Inside the Economy: Consumer Spending and COVID 19

By | Economic Discussion, Economy, SH&J Blog | No Comments

This week on “Inside the Economy”, we refocus on the biggest driver of the economy, consumer spending. Retail sales were up in May, auto sales are climbing back and sales of new homes returned to a level of normalcy. An upward trend in consumer spending is a sign of economic relief, however states and local governments may still have challenges ahead. How has COVID-19 affected state revenues and what is the implication for municipal bonds? Tune in to find out!

Key Takeaways:

  • Consumer Spending is on an upward trajectory and May data showed a big uptick in retail, auto and new home sales. 
  • Forbearances have mostly paused, and the housing market is returning to normal even though most states still are not allowing physical showings. 
  • State and Local governments have seen a big drop in revenue. This may point to more aid from the federal government. 


Does a Roth IRA Conversion Make Sense for you in 2020?

By | Economy, Investing, Investment Portfolio, SH&J Blog | No Comments

The Roth conversion has been a tool available to financial professionals for a long time to help clients minimize future tax liability. Conversions are helpful in specific instances, but many times are not applicable to every client situation. What about the culmination of events in 2020 has made the Roth conversion more relevant than years past?

What is a Roth Conversion?

Most employees will contribute to a tax-deferred retirement plan while they are working. This comes in many forms: a traditional IRA, a 401(k), a 403(b), etc. These retirement plans provide you with a tax deduction in the year a contribution is made. The funds then grow tax-deferred until it becomes time to make withdrawals. The IRS requires these account types to withdraw a Required Minimum Distribution at age 72 (changed in 2020 from 70 ½). This means you will pay taxes on the original contributions and the investment growth that has accrued over the years.

A Roth conversion is the transferring of retirement funds from a tax-deferred IRA account into a Roth IRA. Roth IRAs differ from the previous listed account types because taxes are paid in the year in that the contribution or conversion takes place. On top of that, the growth on the contributions/conversions is exempt from taxes and there are no mandatory withdrawals during retirement. 

What is the purpose of a Roth Conversion?

There are a few reasons why Roth conversions are a popular financial planning tool. One of the most common reasonings for converting tax-deferred funds to a Roth is to create a tax-free bucket for withdrawals during retirement. Having both tax-deferred and tax-free assets during retirement provides more flexibility when it comes to tax planning and client portfolio distributions for spending.  Roth conversions can also be appealing if you expect to be in a higher marginal tax bracket in retirement than the year you make the conversion. This is rare, but plausible especially in unique circumstances like this year. By strategizing, you may be able to use this tool to make a series of smaller conversions during years with lower tax implications to minimize taxes paid over the long run. 

If you have time on your side, compounding returns on the conversions could benefit you over a long period of investing. On traditional IRA assets, investors pay taxes on investment gains when they withdraw money but with Roth assets, the gains grow tax-free. It is also a tool for investors who would like to leave tax-free assets to their heirs. If that is the case, a Roth conversion may make sense for your situation. 

Why is this a relevant topic in 2020?

This year has been filled with trials and tribulations and we still have half a year ahead of us. From a global pandemic to world-wide protests and heightened discussions regarding race discrimination, the world has seen a great deal of challenges and change in 6 short months. What about this year makes the conversation regarding Roth conversions more relevant than years past? First off, many Americans are going to see less income this year in comparison to prior years. This could be due to losing a job or seeing less customers during the government stay-in-place order. This could also be due to The Cares Act allowing those who are required to take Required Minimum Distributions to skip it for the year 2020, creating less taxable income this year. We are also living during a time of historically low-income tax brackets. With the increase in government spending, unemployment benefits and use of federal resources, we will most likely see increased tax rates in our future. If that is the case, it may make sense to pay taxes this year before they are raised. 

Our team at Sharkey, Howes & Javer is here to help you explore all your financial options. Contact Sharkey, Howes & Javer today to speak with a CERTIFIED FINANCIAL PLANNER™ to see if a Roth conversion makes sense for you in 2020.

Inside the Economy: Catching Up with COVID-19

By | Economic Discussion, Economy, SH&J Blog | No Comments

This week on “Inside the Economy”, Americans have spent the last few months saving more and spending less. As spending begins to resuscitate, where are we seeing inflation in the system? We are starting to see an increase in travelers making their way through TSA but are nowhere near the 2.5 million flyers per day we saw during summer 2019. How are the airlines coping with the slower summer days? Through a volatile market, who are the current winners and losers? Tune in to find out!

Key Takeaways:

  • Initial jobless claims are decreasing in Colorado while some are going back to work— others are still hesitant to spend their hard-earned money
  • The demand for recreation services and outdoor equipment has increased prices 
  • Home sales are picking back up as Americans are staying local
  • Airlines are leaning on CARES Act Support to navigate through hard times
  • The U.S. dollar has been losing strength in conjunction with oil prices and low interest rates


Market Insights and Commentary – Summer 2020

By | SH&J Blog, Stock Market | No Comments

Murphy’s Law: “If Something Can Go Wrong, it Will”

Prince Harry and Duchess Meghan Markle resigned from their duties as senior royals, the tragic death of NBA superstar Kobe Bryant, President Trump’s impeachment trial, “Brexit”, and Iranian conflict all took place within the first 30 days of 2020. How naïve we would become when COVID-19 overshadowed it all. 

The second half of Murphy’s Law says if something can go wrong, it will… and usually at the worst time. This time, the second part of that old adage is not entirely true. 2020 started on the shoulders of a record year. 2019 was a year of incredible global growth and portfolio returns. In this case, it makes sense to revise the second part of Murphy’s Law: “If something can go wrong, it will…and usually all at once. In February, the S&P 500 was overvalued and due for a correction. Then, COVID-19 developed into a global pandemic, halting output and testing healthcare systems. The trifecta was Russia and Saudi Arabia started a price war on oil. Three converging events drove global stock markets into a fast, downward spiral.


S&P Drops in Bear Markets

A Chasm in the Data and Performance

From February 19th to March 23rd the S&P 500 declined 34%. Then, in the next month and a half the index rallied over 30%. The global stock markets continue to climb amidst the worst economic data we have seen in over 100 years. Global Central Banks, governments, and science communities are due most of the credit for the quick recovery. The Federal reserve injected $2 trillion into the economy within weeks and supported credit markets with massive bond purchasing. Governments are financing the smartest minds in science to accelerate finding and mass producing a vaccine. The world has come together, and the markets are betting on a vaccine and a clear path forward by the end of 2020. Can this be the only explanation for why stocks have rallied? Fundamentally, the stock prices are not supported by economic data. 

As state and local economies begin to reopen, some small businesses will not return. With over 35 million jobs lost, many will be permanent. During the economic shut down, many of the small and local businesses lost the battle to large conglomerates such as Target, Wal-Mart, and Amazon. You may find an out of business sign the next time you walk by your favorite shop. This dichotomy between small and large companies is directly represented in the stock market. A handful of the largest companies are carrying the markets higher. Large growth stocks are slightly positive, year to date, at the time of this writing, while small and mid-cap companies are down more than -15%. 


Historically, during recessions, we see a few companies thrive and evolve into clear winners against their competition. We also tend to see more companies restructure or file for bankruptcy. As we progress through this rare time, the gap between winners and losers will likely widen. 

Moving Forward

What will summer 2020 have in store for us? A second wave of COVID-19 cases? Extended shelter at home orders? A successful reopening? A “V” recovery in the stock market? The future is elusive. One thing is certain; we will learn more about the virus and the economic and social impacts of it. Meeting friends at a coffee shop, taking a cruise, going out to eat and office interactions will all look a little different, if they happen at all. As investors we must proceed with caution, while being opportunistic. 2020 still holds a U.S. election. Tensions with China are tighter than ever. The race to a vaccine and its effectiveness are still uncertain. However, we see opportunity in sectors such as global technology companies, healthcare equipment and other evolving markets. The new normal has just started. Hopefully, we can learn from this, evolve and grow into a better world. Maybe we should be asking, how much better will things be a year from now, in 2021? Seems the stock market is becoming more and more optimistic about the future.

Please Note: We will be continuing our Summer Hours by closing the office at 1:00 pm on Fridays through September 4th.  We hope you have a wonderful summer! 

Strategies to Pay Down Student Loans

By | SH&J Blog, Tips | No Comments

College attendance and cost has dramatically increased over the years. It’s no surprise student debt has piled up as well. Finding a job, following your budget, saving for retirement, buying a home, and planning fun experiences is a difficult balancing act after graduating college. In this article we will cover different strategies to pay down debt and key actions you can take to get rid of student loans.

Know what type of loans you have.

Most students will have both subsidized and unsubsidized loans. The government will pay the interest on a subsidized loan while you are in school. If you have unsubsidized loans, the interest will start accruing during your school years. This can result in a much bigger debt balance than you realize when you get out of school. If you do have unsubsidized loans, it can be a good idea to try and pay the interest along the way if you can balance work and school. 

Types of Student Loans

Does refinancing make sense?

Student loan interest rates can be as high as 7% or 8%. If you have good credit and refinancing can save you money in interest over the life of the loan, consolidating your debt may be a good option. This could simplify your debt obligation to one payment and potentially could lower your monthly amount due. The government also has different options like pay as you earn or income-based payment options where you pay more as your income increases. That said, be careful about refinancing Federal loans into private loans as you could lose some of the favorable re-payment options you have with Federal loans. Sometimes, depending on your circumstances, these re-payment options could outweigh the lower interest rate you may get by refinancing. Be sure to confirm your options of consolidating vs. refinancing.

Make extra payments

If you have extra cash flow or receive a tax refund, bonus or raise it may make sense to make an extra payment on your student loans. If you do decide to pay more towards your student loans, make sure it goes to the balance of your loan, not next month’s payment.  We generally recommend paying off your highest interest rate debt first, so if you have credit card debt or other loans at higher interest rates try focusing on paying down those balances first. 

Know your repayment options

Certain career paths or programs could qualify you for student loan forgiveness. Do your research before you stop paying or decide to defer your loans. The government has strict qualifications for loan forgiveness, so make sure you qualify and receive loan forgiveness before you stop making payments. 

Loan Repayment

Consider a 529 plan

With the SECURE Act passing at the end of 2019, there were changes made to 529 plan rules. $10,000 per lifetime can be used from a 529 to pay down student debt. However, make sure to check your state laws. Some states don’t have a state tax deduction for 529 contributions and some states won’t let you use 529 funds towards student loans. 

Always stay on top of your student debt and know your options. If you have questions or need help contact Sharkey, Howes & Javer for a free consultation with one of our CERTIFIED FINANCIAL PLANNER™ professionals.