Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indexes mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA, SIPC.

Announcer:
Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.

James Nelson:
Good morning and welcome to this week’s Financial Focus program, brought to you each and every Wednesday morning right here on KROS. It’s James and John up here this morning on a steamy Wednesday morning. This morning, we’re talking about markets. We’ve seen the Dow and the Nasdaq reached all-time highs this week, late last week. We’re covering a number of topics here.

James Nelson:
John, how about we start up and talking about where we’re at the market cycle, how far we’ve come and maybe some of those figures where we’ve come from since the bottom in 2009?

John Nelson:
Yes. Coming off the bottoms of 2009, we’re now ten and a half years into a bull market. Significant runs, specifically here in the US, where you could have almost thrown a dart at any equities. Over these past ten and a half years, you’ve made money here in the US Around the world, markets haven’t been quite as favorable as they’ve been here, but just looking at the market as a whole, the cumulative gain, the average of the entire market is over 200% since 2009. Again, ten and a half years into it, that’s quite a while looking statistically at how long market cycles usually play out. It’s been an incredible run, and people have account balances that look pretty favorable because of it.

John Nelson:
Just stepping back and analyzing, we have a client recently that talking about this year’s return, and he said, “My accounts, my 401K isn’t doing that well.” We were a little confused because he said he had held equities, and when we go to look at the account, it was all company stock. Not each company has been up significantly. There’s a lot of variability in there, but overall, looking at US markets, it’s been a heck of a run since 2009.

James Nelson:
That was company stock in his 401K plan, and it was a local company, right?

John Nelson:
It was and it was 100% of the account balance, which was a little confusing to him when we had spoke about markets being up this year, and his was down quite a bit, and it turned out to be all company stock.

James Nelson:
Then the hard part is how do you unwind this. When we got money in the 401K plan ROA or even an after-tax account where things have done so well the last several years, the big question is how do you unwind it? How do you diversify? How do you take those gains, maybe take some of those chips off the table, so to speak, and not get killed from a tax perspective? That’s a challenge and those are the things that we look at every day, and some things that clients certainly have to consider when they’re looking to sell one of those possessions.

John Nelson:
Yeah. That first part was the key of what type of account it’s in. If it’s in a 401K plan or an ROA, you can make adjustments and trades within those accounts and you don’t incur tax today. If it’s in, say after-tax account, where you’ve saved some money and you’ve paid tax on that and it’s now invested in whatever it may be, those type of accounts outside of a retirement account, when you make adjustments there, those are generating 1099s that have to be reported on this year’s tax return of the year that you make those adjustments. That is the key is where are you owning, not only what are you owning, but where are you owning it at, and what implications do those changes make today, and what implications can be down the road if things aren’t handled correctly.

James Nelson:
That’s important because a lot of these employers, at least in our area, have the stock purchase plans outside their retirement plan.

John Nelson:
Yeah.

James Nelson:
All the big ones in the area that you can think of have stock purchase plans for their employees that they can put money in, in an after-tax basis, and each paycheck that you buy a share to and slowly it builds up. You fast forward 10, 15 years down the road, and the stock has had a good run, and then somebody is looking to sell up, that’s a problem. People need to be aware of that. You can’t just go in there and sell it generally. If it’s up significantly, you’re going to lose a good portion of that tax.

John Nelson:
Yeah. Let me just point out a few statistics that I find interesting. I talked about the average of the US equity markets being up over 200% since 2009, but just listen to these numbers of the top 50’s percentile. The top 50% of stocks that did the best cumulative have a 645% return. If you look at the top 10%, it’s 1400% return. And this last one I just threw in for fun, it’s the top 1%, so this is a very, very few; if you happen to be the lucky one that owned a company that made the top 1%, the performance is over 4000% since 2009.

James Nelson:
That’s incredible! Yeah. I wish we owned all that top 1%. That’s unbelievable. The other thing that … while we’re talking about markets, interest rates have to come into this discussion. We’re talking last year about the Feds probably raising interest rates a couple of times this year, and now, lo and behold, they’re talking about cutting rate, which seems unthinkable if we’re six months back. To lower interest rate wasn’t even in the discussion. Now, the Fed’s talking about lowering rates here at least once, probably there should maybe twice. The reason I bring this up is even with rates as low as ours, some 2% on the 10-year, we’re a little above that now, but around 2%, let’s say, on the 10-year government bond, that still looks like a high-yielding bond relative to a lot of other country’s debt.

James Nelson:
If you look at Europe, Germany specifically, they were issuing bonds this year, earlier this year, yielding negative interest rates. You are guaranteed to get back less money than you deposited if you bought a German bond earlier this year. That just seems nuts. People asked why would anybody buy that. The reason of course is because they’re afraid of currency risk. Yeah, they could come to the United States and buy a 10-year government bond paying 2, but then they’re subject to currency risk depending on what the US dollar does. The dollar continues to increase, and it makes it tough for others to come here and make money. I bring that up just because interest rates are important, very important point when we’re talking markets, and certainly, a big-time player this year.

John Nelson:
Yeah and it’s not just Germany, James. That Japan and other place around the world have also been over the years issuing bonds that have yielded negative rates in return. Again, people here find it crazy, but there’s plenty of people saying that the bond market could benefit from this. The interest rates are going fair amount lower than where they are today at 2%. 2% to just below 0, there’s not a huge spread. If we continue cutting here in the US, I’m not saying we’re getting to negative interest rates, but we could get close that gap, much closer than it is today.

James Nelson:
Yeah, certainly. This all comes back to our plan and process when we sit down with clients, taking a look at their investments, we talk planning, social security planning, Medicare planning, estate planning; all of those things are important. Today, we thought we’d touched on the investments and the investments are a fun part to talk about, the most important. I don’t know, but it’s the fun part. People think it’s sexy talking about the investments and we want to keep our finger on that pulse as well.

James Nelson:
Now, there had been some changes. Nate and I talked about the Secure Act as it relates to retirement planning. Last week, the Secure Act what’s been proposed. It’s already passed in the House. It’s moved to the Senate. It will most likely be law by the end of this year. There’s another provision that John wants to talk about that’s coming down the line here, most likely this year, too.

John Nelson:
This is not a super well-known plan, but it’s 529A plan. A lot of people have heard of 529 plan saving for college. Last year, it changed from just college to K-12 as well, but it’s for tuition expenses that people can save money in a tax-favored basis, and then take that money out to pay for tuition. I’m going to talk a little bit today 529A plans, that stands it’s the ABLE Act, which is Achieving a Better Life Experience Act. It’s for the people with disabilities and it’s slightly different than a straight 529 plan. There are some changes that are being proposed and under consideration in Washington that may further increase the contribution limits, expand the age limits, and overall, just making 529A plans more appealing, which I think if those changes do end up come into fruition, that will be a much expanded are that people need to consider for those that it applies to.

James Nelson:
Certainly. We’ll keep you in the loop on the Secure Act, which is much more comprehensive and will impact everyone. No doubt about it. And we’ll keep you in the loop on the 529A plan. Again, both of those are probably coming down the line later this year.

James Nelson:
We’re out of time here. John, I appreciate you coming up this morning with me.

John Nelson:
You bet. Happy to be here.

James Nelson:
We’ll catch you next Wednesday for our Financial Focus program; each and every Wednesday morning. We appreciate all you guys listening.

Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indexes mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA, SIPC.

Announcer:
Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com

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