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Why I am Bullish

by | Jul 15, 2022 | The Ship's Wheel

 

Why I Am Bullish

Lots of people are concerned about their finances right now. War in Ukraine, high prices at the gas pump, Washington’s dysfunctionality, baby formula shortages, inflation, higher interest rates, and the S&P 500’s fourth-worst start to a year in the last 100 years.

A cartoon of a man with a hat and glasses.

 

Emotions cannot be controlled.  They simply happen.  But you don’t have to give in to your emotions.  Every emotion, every feeling, you have ever had has passed, hasn’t it?  Whatever you are feeling now about your investments will pass too.  Today’s news will change, but your hopes, dreams, goals, and needs won’t.  Don’t make a permanent mistake because of a temporary feeling.  

The stock market is there to serve investors, not instruct them.  Investors assess the prospects for an investment.  Opportunity is created when the stock price and business values diverge.  Too often, however, investors allow themselves to be informed solely by the stock price movement.  These investors are not served by the stock market.  Instead, they are instructed by it, usually to their detriment.

Neither Jay nor I nor anyone else knows what the stock market will do today, tomorrow, next week, or next month. We spend our days trying not to do dumb things. If we can successfully avoid doing dumb things, you will do very well. 

One way we try to avoid doing dumb things is by investing in companies that generate profits, create proven products and services, and maintain strong balance sheets.  We do not get caught up in the latest fad that promises to change the world.  The businesses we invest in might be boring, but the long-term returns are anything but.

You have heard the saying “Buy low, sell high.”  It is easy to say, but emotionally hard to do during uncertain times like these.  Great American companies will continue to generate products and services consumers willingly buy.  Through investing in them, you profit as they profit.  

Hard times spur innovation and force companies to improve efficiency, which increases profits over time.  Covid has forced businesses to change.  The supply chains issues are forcing products to be redesigned to use fewer components and substitute to readily available raw materials.  The adoption of emerging technologies has been radically accelerated, allowing for further innovation. Skilled executives will buy other companies or their own company’s stock on the cheap.

To highlight a few companies, Microsoft has doubled its employees’ bonus pool, Google has committed to hiring more engineers, and Apple has showered its top hardware talent with $200,000 bonuses. That sounds like companies investing in their talent. They had $295 billion in cash between them on March 31.  They can use this cash to develop new products, hire more talent, acquire companies, or repurchase shares

I am confident better days lay ahead for America and American business.  Just like there was no signal prior to the sell-off, there will not be a signal before positive results return – and they are sure to return.  I will probably look foolish for an uncomfortably long time, but I would be foolish if I wasn’t invested to profit from the inevitable recovery.

We are here if you are feeling uncomfortable and would like to set up a meeting, please give us a call at 772-320-9658.

-Will

Am I eligible to Convert my Traditional IRA to a Roth IRA?

Converting your Traditional IRA to a Roth IRA can be one of the best financial decisions made when saving for retirement if done correctly. Prior to 2010 there was an income limit that restricted the conversion to a Roth IRA if your (AGI) was over $100,000. As of 2013, the income limitation does not exist for a conversion, but it still exists for contributions. This does not mean it will not come back in the future, but for 2013 and beyond anyone can convert an existing Traditional IRA to a Roth IRA regardless of income.

For example, someone has a Traditional IRA with $350,000 invested, that IRA can be converted to a Roth and all the taxes need to be paid for the tax year the conversion was completed. After converting to a Roth, the money grows tax-free. Paying the taxes on this money now might sound like a tough pill to swallow, but the potential tax savings down the road can be significant. Wouldn’t you rather pay taxes on $350,000 now than pay taxes on $1,000,000 in the future? One of the keys to doing this correctly is paying the taxes with funds outside of a qualified plan. Paying the taxes with money from the IRA defeats the purpose and will negate the full tax saving potential.

This is just one example of completing a Roth conversion. You can do partial conversions as well. This means you do not have to convert the entire account. You could develop a strategy of doing partial Roth conversions over multiple years. The key is to consult with your tax advisor or accountant to make sure the conversion will not put you into another tax bracket. Every dollar you convert is taxed at your ordinary income tax rate. This strategy works best for younger investors who have longer to allow the money to grow and compound. It can also work well for an older investor who is in a low tax bracket. Another reason to convert to a Roth is that Roth IRAs are not subject to the Required Minimum Distribution after you reach age 73. For those of you out there that do not plan to use your IRA money to live this can be a huge advantage when it comes to passing along your IRA to your beneficiaries. Roth IRAs continue to grow tax-free after the conversion and after you die. There are distribution requirements for the beneficiaries, but the distributions are tax-free as well.
This strategy might not be right for everyone. I would advise you to consult with a Certified Financial Planner™ or your tax advisor prior to taking advantage of this potentially large tax savings. One of the best times to complete a Roth conversion is when the value of your Traditional IRA has fallen due to a market correction like we experienced in 2022. If you have questions on this article or would like to schedule a free financial review. Please contact Jay Chapman at 772-320-9658 or email [email protected].

Jay Chapman| CFP®

Jay Chapman| CFP®

Founder

Jay Chapman, CFP®, is founder of Chapman Capital Advisors, as a member of the advisory team. He has over 20 years of experience in the Financial Services industry.

Will Thompson | CFA®, CFP®, AIF®

Will Thompson | CFA®, CFP®, AIF®

Advisor

Will provides the in-house expertise of CFP®, CFA®, and AIF® that is uncommon for boutique firms.


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