Joel’s Published Column



“The Balancing Act”

As we enter Michigan’s beautiful fall season, we remember that it is the uniqueness of life’s seasons that create opportunities for us to reflect on our experiences and learn from our past. There is a time for everything: Ecclesiastes 3 of the Christian Bible reiterates exactly that. “A time to be born and a time to die, a time to plant and a time to uproot, a time to scatter stones and a time to gather them.” As a financial planner I will add one of my own – a time to store and a time to use.

When evaluating a retirement plan or a wealth savings plan, people tend to focus on maintaining the standard of living they had while they were engaged in the workforce. This can sometimes be very difficult, because they are no longer generating income and solely relying on their retirement income and savings. This becomes a delicate balancing act as we transition from the season of work into the season of retirement.

A time to store

Some investors have done an amazing job of living within their means during their employment years. Typically, this allows for them to aggressively “store” their money in many different savings vehicles. What is very interesting about these savers is that some have a very difficult time when it comes to spending their assets for enjoyment during retirement. They have lived in such a way during their working years to save for retirement, that they have developed habits of not spending. This makes for an exemplary financial client; but it doesn’t always make for the retirement they’ve planned.

A time to use

I encourage potential retirees, especially if they are married, to sit down with their financial planner and really map out their joint vision of retired life. The “balancing act” that ensues during retirement is that of living for the now and experiencing life to the fullest, while also planning for the future. Hiking the Grand Canyon is something that can be done by many 65-year-old retirees, but can become a big challenge for someone age 75, and almost an impossibility for people in their 80s. Make sure you plan to take your trips while you can still enjoy them. This is the time to “use!”

If you are a “storer” who hasn’t transitioned into a “user,” well, there are two things I would urge you to do. First, call me for a meeting, because the chances are good that you would make a wonderful client (just kidding). Second, really think about the assets you have left, the time you have left, and the family you have surrounding you. If you are 75, and have a sizeable portfolio, you could have about 7-9 years left to enjoy your hard-earned wealth. Spend this time using the money to create experiences and memories with your children and grandchildren. The old adage, “you can’t take it with you” is very true, but you can leave a legacy of love and generosity. A time to store, and a time to use … work with your financial advisor to develop your retirement game plan. It will be time well spent.

Saving for That “Rainy Day”

Well, it happened … in August, I turned the BIG 4-0! Honestly, I’ve kind of felt like I was 40 for the last ten years, so it’s really not much different. One thing that this old man has noticed lately is “Help Wanted” signs posted just about everywhere. As the economy officially printed its second quarter GDP at 4.1% according to the Bureau of Labor Statistics, and the official unemployment rate is wavering between 3.8% and 4%, it seems like even local McDonald’s restaurants are looking to hire at above $11/hour. Bank tellers I’ve asked are starting at $12/hour and more seasoned vets are now making $15/hour. Employment demand is outpacing people looking for work and it is resulting in average wages starting to make notable increases. This is a good thing, being that it has felt like wages really haven’t moved in about a decade!

I’m not writing this article about how well the economy is doing; I want to focus on what folks should be doing with those newfound raises or newly-found employment income. The first thing I encourage budgeters to do is to build an emergency fund. I urge clients to aggressively save enough money in a bank account to get them through a rough patch in life. Once that is done, we can start putting money into our employer-sponsored retirement plans or individual retirement accounts (IRAs). Lastly, I would encourage everyone to start a Rainy-Day Fund.

Rainy-Day Fund

I view the Rainy-Day Fund as something slightly different than the emergency fund. Emergency funds are there to cover large, unexpected periods of time when, for some reason, your income stream has been altered or interrupted. This fund should be kept separate so that once saved, we never dip into it unless there is truly an emergency. I view a Rainy-Day Fund as money that can help with unexpected expenses, not unexpected periods without income. Unexpected expenses might be something like: your car’s transmission goes out, your taxes were prepared incorrectly and you owe the IRS, you get a speeding ticket, or perhaps your unattractive kid gets invited to prom and now you have to buy the fancy outfit. (Just kidding on the last part.) The Rainy-Day Fund is just a small stash of money that’s there for life’s everyday “oopsie.”

Now that the economy is doing better and you may have gotten a raise or a promotion, I would encourage you to start systematically saving a small amount to help pay for these annoyance expenditures. I’m not talking about anything crazy here, but possibly give up your daily mocha and start putting that money in an account for a rainy day. It can add up quickly! A $20 weekly savings adds up to $80 a month and then, a year later, you’re looking at $1,000 saved for that rainy-day expense. So, in short, don’t let this increasing wage environment go to waste. Start slowly putting money into your newly-established Rainy-Day Fund.

“It’s the Economy, Stupid”

Happy Independence Day to all!

This year has been a much more volatile year in the stock indices in comparison to 2018. Many of our clients have questioned the ups and downs we’ve experienced for the last four months, pretty much since President Trump has started down the path of placing tariffs on some of our most notable trading partners. These moves are part of what I believe to be a series of negotiable steps to move toward a more favorable trade environment for the United State.

At OLV, we have a very positive outlook with regard to the economy. We’ve had to take the approach of only looking at the headlines and completely blocking out the narrative. We don’t care if you watch CNN, MSNBC or Fox News, we really don’t think any of them are doing the headlines justice and come at all stories with extreme bias. This can be very dangerous to an investor’s health – both mental and financial. When we read the headlines and ignore the narrative, we see a lot of good information, such as an extremely positive unemployment situation. The department of labor said that the unemployment rate reported in June was 3.8% ( Honestly, I don’t need them to report how good the unemployment situation is, because I can look almost anywhere and see “help wanted” signs.

Two of my clients who are in charge of employment for both a manufacturing company and a large court house are both telling me the same thing: they can’t keep employees due to extreme wage pressures and staff being poached by other firms offering better work packages and work environments. I’ve even heard of signing bonuses for manufacturing jobs! The Atlanta Federal Reserve just upped their 2nd Quarter forecast for economic growth to 4.8! ( This number is larger than anything I could ever have predicted 18 months ago. In fact, we haven’t seen 4.8% growth since the 1990s ( Add to this the fact that for the first time in history, there are more job openings than job-seekers, with a record 6.7 million job openings and 6.4 million possible employees (!

I don’t care what side of the aisle you support in Washington, the numbers speak for themselves and they are speaking loudly. We think this could be the second inning of this economic expansionary phase and that we could be well rewarded over the next 5-7 years for staying the course in our investment strategies.

As Bill Clinton’s campaign strategist, James Carville, said in his 1992 campaign: “It’s the economy, stupid!” In fact, it looks like President Trump stole a page out of Slick Willy’s playbook from that campaign, which included the phrases, “Change vs. More of the Same,” and “Don’t forget health care.”
In summary, if investors insist on watching the mainstream media, I encourage them to ignore all the narrative and just watch the headlines. In my opinion, things in the economy are really solid, and it looks like there is much more to come.

Buckle Up, Buttercup!

Volatility & Risk Tolerance

At OLV Investment Group, we had the pleasure of hiring an international intern who is attending the University of Michigan. Muhammad Ammar is hardworking and eager to learn. In fact, when asked during his first week if he was willing to work an unscheduled, 13-hour day, he jumped at the opportunity. This long day included an hour drive to our Livonia office where we held a seminar regarding risk tolerance and the tools we utilize when to determine how much risk a client is comfortable with.

During the 60-minute trip to Livonia, I may have accidentally driven significantly above the speed limit. Our engaging conversation was regarding cultural differences and politics. Our intern, who has asked to be known as Ammar, his given name in Dubai, was very engaged in our discussion when I received a phone call from my business partner. We had been talking on the phone for a few minutes when a sea of red brake lights lit up both of our faces. The speedometer indicated I was going in access of 85 MPH. As I hit the brakes, phone in hand, Ammar let out a very small shriek as he realized the seriousness of the situation. He was genuinely afraid that he was about to be involved in a high-speed auto accident. Needless to say, the car was very much under control and that type of traffic I often experience during my business excursions.

This is a perfect analogy when thinking about the level of risk that any given client is taking with their investment portfolio. Truly, as long as traffic is moving swiftly and there are no accidents, most people love moving quickly on the expressway … heck, that’s why it is named the expressway. Same thing typically goes for the stock market. When things are moving swiftly higher, like they did last year as measured by the S&P 500, everyone loves the ride up. It’s very comfortable cruising at 80 MPH and just like with the stock market, when it’s rising quickly, we all can get to our destination quickly. Driving fast on the expressway and being in a very heavily stock-weighted portfolio, although exhilarating at times, can also end up creating moments of near panic and may cause inexperienced drivers/investors to make poor decisions and potentially end up in dire circumstances.

Volatility in the stock market often, just like abrupt changes in traffic patterns, can happen in the blink of an eye.

Some people, like myself, are willing to take the risks of driving faster and I understand that there will be times when I may have some close calls. For people newer to expressway driving the constant speed changes and weaving in and out of traffic can be quite unnerving.

When it comes to taking risk in your investment portfolio, determining your risk tolerance is not really about how much you like to make money as much as it’s about how miserable you feel when you lose money. A good rule of thumb may be that if you can’t go on a family vacation without checking on your portfolio, you may be overexposed to risk. There are many great tools available to investors to determine the level of volatility they can handle. Our firm has multiple new tools that we consider to be cutting-edge. Make sure you consult your financial advisor regarding the speed at which your portfolio is moving, and whether that still lines up with your goals and your tolerance for sudden traffic jams. As a public service announcement: arrive alive! Don’t for get to buckle up while doing your summer traveling.

Roth IRA Conversion Strategies in 2018

A few reasons why this may be a good idea

For a certain group of investors, a conversion of their Traditional IRA into a Roth IRA could be an effective move to hedge long-term bets against higher tax rates in the future. For some living in Michigan, this strategy could also be a very viable way to pass assets onto the next generation and help manage taxation to them at both federal and state tax levels.

Essentially, there are two groups that can potentially benefit when it comes to Roth Conversions and those are the younger investors (which is relative) and the wealthy. The younger a person is when the conversion takes place, the better – because there is an eventual break-even point in number of years that the conversion will reach, depending on different variables like rate of return, taxes paid on conversion, and future tax bracket. This break-even could possibly happen anytime between nine and 17 years, depending on actual performance, tax rates applied when the conversion takes place, and future tax rates.*

The older, wealthy investor may benefit from Roth IRA conversion in two ways. First, Required Minimum Distributions are not required on Roth IRAs, so this asset can continue to grow, tax-free, as long as the investor lives and then can be transferred to the next generation and maintain that tax-free status. An Inherited Roth IRA is subject to annual required withdrawals by the person who inherited it; but essentially, these can be tax-free withdrawals and will be stretched out over the new owner’s life expectancy.** If you were to leave a Roth IRA to a 30-year-old, you would be able to make withdrawals over the next 54 years while the money in the Roth continues to accumulate, tax-free. The second real benefit of the Roth Conversion for older, wealthy people looking to pass assets on to the next generation is that in Michigan, if you were born before 1946, you are not required to pay Michigan State income tax on your distribution up to $99,723 if filing jointly***, which is currently 4.25%. Anyone born after that would be subject to the Michigan income tax on retirement distributions. So, if you were born before 1946 and are looking to pass IRA assets onto the next generation, you really should work with your tax advisor and develop a sound strategy to possibly convert these assets, so that you and your heirs will be able to completely avoid the state tax associated with regular distributions from inherited Traditional IRAs.

Traditional IRA conversions to a Roth IRA are not a one-shoe-fits-all type of scenario, by any means. Each and every situation will be dependent on the calculations and the numbers specific to that investor. The real-life application of Roth conversions should be done with both your tax consultant and your financial advisor to make sure that everyone is on the same page in terms of the reason driving the conversion and the timeline over which the conversion will happen. Conversions that I have executed for clients rarely happen all at one time, in an effort to manage the marginal income tax bracket’s effect on the last dollar earned.

Given the new tax laws that are in place for the next eight years, I would strongly advise that investors who have an interest in a Roth conversion strategy talk to their financial advisor and tax advisor to start the evaluation process.

This material is provided for general and educational purposes only and is not intended as tax, legal or investment advice (or for use to avoid penalties that may be imposed under U.S. Federal tax laws). Please consult your tax advisor for advice regarding your personal tax situation.
Conversion from a traditional IRA to a Roth first requires paying taxes on any pre-tax contributions, plus any gains. Additionally, the money used to pay these taxes cannot come from your traditional IRA without a 105 penalty, if you are under age 59-1/2.
Converted amounts can be distributed without penalty after five years, beginning January 1 of the year of conversion and ending on December 31 of the fifth year. Each conversion has a separate five-year holding period. If you are under 59-1/2 and take a distribution of converted amounts prior to the five-year holding period you may be subject to the 10% premature penalty. Distribution of earnings before completing a five-year holding period and attaining age 59-1/2 may be subject to tax and 10% penalty.