The Independent Investor: Candidates & the Economy

As the GOP political convention winds down and the Democrat convention gears up, we continue to hear a steady stream of economic "one liners" from the candidates. We all know that fixing the economy is one of the major issues of this campaign but so far the candidates are long on words and short on specifics.

"If I'm elected," promise both candidates, there will be more jobs, trade, wages and growth. According to them, all we need do is check the right boxes come Election Day and the rest will be a foregone conclusion. Historically, Wall Street and corporations vote Republican because the GOP is good for business, while labor, minorities and the "have nots" back the Democrats. However, times and the issues are changing and so are the candidates.

Take the banking sector, for example, both parties and candidates this year have targeted Wall Street as a villain in need of chastisement. The GOP has made a re-instatement of the Depression-Era, Glass-Stegall Act a plank in their platform. Repealed under the Clinton administration, the act had prevented commercial banks from entering the capital markets.

Democrats Elizabeth Warren and Bernie Sanders (as well as the public) have blamed the banks for the entire financial crisis fiasco that was brought about by the repeal of the act. The banking sector's involvement in capital markets and the creation of derivative products such as mortgage-backed securities in large part brought down an enormous financial house of cards that threatened to sink all of us.

Free trade is another area where roles appear to be reversed between the candidates, if not the parties. Protectionism has always been part of the Democrat's list of issues, although the label itself was usually shunned as un-American. It stems from the days when labor unions were large and free trade was thought to threaten American workers' jobs and paychecks. As the party of the worker, Democrats traditionally tried to protect the blue-collar voter. Today, we have Hillary Clinton defending free-trade agreements while Donald Trump is promising to dismantle them.

Taxes, of course, are always an issue in every election. Tax reform usually occupies center stage with Republicans, with corporations the leading beneficiary of their policies. The "tax and spend" party, usually a Democrat label, however, is also promising those same corporations tax relief this time around.

Each candidate has a grab bag of goodies for individual sectors of the economy, such as Trump's promises to help oil and gas, coal and other mining companies through a change in the regulatory environment.

Hillary Clinton promises to hike the minimum wage and possibly include more illegal immigrants into the legal system that could help consumer spending and therefore the retail sector. As in so many prior elections, I discount most of these promises as political rhetoric to woo certain states and voting blocs to one side or another.

We will have to wait until next week to examine the Democrat's party platform, but I wouldn't be surprised to see more commonalities than differences between the two parties' planks. This is, in my opinion, a reflection of the populist resurgence in this country. The anger Americans are expressing over the state of the economy and their place in it has crossed party lines. Those among the party faithful who ignore it, do so at their own jeopardy.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Tax Breaks For College Savings

As the cost of college continues to soar in America, more and more states are offering tax breaks to families who are trying to save as much as they can for their kid's educational future.

The state of Massachusetts is deciding whether or not they will join the list this week.

The most commonly used vehicle for that purpose is the "qualified tuition plan," more commonly known as a 529 Plan. These plans are sponsored by states, state agencies or educational institutions and were originally authorized by Section 529 of the Internal Revenue Service Code. They are tax-free on a federal level and all but eight of the 42 states that have an income tax allow families and individuals to claim a tax deduction on college savings.

The idea for savers is that the state offers you two kinds of plans. A plan to prepay for your children's college educational costs at today's tuition rates at a certain college. In the other plan, rather than prepaying tuition, you are simply saving for future college costs by contributing to a plan that can be used at any school (not just those in your state) and for all qualified higher education expenses, including room and board.

Your plan contributions are invested by professional money managers in what are called age-based portfolios. Some plans also offer a selection of stocks and bonds as well. In the age-based funds, your contributions are tilted at first toward stock funds, which have more risk but also higher growth; and as your child approaches college age, the investments are skewed more toward bonds, which are normally more conservative and less risky. There are no taxes on dividends, interest or capital gains and withdrawals for college are tax free by the federal government and by most states that have an income tax.

These plans allow families to contribute as little as $25/month or as much as you want, limited only by the lifetime contribution limit set by each state. Normally this limit ranges from $100,000 on the low end to $270,000 on the other end of the spectrum.

One nice feature of these plans (for those who can afford it), is that individuals can fund a plan with up to $70,000 (or $140,000 with your spouse) in the first year without running afoul of the gift tax. Normally, any contributions you make on behalf of an individual that exceeds $14,000 annually ($28,000 for a couple) is subject to the gift tax. A 529 plan allows you to contribute basically five years' worth of gifts all at once without tax.

Each state decides what kind of tax break they will offer to their residents. They vary substantially. In Rhode Island, for example, the deduction ranges between $500 to $1,000 a year.

But in states like North Carolina you can deduct as much as $2,500-$5,000. New York and Connecticut offer as much as $10,000 to $20,000 in tax deductions. In Massachusetts, the Legislature is voting on a deduction of $1,000 per individual or $2,000 per couple.

Although some complain that the performance of these plans is not that competitive, they are still one of the only games in town for consumers to save for education and enjoy tax advantages while they do so.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Clicks vs Bricks — Who Will Win the Retail War?

Have you noticed that you are buying more products via the internet? Do you find yourself showroom shopping when you do make the trip to that department store or mall? It is happening to all of us and as it does, the traditional brick-and-mortar retailers are feeling the loss.

That doesn’t mean the demise of malls or department stores altogether, but over the next decade there will be fewer of them, especially in depressed areas of the country. The main culprit in this story is e-commerce or internet shopping. In the first quarter of this year, e-commerce accounted for $74.9 billion. That might sound like a lot of money but it still only accounts for 7 percent of overall consumer spending in this country.

Still, online shopping has taken market share every year since it began and is growing at roughly 8 percent per year. Its main attractions are convenience, lower prices and increasingly, free shipping. Clearly, without the overhead costs of physical storefronts, e-commerce companies such as Amazon can undercut traditional retailers at every turn. As more and more internet retailers develop huge logistics networks around the country, it will become both easier and cheaper to ship to their customers.

Wall Street analysts are quick to predict the demise of malls, shopping centers and department stores. They estimate that the brick-and-mortar crowd will need to close as many as 20 percent of their stores nationwide in the future. Weaker retailers (like Sears and J.C. Penny) will bear the brunt of shuttered shops.

Although traditional retailers are fighting back with their own e-commerce efforts, they find that when they close a storefront, what e-commerce traffic they had before the closing also declines. That generates a double whammy to their bottom lines. Despite that fact, most brick-and-mortar retailers are forging ahead in establishing their own e-commerce businesses.

In addition, they are establishing "loyalty programs," which reward the shopper by discounting merchandise. They are also issuing their own credit cards with various bonus schemes attached to how much you purchase on those cards. You may have also noticed that in certain stores there are more and more interactive or digital displays for comparison shopping on the spot. Other stores have developed entertainment for the kids while the parents shop as well as eateries and other efforts to enhance the experience of your shopping trip.

So don't play taps for traditional retailers just yet. There are also some things an online website just can't replicate. You can't, for example, touch and feel a product before buying it on the internet. That doesn’t stop someone like me from checking out the product and price in the store and then buying it on the internet anyway. That's called the "showroom effect." In my own case, however, if the store has a knowledgeable and professional staff, depending on the product, chances are that I will buy it in the store anyway.

Higher-end retail stores and malls will continue to thrive, in my opinion, as they meet the challenge of the internet. Just check out your neighborhood Apple emporium to get a taste of what the future brick-and-mortar stores will look and feel like. The experience will be worth the trip for many. And let’s not forget the social aspects of shopping, at least for those of the Baby Boomer generation. One elderly client I recently talked with admitted that he loves shopping and enjoys wandering the aisles checking out new and varied products.

I imagine that there are people of all ages that still "hang out at the mall" or just visit the brick-and-mortar storefronts for a day of shopping; but the younger you are, the less likely that you will want to spend time doing that.

In summary, there is still going to be room for both clicks and bricks kind of shopping in the future. At least until the likes of Amazon can somehow bring virtual reality shopping into our living rooms. Don't laugh; I wouldn't put it past them to be working on something like that right now.
 

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Who Is Next?

 

The vote is in and all you have to do is look at world markets to discover the verdict. The citizens of the United Kingdom voted to exit the European Union. Chaos reigned for today but tomorrow may be a different story, at least for U.S. investors.

Do not panic. Most of my readers are heavily invested in the U.S. equity and bond markets. As such, the fallout from Brexit will be short-lived here at home as investors come to the realization that, for now, the United States is the only game in town. As I look at Friday morning's damage to our markets, I am impressed at how well we are doing compared to Europe. Essentially, all we have done is give back a week's speculative gains on the back of Wall Street's totally incorrect view that Britain would remain in the EU.

Europe, however, is, and will be another story. As I mentioned before, the UK was the European Union's second largest economy (although it never agreed to use the Euro as its currency). Think about it. Your second most valuable player leaves the team. What are the odds your team continues to have a winning season? Clearly, the European economy is going to take a hit from this event. To make matters worse, it is just coming out of recession as we write this.

Then too, what will the exit of one of your MVPs mean to the rest of the team? In this case, nearly every member state of the EU has a political party or organization that is lobbying for a referendum to leave the EU. Here are some of the countries at risk with the percentage of voters wanting a chance to vote for their own exit: Italy (58 percent), France (55 percent), Sweden (43 percent), Belgium (42 percent), Poland (41 percent), Spain (40 percent) and even 40 percent of Germans, the EU's largest and most stable partner, want a chance to vote and possibly bolt the union.

But not all will come up roses for some U.S. companies. There will be repercussions that could hurt our largest multinational corporations as a result of Brexit. Many U.S. companies have invested in the UK partially because of their free-trade access to the rest of Europe. It would be like a Japanese company building an auto plant in Mexico in order to take advantage of our NAFTA agreements with Mexico. We might find that these companies will face a large decline in profitability on their UK assets. The US financial sector may also go through some rough times for the same reasons.

There is no question that this breakup will cause disruptions throughout Europe and reduce mutual trade and financial flows. Remember that an exit will take at least two years to implement. I have long said that markets can deal with the good and bad, but can't handle uncertainty. Imagine this upcoming period of extended uncertainty. It will most assuredly reduce corporate and investor confidence abroad.

Trade agreements will need to be renegotiated among the EU and with the rest of the world. In the case of Great Britain, where trade accounts for over 50 percent of this island nation's GDP, everything will have to be renegotiated. That will take time and a lot of it.

Optimists point out that there are countries in Europe that have done well without inclusion in the EU. Switzerland is always most pundits' prime example. The problem here is that the Swiss economy is only a fraction of the size of Great Britain, so it is like comparing apples to oranges.

Currencies will also be a problem. Volatility will reign supreme in currency markets as traders and corporations try to hedge this new element of risk in the world. The U.S. dollar may strengthen. It certainly has today, and, if so, that too may cause problems for our export-oriented companies. One thing is sure; volatility is here to stay for the foreseeable future.

Hopefully, you took my advice over the last few weeks and reviewed your own risk tolerance because the heat is certainly rising in the kitchen. The U.S. is the best game in town and as such you are in the right place at the right time.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Pet Insurance & Why You Should Have It

Titus and his ball.

Whether you are adopting a pet or buying that pure blood breed, the first thing you should consider is pet insurance. Skipping this step could cost you several times the purchase price of your new pet each year. Better be safe than sorry.

Pet insurance is like any other insurance, human or otherwise. The cost of coverage is based on your pet's age, health profile, breed and however much insurance you want to purchase.

You will pay a yearly premium, have a deductible, co-pays and a maximum cap on how much your insurance covers per year.

The best time to take out insurance is before your pet develops health problems. Learn from my mistakes. In my case, Titus our seven-year-old, chocolate Lab, developed arthritis in his right shoulder two years ago. It is a common and chronic health problem among Labs (as is arthritis of the hips), and has cost us several times his purchase price over the years. Even though I could still buy insurance for him, it would make little difference since the policy would not cover pre-existing conditions such as his arthritis.

If you plan to adopt an animal, my advice is to get a clean bill of health from the shelter, adoption agency or veterinarian prior to bringing it home. Otherwise, you may be stuck with an existing condition that will drain your bank account for as long as you own the pet. A common mistake would-be pet owners like myself make is ignoring the emotional attachment that develops between man and beast.

I am a dollars and cents kind of guy and convinced myself that once Titus' health bills passed a certain plateau, it would be time to put him down from an economic point of view. That plateau has come and gone many, many times and Titus is still very much part of the "family."

He will be with us no matter the cost until he dies. So much for my cold calculated strategy, I just wish I was smart enough to buy insurance seven years ago when it made sense. Learn from my mistakes.

You need to decide how much insurance is right for you. Skin problems are the largest source of health claims for dogs with minor issues averaging $210 a visit while benign skin masses were higher at $347 per visit, according to a 2015 analysis of pet insurance claims.

Diabetes ($862/visit) and urinary tract infections ($441/visit) led the list for health claims for cat owners.

Like every insurance policy, there is a ton of fine print that you must wade through. Your job is to identify and understand what is excluded from coverage. Be sure you identify any waiting periods before the particular insurance policy kicks in. For example, some dogs develop ligament injuries quickly, but you may find that those kinds of injuries have much longer waiting

periods than other health issues.

Every policy has "extras" and most of them concern wellness issues — annual checkups, vaccinations, even teeth brushing. Carefully compare what those services would cost on their own outside of insurance before buying them.

Finally, make sure you comparison shop before settling on one plan. Every insurance company charges different rates for coverage. Some offer discounts if you cover more than one pet, for example. Deductibles may be lower on one plan, but check what kind of reimbursements you will be receiving. Some companies reimburse a certain percentage of what your vet charges you, but others only give you back what they deem to be "usual and customary" for the cost of a particular treatment.

Bottom line: pet insurance can save you a lot of money, if it is purchased properly and at the right time. It should be your number one agenda right out of the gate after acquiring your pet.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.