Bobble Heads are cute and may be worth something in the future.
This morning while I was working out, I was watching CNBC. As most of us know, today at 2PM Janet Yellen, on behalf of the Federal Open Market Committee (FOMC), announced that there will not be a rate hike in September.
Between 7 and 9 this morning, CNBC had guests on to discuss what the FOMC will do and how it will affect the markets. Over the course of Squawk Box, these are the opinions that I heard:
1)The FOMC will not raise interest rates and the market will have a relief rally.
2)The FOMC will not raise interest rates and the market will tank because it is saying implicitly that our economy is too week to stand a rate hike now.
3)The FOMC will raise interest rates now, and the market will rally since this rate increase is long overdue.
4)The FOMC will raise interest rates and this will cause the market to tumble because of fear that rising interest rates will crush the economy.
Unless I am mistaken, these opinions pretty much covered every possible scenario. Well, the FOMC let the current interest stand and the market, although volatile, ended up little changed for the day.
Interestingly enough that means that none of the talking heads from this morning were right. It is clear that predicting short term interest rates and market movements is a fool’s game, but what do we do?
Personally I was a little disappointed that the Federal Funds Rate is staying so low. Someday I would like to buy a CD or a short term treasury and not count my interest in pennies per month. But for the moment we have to work with what we have been given. The world is the same today as it was yesterday. The markets had, at least so far, a short term correction. Our intermediate investment goals must be met by conservative total return investing, looking for dividends and not stretching for yield. Exotic investments that try to create yield in such a low interest environment are filled with hidden risks.
So we will stick to our knitting, tweaking the investments where necessary and trying to reach our investment goals without taking on unnecessary risk.
The views expressed are not necessarily the opinion of Royal Alliance Associates, Inc., and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Individual circumstances vary. Investing is subject to risks including loss of principal invested. No strategy including asset allocation or diversification can assure a profit against loss.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, and other factors. Securities sold or redeemed prior to maturity may be subject to a substantial gain or loss. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities.
This material contains forward looking statements and projections. It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.
The Roth Advantage Part 2: First Time Homebuyer
March 16, 2018
Dan Kresh FPQP™
There are ways for first time homebuyers to access some funds from retirement accounts without "penalty". Though you may be able to avoid an early withdrawal penalty, you will be lowering the amount in your retirement account. You would likely be purchasing your first home many years before you plan to retire, depleting your account when it has the most time to grow. This is a complicated decision. It is important to understand the differences between how you could access funds early from Traditional or Roth IRAs.
A first-time homebuyer can access up to $10,000 from either a Roth or Traditional IRA to contribute towards a down payment[i]. Any funds taken out from a Traditional IRA, for any reason, including a first-time home purchase would be taxed as ordinary income. The tax deferred nature of the Traditional IRA is its biggest advantage, so using funds from a Traditional IRA to help fund a home purchase will forfeit some of that benefit while shrinking your nest egg.
With a Roth IRA, you can take out contributions at any time for any reason without a tax consequence since it's already after-tax dollars[ii]. The Roth IRA owner can also access up to $10,000 of profit for a first-time home purchase, and if you have had the Roth for more than 5 years that would be tax free.[iii] You should NEVER consider a retirement fund an emergency fund, however; the fact remains that there are less barriers and penalties to accessing funds from a Roth IRA early than from a Traditional IRA.
Tapping into your retirement account to buy a home should not be your first choice, but it's nice to know what options could be on the table. You have the best chance of growing your nest egg if you contribute the maximum into your IRA for as long as possible. Taking funds out of your retirement account before retirement age, with or without penalty and or tax, means you will have a smaller principal to hopefully compound over time. Your retirement money will serve you best in retirement and should be invested in a well-diversified portfolio for the long haul. Any investment involves the risk of loss of principal but the more diverse your investments and the longer your time horizon the better your chance is to mitigate that risk.
If your income is at or approaching limits for contributing to a Roth IRA part 3 of this series will discuss a potential way for you to contribute to a Roth IRA using Roth conversions. It's never too early to start thinking about retirement. The earlier you start the more time you have for growth. You work hard for your money, we work hard so your money can work for you.
[ii]Roth IRA Withdrawl
[iii]IRA To Buy A House
A Roth IRA distribution is qualified if you've had the account for at least five years and/or the distribution is made after you've reached age 59½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses. Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.
You should always consult a tax professional and though this piece contains some tax information it should not be considered tax advice.