When a family or individual approaches us to begin assessing their ability to retire and live on a fixed income, we explain that financial planning comes down to a simple equation: income (I) – expenses (e) = free cash flow (FCF). Where things become subjective and more complicated is the composition of I and more specifically E. A subjective piece to E, is the rate at which it is increasing over time, otherwise known as inflation. One metric used to describe inflation is the Consumer Price Index (CPI), which measures the rate of change for a basket of goods and services purchased by households. CPI is a general indicator of the rate at which E is increasing over time. The issue – not every E category is inflating at the same rate. Furthermore, each E category has a differently weighted percentage relative to E. Meaning, averaging CPI over time and applying that percentage across all E categories may produce results that are not indicative of the future. To produce a more accurate picture, you must understand the amount you will be spending for each E category and then apply an appropriate inflation rate. Moving forward, one E category one must truly understand is healthcare.
How LBW Sees It
Humans have been bartering since the beginning of time. For example, between 9000 – 6000 B.C. humans used cattle as a form of currency to trade for other objects and by 1200 B.C. Cowry Shells were used as a form of currency. Fast forward to today, fancy cotton-based paper and metal coinage is used to pay for a movie and popcorn (we sure have made some advances). Even though the physical form of currency hasn’t changed much for many years, the backing of currency has. Today, most countries support and back their own currency – otherwise known as fiat money. This type of currency is regulated and backed by the full faith of governments. The U.S. dollar was originally backed by gold, meaning each piece of currency could be converted into its respective share of gold. This meant the government did not have the option to print more money as they would have needed more gold to support such an idea. In 1971 President Nixon officially took the U.S. dollar off the gold standard, allowing the government to have full control over the expansion of its money supply in addition to backing it 100% - yes, the $100 bill in your pocket is only worth $100 because people feel it is worth that much. In essence, the money supply for most countries is a monopoly and can be controlled or manipulated at the government’s discretion. They can print more money to increase money supply causing the value of their currency to decrease. Or, they can restrict or take money out of the system to help pump up the value of their currency. At this point you’re probably wondering to yourself “What does this have to do with cryptocurrency?” – the answer: everything.
401(k) accounts are meant for retirement, making it difficult to withdraw money. For example, the IRS states the following:
Generally, distributions of elective deferrals cannot be made until one of the following occurs:
And if you decide to challenge the rules, any money withdrawn will be taxed as ordinary income, in addition to a 10% penalty. In a perfect world, an individual would leave their 401(k) alone until retirement, but we all know that’s not realistic and individuals may need access to their funds, even if it is temporary. To assist, Congress created relief for employees via the 401(k) loan, which allows employees to take loans directly against their 401(k) or other qualified plan balances, subject to certain restrictions. So, let’s dive into the structure and some of the basics surrounding 401(k) loans.
Judging by the title and image above, you may have an idea as to what this blog is going to reference – that’s right – Mary Jane, Ganja, Grass, Reefer, Pot, Marijuana…Cannabis. Arguably, cannabis has been one of the fastest growing industries in the U.S. over the past three years. Its rapid emergence and star-like publicity has led to multiple questions and requests from our clients, prospects, and passerby, to discuss the legalization of cannabis for recreational and medical use. To clarify, this post will not be politically-driven, no debate on any moral standards will be discussed, nor will we provide our viewpoint on the potential tax revenue streams that could be created (we will discuss later how inflated sales taxes could affect the industry) – these talking points have been covered thoroughly elsewhere. With that said, LBW could care less about other individual’s perspectives and usages as it pertains to cannabis – it’s just not our business. What our business is, however, is to explore investment opportunities that may present value for our clients.
How LBW Sees It
Macroeconomic factors come in a variety of forms (such as monetary policy, inflation, certain sector performance, etc.) and every so often these factors release their “Kraken”0F potential. And like the “Kraken” you usually don’t realize the monster is right beneath you until it’s swallowing you whole.
Okay, we may have started aggressively by acting as if we are going to make an influential market call1F. Well we aren’t. However, we do want to discuss what we feel resembles a “Kraken” and shed some light on an influential change that is occurring in today’s market – passive investing.
Tim and Nathaniel were invited by Tera Johnson of Tera’s Whey to her podcast Edible-Alpha™*. We’d like to thank Tera for the opportunity to speak with her about our take on numerous subjects including business models, company valuations, and what we look for, in general, when we research companies in our pursuit of potential investment opportunities. For those of you who want a more thorough understanding of Nathaniel’s “Beautiful Mind” than what you get from his quarterly commentary, we highly recommend that you check out this podcast (with a shout out to Tera’s assistant Zac for putting the podcast together and editing out Nathaniel’s long pauses as Nathaniel gathered his thoughts). It clocks in at a little over an hour, but it’s well worth a listen.
We hope you enjoy it, and as always, please don’t hesitate to contact us if you have any questions or comments!
*Edible-Alpha™ is a part of the Food Finance Institute which is in turn a part of University of Wisconsin-Extension Division of Business and Entrepreneurship.
In the event the above doesn't work, please use this link to listen to the podcast.
Recently we came across an article, by the wonderful author Andrea Fuller of the Wall Street Journal (WSJ), titled “What’s My Investing Fee? A Frustrating Quest”. After reading it, we were compelled to write a response to Ms. Fuller. Our intention – to provide proof not all investing fees are so nontransparent.
Before you move forward we kindly ask our readers to do a bit of work. If you could please read the article below and then read our response, we would greatly appreciate it. We hope you enjoy it as much as we did putting it together.
As LBW looks inward at our industry, we find a wide push to provide people with convenience; similar to what one would find today in other industries such as retail, healthcare, and even education. At what point does the prioritization of convenience cause harm to other important characteristics? This continued movement towards ultimate convenience coupled with our ever-growing do-it-yourself mentality, can create a dangerous combination.
How LBW See’s It
The start of 2017 came with a bang – President Donald Trump was sworn in, Tom Brady and the New England Patriots won their fifth super bowl in the past 16 years, and the Federal Reserve Bank (“Fed”) raised the federal funds rate for the third time since December 16, 2008 (roughly nine years ago). President Trump and his new administration have led the headlines in regular and financial news, and Brady’s Super Bowl jersey being stolen was a hot topic. However, the increase in the federal funds rate and the Fed’s forward guidance on the economy deserve some notable attention as our clients, prospective clients, and passerby want to know how this will affect them.
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