. Ukraine is the largest exporter of sunflower oil in the world, responsible for up to 46% of sunflower-seed and safflower oil production, according to the Observatory of Economic Complexity. The second largest producer is Russia, which exports about 23% of the world’s supply.

Sunflower oil is now $1.28 per pound, versus the $0.60 it cost in September 2020. [8]

…In the Grain

But grain remains the key. Wheat and corn. The staples of the world.

According to Bloomberg;

Russia’s invasion has caused a humanitarian disaster in Ukraine and disrupted trade in foods across the world, sending wheat and corn prices to the highest in a decade. Ukraine is a key supplier of grains to countries in the Middle East. Meat prices are also under pressure as the cost of the feed used for cattle and pigs rises. 

The two countries are key players in certain major global industries, like computer chips, sunflower oil, grains, petroleum, and wood. Together, they account for more than a quarter of global wheat exports. Ukraine produces somewhere around 70-90% of the world’s neon gas, which is a vital component of the microchips used to manufacture smartphone and computer screens. Russia is responsible for 13% of the world’s crude petroleum exports, which means anything that requires transportation at any stage of production—almost everything—will be impacted. Penfield predicts inflation may hit 11% by the end of the year.9

The Pain of No Gains Stays Mainly in the Grain

Investors, brace yourselves. Don’t expect assets to show any gains in 2022. The real challenges lie not in seeking gains but in avoiding gargantuan losses. We can’t expect the disaster unfolding in Ukraine to cause just a blip in world stock markets. We might just see lots of red in charts with arrows pointing only in one direction: down.

Avoiding the Pain of Losses

Here at Research Financial Strategies we will turn all our analysis and energies toward preserving the capital of our clients.

The RFS strategy of concentrating in three themes in energy, oil and natural gas; commodities, food, groceries, wheat, corn, sunflower seeds, etc.; and metals and mining, aluminum, steel, copper, lithium, platinum, palladium, uranium, etc., have all paid off recently.

No gains certainly cause pain. But that’s nothing like the pain of losses.

As always, we encourage you to pass this email along to family and friends. We would welcome the opportunity to help them preserve their hard-earned assets.

How Are Your Investments Doing Lately?  Receive A Free, No-Obligation 2nd Opinion On Your Investment Portfolio >

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
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Special Update

Special Update


You undoubtedly have heard reports that the world’s supply of wheat and corn are in jeopardy due to Ukraine and Russia both missing this season’s planting window for obvious reasons (click the link above to read more details). 
Did you know that Russia and Ukraine together supply

  • 30% of world’s supply of wheat
  • 17% of corn
  • 32% of barley
  • 75% of sunflower seed oil

You may not have heard; fertilizer, which is needed worldwide including the USA, is also in very short supply due to the war. 
The falling domino fallout of the Russia/Ukraine war is eye opening to say the least.
Falling domino #1, just in the past four weeks, prices have skyrocketed sending

  • wheat up 21%
  • barley up 33%
  • fertilizer up 40%

Falling domino #2, Brazil and Texas are cutting back on their use of fertilizers.  As you can imagine, that action will impact this season’s crop size at harvest time.

Falling domino #3, with smaller crop yields, there will be less feed for livestock and poultry resulting in lower animal weight and thus less chicken, eggs, turkey, pork, and beef in stores.  You’ve already seen rising prices this year on gasoline, would it surprise you to see the same with your groceries?

Falling domino #4, speaking of gasoline and energy.  Since January 1st of this year

  • Oil is up 39%
  • Natural Gas is up 56%

 Falling domino #5, cars, computers, TVs, phones, etc. require precious metals.  Since January 1st of this year

  • Nickel is up 65%
  • Aluminum is up 56%
  • Steel is up 27%

As the dominos rain down, prices and inflation will continue to rise.  Is it the worst idea to tighten your budget, set aside more money, and ready yourselves for a rough time ahead?

You may be worried about your investments and how they will fair amongst all of this chaos.  We too are taking precautions.  You’ll think we’re a bit mercenary or even morbid; however, we have positioned your accounts to benefit from this very sad and desperate situation. 

You’ll find your accounts invested in commodities, metals, and energy.  As inflation rises and the war rages, these positions could be buoyed by rising prices and falling dominos.  We may be wrong about the war’s impact and we hope we are; however, until we see otherwise, we’ll continue to position your assets in what we think offers the most opportunity for success while safeguarding against catastrophic losses.

If you wish to discuss this or any specific symbol in your portfolio, please do not hesitate to call.

Special Update

Canaries in the coal mine!

Inflation and Other Hot Topics

When Your Dollar Shrinks

The best of financial planners must consider what happens to investors when their dollar begins to shrink. They planned on spending a certain amount per month in  retirement, for example, but … oops … the prices of gasoline and Cheerios went through the roof. If a set amount of dollars buys less, then the only solution is to increase the number of dollars available. Otherwise, the quality of life shrinks along with the U.S. dollar.

How to increase the number of dollars available? How to give yourself a raise?

Well, that’s what we’re here to do for you, our client. And we remain proud of, and steadfast in, that duty, especially these days when inflationary trends are sounding the alarm.

The Federal Reserve Beige Book

According to the Fed’s Beige Book, the recovering U.S. economy is grappling with significant labor shortages and higher prices for consumer goods.

The Outlook

The Federal Reserve’s latest deep dive on the economy confirmed the obvious: U.S. economic growth is picking up steam, but the recovery is being restrained by widespread shortages of labor and supplies.

While the economy has made a lot of progress, Fed Chairman Powell said on Wednesday that it still needs a lot of support from the Fed. He pointed to the millions of people currently out of work.

The Big Picture

The economy has plenty of momentum. Coronavirus cases are low, most government restrictions have been lifted, and Americans are spending plenty of money. Indeed, consumer spending accounts for about 70% of U.S. economic activity.

“The U.S. economy strengthened further from late May to early July, displaying moderate to robust growth,” the Beige Book said.

Cars and Trucks

In 2020, sales of used light vehicles in the United States came to around 39.3 million units. In the same year, approximately 14 million new light trucks and automobiles were sold here.

Currently, about 280 million vehicles operate on the streets of America. an increase of about 1.6 percent over the past year. The rising demand for vehicles means that used vehicle inventories are declining. The impact on prices is not surprising. Just last month, in June alone, the prices of used cars increased 10.5%. In the same month, new car prices rose 2.2%.


The construction industry in the United States accounts for 3.36% on the country’s GDP.  According to economic forecasts, construction in the United States will grow about 15.6% and amass a value of $1.515 trillion in 2021.

Although the construction and building materials industry in the United States has been facing challenges in the recent past that have slowed down its short-term growth, the medium and long-term growth in the industry is projected to remain relatively constant and positive. The expected compound annual growth rate will be 4.7% from the year 2021 to 2025. Moreover, the construction output for the US construction and building materials industry is projected to be as high as $1.819 trillion until the year 2025.

The Pandemic and the Building Industry

As the COVID pandemic has brought about a huge increase in outdoor renovation and construction projects, the demand for construction materials is also expected to rise. Consequently, the prices of construction and building materials have risen accordingly. The norm of social distancing during the pandemic has shifted people’s behavior from relaxing and entertaining visitors indoors to outdoors in patios, fire pits, and outdoor kitchens. Tents are in, ballrooms are out.

Even though construction activities have gained importance as the quarantine and lockdowns have lifted, the industry suffered significantly during the peak of the pandemic due to the weakened economy, disturbances in the supply chain, and delays in schedules. Contractors and construction workers suffered, too, as the lockdown required that they remain in their houses for months on end. Accordingly, the demand for building materials fell drastically.


Lumber prices turned negative for the year as demand cooled after a red-hot rally.[1] Lumber futures fell 5.6% on Monday, taking it 0.6% below where it started the year. Home improvement demand has dropped, while suppliers have raised production.

Lumber prices have dropped into negative territory for the year after two months of dramatic falls, as the home improvement boom cools and producers increase supply to meet demand.

On Monday, lumber futures for September delivery fell 5.6% to $712.90 per thousand board feet, Bloomberg data showed. The fall took prices 0.6% below where they started the year.

Lumber soared in the first few months of 2021 as Americans stuck at home due to the pandemic renovated their houses and a booming property market added to demand. Prices peaked at more than $1,730 per thousand board feet in May as suppliers struggled to keep up.

But since the May peak, prices have plunged almost 60%. Analysts have said that the loosening of coronavirus restrictions has caused consumers to spend less on home improvements such as new yard decking and more on services like dining out, getting haircuts, and even going to the movies.

The Housing Market Inflates

An inflation storm is coming for the U.S. housing market. Fast-rising housing costs have helped cause the largest increase in inflation since 2008. But the way that government statisticians track the price of consumer goods may be missing just how explosive home-price growth really has been in recent months.

The cost of shelter rose by 0.5% between May and June, according to the latest edition of the monthly consumer price index released Tuesday by the Bureau of Labor Statistics. Compared with last year, however, shelter costs were up 2.6%.

Altogether, the rise in housing prices accounted for roughly a fifth of the overall increase in inflation in June, a reflection of how heavily government economists weight this spending category.

But much of that increase was actually driven by the rising cost of hotels and motel stays, which are factored into the overall shelter figure. Between May and June, the cost of a hotel room increased nearly 8%. Comparatively, housing costs for renters and homeowners rose 0.2% and 0.3% respectively, per the government’s inflation measure.

The latest edition of the consumer price index indicated housing prices have risen 2.6% over the past year, while other reports suggest home prices are up more than 13%.

In 2021, buyers are driving up home prices and homes sell quickly. Some hyperactive buyers make offers without seeing the property and forego contingencies to win bidding wars in the highly competitive housing market. The record-low mortgage rates have really sparked the increase in demand, especially among millennials. And they are encountering a shrinking supply of available homes.

The housing market is still far from normal, with inventories down over 38% year over year and at historic lows. The current supply of homes on the market registers an all-time low, dating back to the turn of the century. Due to a lack of supply and decreasing interest rates or borrowing costs, home prices have continued to rise in double digits. With the recovering economy, more buyers are entering the market. And because of the still-limited supply of housing inventory, home prices continue to rise.

With increased supply, home price growth will gradually moderate, but a broad price decline appears unlikely. The housing market will continue to attract buyers as a result of the drop in mortgage rates, which have fallen below 3%, as well as an increase in new listings. According to Realtor.com’s Hottest Housing Markets data, as of June 29, the most improved metros over the previous year were Tampa-St. Petersburg-Clearwater, Fla.; Detroit-Warren-Dearborn, Mich.; Nashville-Davidson-Murfreesboro-Franklin, Tenn.; Riverside-San Bernardino-Ontario, Calif.; and Jacksonville, Fla.

·         The median existing-home price in May was $350,300, up a record 23.6% from May 2020.

·         Supply shortages are holding new home sales back.

·         New home sales fell 5.9% in May from April, to 769,000.

·         The median sales price of new houses sold in May 2021 was $374,400, up 2.5% from April and 18.1% year-over-year.

According to the latest data from the National Association of Realtors, existing-home sales in May declined 0.9% from a month before a seasonally-adjusted annual rate of 5.80 million from April’s rate of 5.85 million. The 0.9% setback in existing home sales in May was the fourth straight monthly decline. Only one major U.S. region experienced a gain in sales month-over-month, while the other three saw sales fall. Each of the four regions, however, saw double-digit year-over-year growth.

Although housing sales were up 44.6 percent year on year (4.01 million in May 2020), the comparison is heavily skewed because the housing market was effectively shut down for two months at the start of the pandemic. Last summer, the market recovered and remained strong for the rest of the year. In May 2021, the median existing-home price for all housing types was $350,300, up 23.6 percent from last May ($283,500), with price increases in every region.

This is a record high and marks 111 straight months of year-over-year gains since March 2012. The inventory of homes for sale remained relatively low. At the current sales pace, it would take 2.5 months to sell through available inventory—a slight increase from 2.4 months in April, but significantly lower than the 4.6 months of supply at this time last year.

The National Association of Realtors released research earlier this month from the Rosen Consulting Group, estimating that between 5.5 million and 6.8 million new houses are needed to meet the demand. “Home sales fell moderately in May and are now approaching pre-pandemic activity,” said Lawrence Yun, NAR’s chief economist.

Pending Home Sales Rebounded Strongly in May

According to the National Association of Realtors, pending home sales reached their highest level in May since 2005, with gains recorded in all four U.S. regions both month-over-month and year-over-year. Pending home sales increased by 8% in May compared to April and were up 13.1% year on year. Home sales activity had dropped at the same time last year due to the onset of the COVID-19 pandemic.

A pending sale status indicates that the seller accepted an offer from a prospective buyer but that the transaction has not yet closed. Many sellers will prefer to wait for the best and highest offer. Pending home contracts are viewed as a forward-looking indicator of the housing market’s health because they become sales one to two months later.

Existing Housing Sales in May

According to data from the National Association of Realtors:

·         In the Northeast, existing home sales decreased 1.4% in May, but the annual rate of 720,000 represents a 46.9% jump from a year ago.

·         The median price in the Northeast was $384,300, up 17.1% from May 2020.

·         Midwest existing home sales rose 1.6% to an annual rate of 1,310,000 in May, a 27.2% increase from a year ago.

·         The median price in the Midwest was $268,500, an 18.1% increase from May 2020.

·         In the South, existing-home sales declined 0.4%, posting an annual rate of 2,590,000 in May, up 47.2% from the same time one year ago.

·         The median price in the South was $299,400, a 22.6% jump from one year ago.

·         In the West, existing home sales fell 4.1%, recording an annual rate of 1,180,000 in May, a 61.6% climb from a year ago.

·         The median price in the West was $505,600, up 24.3% from May 2020.

New Residential Home Sales

Buyer demand for new homes remains strong, and builders in most markets have little trouble selling the homes they have built. However, supply constraints limit the number of homes they can build and eventually sell, and the sales volume they can comfortably take on without exposing themselves to additional price risks is somewhat limited. Still, new home sales have risen during the pandemic. Those sales allow builders to raise prices.

Buyer traffic is converting into sales at a record rate. Residential construction ended in 2020 on a strong note. Housing starts rose 5.8% to 1.67 million annualized units in December. Total starts were 2.8% higher than a year ago. The demand remains strong as the prime buying season begins to heat up. Sales of new single-family homes in the United States fell to a one-year low in May 2021, as the median price of newly built houses rose due to high raw material costs, including framing lumber.

New home sales decreased 5.9% in May to a seasonally adjusted annual pace of 769,000, down from an upwardly revised April rate of 817,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. Higher building costs, longer delivery times, and general unpredictability in the construction supply chain are now having measurable impacts on new home prices. The median sales price of new houses sold in May 2021 was $374,400.

The average sales price was $430,600. The seasonally‐adjusted estimate of new houses for sale at the end of May was 330,000. This represents a supply of 5.1 months at the current sales rate. The median sales price of new houses jumped 18.1% from a year earlier to $374,400 in May. The average sales price was $435,400. The seasonally adjusted estimate of new houses for sale at the end of April was 316,000. This represents a supply of 4.4 months at the current sales rate.

Because new house sales are recorded when contracts are signed, they are considered a leading housing market indicator. The decrease in new housing sales suggests that demand is diminishing. Applications for house loans have declined this year, as have housing market surveys of potential purchasers.

Shoes? Yes, Shoes

The global footwear market is a multi-billion U.S. dollar industry. The United States has the largest footwear market in the world, amounting to over 91 billion U.S. dollars in revenue in 2019. A part of the clothing and apparel industry, the footwear market is comprised of shoes, sneakers, luxury footwear, athletic footwear, and sporting shoes, as well as other related goods. Footwear products are commonly made of leather, textiles, and a range of synthetic materials.

Nike’s share of US footwear market is 17.9%. Pairs of shoes imported into the USA total 2.47 billion. Advertising spent in the US footwear industry totals $12.6 billion.

Brace Yourself

We don’t have to look far to see evidence of inflation. And we don’t have to wonder why prices are rising. When the Federal Reserve increases the U.S. money supply at an annual rate of 37%,[2] those dollars have to go somewhere. They go into the stock market, into real estate, into art works, and … into the gasoline for your car and the Cheerios for your breakfast.

When those prices rise, so too must your income.

We keep a constant eye on these developments and recognize our duty of making sure your wealth grows at a rate that will protect your standard of living.

If you’d like to review your assets, please call us at 301-294-7500. We are always happy to answer any questions you have.



[1] https://www.nasdaq.com/market-activity/commodities/lbs   

[2] https://mises.org/wire/us-money-supply-was-37-percent-november

Special Update

Special Edition – Year End Tax Matters

Making a List and Checking It Twice

As one of the strangest years ever thankfully draws to a close, it behooves us to take stock and see our situation as it now stands. A host of questions inevitably arise, the type that beg for our honest and, we hope, astute answers.

So let’s make a list. Look over each item and ask yourself how you stand. Try to envision any changes you think you should make. And for those questions that involve your account here at RFS, we invite you to raise them with us. Perhaps together we can come up with the perfect answer. You can always call me personally 301-294-7500.

Making a List

1. Do I Have Enough Cash?

Do you have enough cash available to pay for short-term needs. If not, you might raise cash by realizing some of the gains in your portfolio—either the one we manage or any self-managed accounts you might have. Potential 2021 changes to the tax laws—including significant increases in the capital gains tax—might make this the perfect time to set some gains at current tax rates. Any action along these lines must occur before December 31, 2020. See our Note in item #2.

2. Are Losses Really a Good Thing?

If you have other brokerage accounts, a careful look at your holdings might reveal some with that awful red color. Of course, everyone likes to avoid that color as best we can, but no one can predict where a particular investment might go. If a position does dip into the red, now might be a good time to sell it while at the same time selling some of those with that lovely green color. The red will cancel out the green, much to the tax man’s chagrin.

Note: We can look at any self-managed holdings you have and provide you with a “second-opinion” analysis. You might very well have some gains you should take and some losses to offset those gains.

3. Do My Retirement Accounts Need a Pick and a Shovel?

Retirement accounts can serve as your private gold mines. But to make those mines productive, you have to do some digging. Are you contributing as much as the law allows to your retirement accounts? If not, take your effective tax rate and multiply it by the amount you’re not contributing. The result is the amount you’re failing to find in that gold mine of yours.

Make sure you do some thinking and figure out if you’ve left some 401K or other retirement accounts at previous employers. These you should roll over into an IRA or other tax-deferred account.

Have you considered converting an IRA into a Roth IRA? Have you thought about gift-funding Roth IRAs to family members who have earned income?

4. How Can I Help My Family with the Costs of Education?

You might want to consider giving to 529 accounts for children or grandchildren. They can then enjoy tax-exempt growth if the account is used for educational expenses. You might even be able to “Superfund” these accounts by giving five years’ worth of exclusion gifts ($75,000 for individuals, $150,000 for married couples).

5. Am I Ready for Changes to the Gift-Tax Laws?

Right now, you enjoy an $11.58 million lifetime gift-tax exemption. But if you listen carefully, you can hear serious discussions in Washington about reducing this amount by 50% or more. Gifts now (before the law changes) can lock them in as free from gift taxes. And they can help reduce taxes by moving income-producing holdings to taxpayers in lower brackets.

6. Are There Some Charities I Want to Support?

If you have some assets that have appreciated significantly, you can give them to a charity and deduct the market value of the asset at the time of the gift. The charity can then sell that asset and pay no taxes on the gain. Poof! The gain escapes the clutches of the tax man.

The CARES Act changed deductibility of some charitable gifts. In 2020, if you itemize deductions, you can give away (and then deduct) your entire adjusted gross income and pay zero income tax. Of course, only some people can afford to live on other assets and ignore their adjusted gross income. But if you find yourself among those fortunate few, a charity awaits your generosity.

7. Am I Missing Out on Any Benefits Associated with COVID?

Congress responded to the COVID outbreak by passing a number of laws assisting businesses and individuals. Many of these advantages dwell within the tax code. According to Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting, “Both individual and business taxpayers may need to act before year-end to take advantage of many of these tax breaks.”[1]

Mr. Luscombe’s analysis appears in an article in Accounting Today, which summarizes his checklist as follows (some of these appear on our list above):

“Here’s a breakdown of the items that may need to be acted on according to Luscombe:

  • “More than 30 tax breaks that Congress has permitted to regularly expire and then renew currently expire at the end of 2020, including individual, business, and energy tax breaks.
  • “More generous charitable contribution deduction provisions expire at the end of 2020, including a new above-the-line charitable contribution deduction.
  • “The ability to make expanded penalty-free withdrawals from retirement plans for COVID-related expenses expires at the end of 2020.
  • “The deadlines to apply for Economic Impact Payments expire before the end of the year, although tax credit is available on the 2020 tax return.
  • “Employers must continue to deal with a variety of tax credits and deferrals related to employee payroll taxes that expire at the end of 2020.
  • “A number tax provisions provide retroactive relief, which might require filing of amended tax returns for prior years, including net operating loss carrybacks, modifications to deductions for non-corporate business losses, modifications to business interest deduction limitations, qualified improvement property, the Kiddie Tax, disaster relief, and the 30-plus regularly expiring provisions.
  • “The possibility of higher taxes in 2021 might suggest a reversal of the usual year-end tax planning strategy, which is to defer income and accelerate deductions. Taxpayers may also want to realize capital gains, make lifetime gifts, and engage in Roth conversions.”[2]

Checking It Twice

The above list includes some of the major items you should consider as the curtain draws on 2020. After you review your list, you can call on me to help you with checking it twice; we can explore these and any other issues we might identify. Feel free to call my office at 301-294-7500. We can discuss your list and perhaps add to it.

All of Us

All of us here at RFS extend our best wishes to you in the holiday season. Play it safe. Wear your mask. No holiday hugs (bummer). And count the many blessings we enjoy as a free people in the country we all love.

Best wishes,

Jack, Val, Toni, Chris, Jim, Michael, Jay, Dinah, and David

[1] https://www.accountingtoday.com/news/new-end-of-year-tax-planning-issues
[2] https://www.accountingtoday.com/news/new-end-of-year-tax-planning-issues


Special Update

Forgotten 401Ks

They’ll eat you alive!

Failure to Rebalance – Zombie Sign #1

When was the last time you rebalanced your 401(k) or other retirement account? When you set it up, you took a fairly conservative approach and bought 60% stock mutual funds and 40% bond mutual funds. Over time, the values of those funds have changed, perhaps significantly. Right now, your stock funds might comprise 85% of your account. Great. Excellent gain. But . . . . you are now subjecting yourself to greater risk. You need to rebalance. Now. And at least every six months.

If you’re sitting on an out-of-balance retirement account—or several different retirement accounts—then you are sitting on a Zombie Account. That’s right. That’s what investment advisors call it: an account left for dead, an account that might just rise up (at night, of course) and devour your net worth.

Not a pretty sight, these Zombie accounts . . . .

iStock by Getty Images

Failure to Increase Contributions to Retirement Accounts – Zombie Sign #2

When was the last time you increased your contributions to your retirement account? You’re making more money now. Shouldn’t you be saving more? Yet many people set up retirement accounts in their youth and establish relatively small automatic contributions. But as your income increases, so should your retirement allocations. Under current federal tax law, you can contribute $19,500 to your 401(k) or similar workplace plan; that’s up from $19,000 in 2019. If you’re 50 or older, the catch-up contribution limit is $6,500, up from $6,000 in 2019. “If your employer allows after-tax contributions or you’re self-employed, you can save even more. The overall defined contribution plan limit moves up to $57,000 [in 2020], from $56,000 [in 2019].”[i]

Ask any rich person, “What’s your secret?” One answer they always give: “Save as much as you can. Compounding investment amounts in tax-free accounts can result in large returns when you reach your 60s.”

So any retirement account you have sitting around growing with contributions you made when you were young . . . . Well, that’s a Zombie Account.

Failure to Move Old Retirement Accounts – Zombie Sign #3

Oops, what about that account you set up when you worked for Acme Widgets? Great job, that was. But your current position pays a boatload more. Did you have a retirement account at Acme? The stats should make any working American sit up and take notice. Get this:

A 2013 survey by ING Direct USA showed half of American adults who participated in an employer-sponsored retirement plan, such as a 401(k), have left an account at a previous employer. These “orphaned” accounts represented more than $1 trillion in investment dollars in 2010.[ii] (emphasis added)

You need to launch a search for any Zombie accounts sitting around with previous employers. You can call the Human Resource people at those companies for assistance. You might also get in touch with the Pension Benefit Guaranty Corporation. Or you can check the National Registry of Unclaimed Retirement Benefits at unclaimedretirementbenefits.com. According to the website, “The National Registry is a nationwide, secure database listing of retirement plan account balances that have been left unclaimed by former participants of retirement plans.”

Once you locate these Zombie accounts, you need to roll them over into your current 401(k) or IRA. You should check with an investment advisor or your CPA to make sure you’re performing a tax-free rollover and not a taxable distribution.

Act Now

Anyone with Zombie accounts needs to take the steps we’ve outlined above.

Beating the Zombies

There is a better way. No Zombies can arise in the dark of night from funds we manage at Research Financial Advisors. Check us out here: rfsadvisors.com. When you establish an account with us, we ascertain your comfort level of risk. If you’re relatively young, you should probably use our Aggressive Growth Model where we automatically invest your funds in a variety of ETFs we think show the best chance of growth. Right now, as of August 14, 2020, our Aggressive portfolios are up 23.02% year-to-date, net-of-fees. Yes, you read that right. We’re up 23.02%.

Our more conservative portfolio, consisting of 100% bonds, is designed for those who want to reduce risk and increase income. But the market value of our Bond Model is up 1.62% year-to-date, net-of-fees. And that doesn’t count the income the Bond Model has produced.

Many of our clients choose a mix between the Aggressive Model and the Bond Model. The returns on those accounts are less than the Aggressive results but more than the Bond.

Worried about current market volatility? Afraid of another crash just around the corner? Not a problem here at RFS. We know how to play defense. Consider the recent crash. The all-time high of the S&P 500 Index was February 19th. By March 23, the S&P declined 33.92%. Just 8 days after the S&P all-time high, on February 27, 2020, just before the close at 3:56 p.m., we purchased SPXS for all our accounts (larger amounts in the aggressive funds, smaller amounts in the conservative ones). The SPXS ETF produces three times the inverse of drops in the S&P Index. If the S&P goes down 10%, this ETF goes up 30%.

Our purchase price for SPXS: $16.1189 per ETF.

It’s a risky ETF, and we watch it carefully. After all, when the S&P goes up 10%, this ETF drops 30%. But it performed beautifully in March of this year, and shielded our accounts from gut-wrenching market drops. At 1:06 p.m., on March 23, 2020, the exact date of the S&P 33.92% decline, we sold the SPXS positions, banking a significant profit.

Our selling price for SPXS: $26.28 per ETF.

Today, the SPXS is trading at $5.86 or so. The following chart of SPXS shows how we entered our positions at $16.1189 as the rise started to accelerate Notice that we exited our position on March 23 at $26.28, right near the very top of the spike in price.

Each day, we study charts like the one above. We stay alert, ready for the next market rise or the next market plunge. Will the market go down again? Yes. Absolutely. How much? No one knows. When? No one knows. But we’re ready. We’re nimble. We’ll act and play defense when our indicators tell us a drop is about to morph into a plunge.

So say good-bye to Zombies. At RFS, you’ll never experience a failure to rebalance (Zombie Sign #1), for we constantly review your account and make certain it continues to hold those ETFs best suited to your level of risk. Further, we’ll encourage you to increase your contributions to your account as your salary and other remuneration grow (Zombie Sign #2), making sure you comply with all applicable IRS regulations. And we sure as heck won’t let you forget us (Zombie Sign #3), because we stay in touch with you weekly . . . sometimes daily.

In fact, if you need to get in touch with us quickly, we give out our cell phone numbers: There’s no elevator music on our phone system.

Give Us a Call

So look around your financial world and see if some of your accounts qualify as Zombies. Look for the three signs: accounts not rebalanced, retirement accounts receiving low and out-of-date contributions, and accounts sitting at former employers. Or look at your nonretirement accounts. Do any of them qualify as Zombies?

You may call my cell number right now: (240) 401-2355. We can talk about your situation and look at your various accounts.

After all, doing it yourself can sometimes result in doing yourself in.

Best regards,

Jack Reutemann


[1] https://www.forbes.com/sites/ashleaebeling/2019/11/06/irs-announces-higher-2020-retirement-plan-contribution-limits-for-401ks-and-more/#7ecdb4e333bb
[1] https://finance.yahoo.com/news/zombie-401-k-131547647.html