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The Independent Investor: Health Savings Accounts a Good Idea

By Bill Schmick
iBerkshires Columnist

Does your employer offer a health savings plan? Many do, especially if your company's health insurance has a high deductible. If you aren't taking advantage of it, you should and here's why.

Health Savings Accounts (HSA) were created as a way to help control rising health care costs. An HSA is an account, similar to a personal savings account or an IRA that you can open at work or on your own. Employers consider it a supplement to their high deductible employee health insurance plan (HDHP).

How do you know if your health insurance plan qualifies as a high deductible? Usually, HDHPs won't start paying out until after you've spent at least $1,300 (individual) or $2,600 for a family in expenses with your own money.

HSAs are used to pay for things your employer plan doesn't cover. Qualified medical expenses such as co-pays, health plan deductibles and other non-insurance covered medical expenses such as dental and vision expenses. You — not your employer or insurance company — own and control the money in your HSA. The government and the health insurers believe that most people will spend their health care dollars more wisely if they're using their own money.

HSAs function somewhat like a 401(k) or 403(b) plan. You can make contributions from your paycheck on a pre-tax basis. Your employer can also match some percentage of your contributions. No matter how much you make, you can open a HSA plan. Even though you may have already maxed out all of your other available tax-deferred savings plans, you can still open a HSA.

Health Savings Plans offer a triple tax advantage in an age where tax shelters are few and far between. Any contributions to the plan, investment earnings you may make, and money you take out for qualified medical expenses are all exempt from federal taxes.

There are some eligibility rules that do apply before you can qualify. You must be already covered by a HDHP. You can't have other health coverage that is not an HDHP (including Medicare). And you can't claim yourself as a dependent on another person's tax return.

The maximum you can contribute in any single year, as determined by the Internal Revenue Service, is $3,350 or, if you have a family plan, $6,750. These maximum levels are subject to yearly adjustments for inflation. That's also good news given the ever-escalating cost of health care.

So what happens, you might ask, if I contribute the maximum and I don't use it in the first year?

The money simply accumulates in your HSA account, rolling over year after year and hopefully making more and more investment returns. You can invest it in the stock or bond market or just about anything else you want. If you switch jobs, you can roll it over with you.

The only issue is that if you take the money out for anything other than medical expenses, you will pay taxes on it. If you take it out before 65 years of age, you will also pay a steep penalty.

If you are a generally healthy individual and want to save for future health care expenses, this is the way to do it. Or, if you are near retirement, a HSA makes a lot of sense because you know your medical expenses are going to increase in the future.

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.

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@theMarket: Three in One

By Bill Schmick
iBerkshires Columnist

On Thursday, all three U.S. benchmark averages — the S&P 500, NASDAQ and the Dow Jones Industrial Average—registered historical new highs on the same day. You don't want to know what happened the last time this happened.

That was in 1999. The year after ushered in the Dotcom boom and bust where some averages lost 20-30 percent and sent the markets on a roller coaster that did not end until 2003. Am I saying that will happen again? No, but I am expecting a pull-back soon in all three averages.

It is not something that most investors need to worry about. As I mentioned in my last few columns, stocks are overbought and valuations are being stretched higher and higher. That is a typical occurrence in financial markets. Rarely do markets trade on par with what we call a "fair valuation." Securities, for the most part, trade above or below their fair value all the time.

It is what causes rallies and followed by sell-offs, which is the very nature of the market.

So far this year, we have had two sharp declines: in January and then again in February, followed by a rally that has now taken us up to new highs (without a significant decline). OK, you might argue and say that the two-day, panic sell-off after Brexit qualified as a third. I won't quibble with that, but it does not negate another decline sometime this month or possibly in September.

The point is that when it occurs (notice I did not say if), I would simply ride it out. We are in an election year and if history is any guide, no matter how sharp or severe the decline, chances are that by the end of the year the markets will still be positive. Remember, too, that my own expectations were for a mid-single digit return from stocks in 2016. As of today, we have already reached my target.

There is nothing to say that the markets won't go higher from here, because just about everyone is looking for a correction in August. That is understandable, given what happened on Aug. 19 of last year. Remember the Dow down 1,000 points before the opening that day last summer? How soon we forget.

But a sell-off now would be too easy. Markets usually do what is most inconvenient for the most number of investors. A more likely scenario is that we continue to grind higher. The S&P 500 Index breaks 2,200 on the upside. Stock chasers rush in to buy and push the averages up by another 20-30 points and then wham!

Could it happen that way? Possibly, but how it happens and when should matter little to you. Whatever downside we have will simply be a passing storm. The clouds will lift as the election approaches. If Clinton continues to maintain her lead in the polls, or widen it, then Wall Street will take heart and continue to support stocks. On the other hand, if Trump should regain momentum or even move back to even with Clinton, then we can expect more volatility all the way up to Election Day.

So those who want Trump in the White House could pay for that support via damage to their investment portfolios. Nonetheless, I expect that whoever wins what damage may occur to our investments will be short-lived. Americans are forever optimistic and within weeks, if not days after the election, we will see the markets rally on renewed hope of better days ahead.

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.

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The Independent Investor: Why the Nation's Productivity Matters

By Bill Schmick
iBerkshires Columnist

The headlines paint a stark portrait of the amount of goods and services that American workers produce in any given year. We are in the longest decline of American productivity since the 1970s. That fact has economists pessimistic about the future chance of continued growth in this country.

Labor productivity has declined for nine straight months and fallen 0.4 percent over the last year. There is nothing complex about productivity statistics. Output per worker, according to the numbers, is drifting down when it should be going up. The last time this happened was in the 1970s, just before a nasty double-dip recession.

Increases in productivity are what makes America's middle-class what it is. Living standards improve when productivity climbs because the economy produces more goods and services with less. As a result, workers get raises, corporations add higher-paying jobs and you and I feel like we are making headway in our careers.

Contrary to what you might think, a decline in productivity does not mean that American workers are getting lazy or becoming inept in the workforce. Much of productivity depends on innovation. If a worker is using a 50-year-old tool or a 25-year old computer to produce a product, the chances are productivity is falling no matter how long or hard she is working.

Since WW II (up until 2005) annual productivity gains averaged 2.3 percent. New, more efficient methods of producing bigger and better products and services — developed during the war effort and were carried over into civilian society allowing productivity to roar. The advent of the computer especially in the 1990s goosed productivity even further and helped carry us through the postwar decades. Since then, the rate has gradually declined only averaging 1.2 percent or so since 2006 despite the "digital revolution."

You would think that these new digital innovations would have further aided productivity. After all, the internet and the development of things like emails and messaging should have made the workplace more efficient. Maybe it did provide some growth, but if so, its life cycle might have been shorter than we thought. It could be that mobile devices, networking applications and teleconferencing will provide a productivity life in the future. It is just that we are now in a lull between phases.

Some economists believe that the Baby Boomers are at fault. As experienced workers leave the labor force for retirement and are replaced by millennials with little or no experience, productivity falters even though employment overall is picking up. However, lower productivity seems to be a global phenomenon and not all countries are experiencing the Baby Boomer demographic.

A better explanation may be the lack of capital investment in this country since the financial crisis. Although corporations are flush with cash, they have been using that money to pay larger dividends or buy back their stock in the markets. Companies argue that regulations, taxes and unskilled American workers are at fault for their lack of capital spending. Falling worldwide wages may be another reason. Investing in technology and experimenting with better ways to produce a widget are expensive. Given the trend toward lower wages worldwide, it may be cheaper for companies to simply hire more workers at minimum wage and make-do with antiquated equipment or practices or move off-shore where wages are even less.

Reversing this trend may take a combination of factors. As unemployment drops and labor becomes scarce, companies will have to pay up for skilled workers. At some point, it may become economical once again to spend on plant and equipment rather than continue to pay and hire at higher and higher wages.

Then, too, after the presidential elections, some of Corporate America's complaints over taxes and regulations may be addressed by both political parties. At least, we can hope so since, without investment, innovation stalls and with it productivity.

Clearly, the decline in productivity has been and continues to be one of the major drags on returning America to its historical growth rates. Without gains in productivity, living standards flatten out and things feel like they are going backwards. Until we solve it, middle-class workers in America will continue to struggle.

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.

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@theMarket: Markets Need to Digest Recent Gains

By Bill Schmick
iBerkshires Columnist

Greed and fear make the world go round. While Donald Trump attempted to tap into the latter emotion in his acceptance speech this week, investors were mesmerized by the opposite emotion, at least where the stock market is concerned.

It is true that the markets, like the humans that trade them, tend to vacillate between these emotions when gains and losses begin to nudge the extremes. Of course, we would all like the markets to just continue to climb, but a line I read recently sums it up well.

"Keep in mind that betting on never-ending capital gains is the very definition of a Ponzi scheme."

The best thing that could happen to the stock market in the short-term would be to pull back. A nice orderly advance, which is not something we have experienced since the beginning of the month, is the ideal scenario for making money in the financial markets.

Too far, too soon, invites downside swoons of selling that force weak holders to panic (fear). When the market turns, and it inevitably does, it forces those same sellers to chase prices upward (greed). Just recognize that pullbacks are the cost of doing business in the equity markets. You can't avoid them and to try is a fool's game.

There is no question that the market is "overbought." By whatever metric you may use — the Vix, investor confidence, sentiment or momentum indicators — we need to pull back and we need to do it soon. It was encouraging that during the last two days of the week some selling appeared. That's a good thing.

Now these kinds of pull-backs do not need to be deep. A week or two of up and down days called a "consolidation through time" can relieve an overbought condition just as effectively as a 3-5 percent sell-off. Given that we are in earnings season, I'm hoping that a series of mixed results from some market "darlings" could deliver just that sort of period.

So far, second quarter earnings results have been better than expected. About 66 percent of those companies who have reported thus far have come in with earnings beats. That should come as no surprise. Every quarter, this game of revising down company estimates low enough to produce a beat fools fewer and fewer investors.

Normally, these companies announce before or after the close and only professional traders really benefit from any price movements. Rarely does the euphoria over an earnings beat last for more than a day or two and then the company's stock price tends to return to its pre-announcement levels. Very few professionals are willing to take a position in a stock prior to earnings. That, they say, is akin to putting all your money on black or red at the gaming tables.

Now that we are half-way through this month's convention season, the extreme volatility that so many of us had feared never surfaced. Despite some marching and protests, the GOP convention went off with barely a blip. Markets took the bombastic speeches and self-adoration that is so typical of the American political party system in stride. This coming week we will see the Democrats try to best the Republicans in their appeals to the voters. Hopefully, we will then be back to regularly scheduled programmed channels.

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.

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The Independent Investor: Candidates & the Economy

By Bill Schmick
iBerkshires Columnist

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.

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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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