Meet Our New Teammate - Rachael

Meet Our New Teammate - Rachael

This week Jake introduces you to our new addition at TEN, Rachael, who is already becoming an integral part of the firm, from event planning to daily operations.

Five Things You Should Know

1. Equity Markets – were lower this week with U.S. stocks (S&P 500) down -1.16% while international stocks (EAFE) fell -3.10%.
2. Fixed Income Markets – were lower with investment grade bonds (AGG) down -1.09% while high yield bonds (JNK) fell -2.55%.
3. Inflation Reduction Act – this week President Biden signed the tax, climate and health-care spending package that is expected to total $437 billion. Some of the most notable inclusions are price caps for medicines, a 1% excise tax on stock buybacks, a 15% minimum tax on corporations, and a range of climate and energy provisions such as tax credits for electric vehicles.
4. US Trade Talks with Taiwan – despite strong opposition from China, the U.S. and Taiwan are beginning formal talks on a trade and economic initiative. Due to Taiwan's position as the world’s largest producer of semiconductors, the U.S. is looking to shore up their access to cutting-edge chips technology that saw them become Taiwan’s 3rd largest trading partner in 2021.
5. Key Insight – [VIDEO] This week Jake introduces you to our new addition at TEN, Rachael Bitz, who is already becoming an integral part of the firm, from event planning to daily operations. [ARTICLE] As we near the end of summer, the season of Required Minimum Distributions is upon us. Dave will run you through some tips and tricks on how to effectively manage these during market volatility.

Insights for Investors

“A fine is a tax for doing something wrong. A tax is a fine for doing something right” – Anonymous

RMD’s – Should you take as cash or in-kind?

Many of you are at that wonderful age in which the IRS mandates you begin pulling money out of your retirement accounts you have so diligently saved over the course of your working years. You’ve benefited from years of compounding growth tax free, and now it’s that time in which you must begin paying taxes on these dollars each year.

We’ve talked in the past around the concept of minimizing taxes on these Required Minimum Distributions (RMD’s) by way of making your annual charitable contributions directly from your IRA (a qualified Charitable Distribution). But what if one decides to keep their RMD’s, or at least a portion of them? We’ve had many people ask this year about the following questions:

1. Do we have to take the RMD at these depressed market levels we are experiencing year to date?
2. If yes, are there any strategies to minimize the impact of “selling low” if the market doesn’t come back but year’s end?

Solutions:

The quick answer to question number one is a resounding “yes”! And to compound the issue for your 2022 RMD’s, the formula for how much you have to pull from your retirement accounts this year are based on the December 31^st, 2021 values…which are probably quite a bit higher than your current account values as we entered a bear market mid-year.

“There are only two certainties in life. Death and Taxes.” – Benjamin Franklin

While the IRS in recent years has delayed the age in which you have to start taking your RMD’s (from age 70.5 to age 72), RMD’s aren’t going anywhere. So, while we can’t soften the blow from a tax strategy standpoint should you want to keep your RMD dollars, we look to the basic investment strategy of taking shares of investment positions you own within your retirement accounts that equal the RMD you must take and shift them to a brokerage account.

This strategy does two things effectively:

1. Maintains a fully invested market exposure but shifts the asset from a tax deferred account to a taxable account. Doing so also taxes more shares of what you own at a depreciated level, thus paying the same amount of taxes on more shares.
2. Future growth on these shares will be at capital gains rates (0%, 15%, or 20%) based on current tax law. This is much better than the ordinary income tax rates you’d experience when you pull money out of your retirement accounts down the road.

A quick example below is from a recent Morningstar publication:

“Say, for example, a 75-year-old in the 32% tax bracket takes an in-kind RMD of a stock position worth $50,000 to fulfill his RMDs. He'd owe $16,000 in taxes on the distribution—ideally paying the taxes with separate assets. If the stock appreciates to $80,000 during the next three years and he decides to sell, his tax bill would be $4,500—his $30,000 in appreciation multiplied by the 15% capital gains rate.

By contrast, say that same retiree opts to hang on to the depressed stock within the IRA and takes a distribution of $50,000 in cash from a money market fund instead. His tax bill on the RMD would be the same—$16,000. But if he were to eventually sell the once-depressed stock from the IRA at a market value of $80,000, his tax bill on that distribution would be $25,600.”

In Closing:

While it can be painful to pay that tax bill, remember it means you did something right. You took advantage of the retirement accounts available to you and you saved well. And while you can’t always avoid the tax bill this year, that doesn’t mean you can’t take advantage of market dislocations to offset future tax bills while keeping your investment strategy intact along the way.


To your health and living richly,

Dave and the team at TEN Capital

Data, Just the Data

Data points this week included:

• U.S. Jobless Claims – fell by 2K to a claimant count of 250K for the week ending August 13^th. This was far below expectations of count of 265K. The four-week moving average has moved down 2.7K to a count of 256.7K.
• U.S. Retail Sales – stalled out with a neutral 0% reading for the month of July – down after an 0.8% rise the month previous. Gasoline sales fell (1.8%), with clothing and accessory stores falling (0.6%) and department stores contracting (0.5%). Sales at non-store retailers and miscellaneous store retailers expanded 1.5% 2.7% and 1.5%, respectively.
• U.S. Industrial Production – rose 0.6% MoM from the month previous in July and beat expectations of a rise of 0.3%. Manufacturing output increased by 0.7%, which is a good sign after a (0.4%) decline in June. Durable and non-durable manufacturing rose 1.3% and 0.1%, respectively. The mining index rose 0.7%, falling lower after the 2% increase in June.
• U.S. Housing Starts & Permits – fell (9.6%) MoM to an annualized rate of 1.4M in the month of July. This is the lowest reading since February of last year and far below forecasts of 1.54M. Single family housing starts contracted (10.1%) and multi-family housing starts also fell (10%).
• U.S. Existing Home Sales – contracted (5.9%) to an annually adjusted rate of 4.81M for July, marking the lowest rate since May 2020. Sales have declined for six consecutive months, as higher mortgage rates still weigh heavy on homebuyers. The median existing home price is $403.8K – up 10.8% from this time in 2021.
• U.S. Manufacturing Index – the Philadelphia Fed index rose to 6.2 in the month of August after an abysmal negative July index reading of (12.3). This was well above market forecasts of a decline of (5). The general activity index and employment index remained positive, but the new orders index remained negative.
• U.K. CPI – rose for the tenth consecutive month to a whopping 10.1% YoY – up from the 9.4% in June and above forecasts of a 9.8% rise. This marks the highest reading since 1982 with prices rising for housing and utilities, recreation, food, and restaurants – all up 20%, 5.6%, 12.6% and 8.9%, respectively. On a MoM basis, inflation is up 0.6%.