2016 End-of-Year Actions to Enhance Your Retirement Savings

Making contributions to your retirement accounts is guaranteed to strengthen your financial and retirement plan. This year December 31 is on a Saturday, which means you should be planning those 2016 contributions now and targeting Thursday, December 29 to have them completed. Take these actions to keep your retirement on track:

Detail of blackbird eggs in nest

Retirement Nest Egg

1. Make the maximum contributions to your employer-sponsored retirement plan — 401(k), 403(b), 457, or TSP.

If you have not contributed the annual maximum amount of $18,000 to your employer-sponsored retirement account in 2016, you can reduce your taxes significantly by doing so now. The 2016 employee limit is $18,000 (without catch-up contributions). Many plans allow you to accelerate your contributions before the end of the year; we support that action, provided you can still manage your cash flow and expenses reasonably well. The best way to avoid having to accelerate your contributions toward the end of 2017 is to set your automatic deferral percentage in January. (To help your planning: 2017 contribution limits are the same as in 2016.)

For other retirement plans such as a traditional IRA or Simplified Employee Pensions plan or SEP, check with your financial planner or tax professional.

Note: The amount of taxes you save is based on your marginal tax rate for an individual or joint return. If you’re in the 33% bracket, for every additional $1,000 you contribute to your 401(k) style retirement plan, you should save $330 in taxes.

2. If you are age 50 or older, take advantage of catch-up contributions.

At age 50 or older, you are allowed to make additional contributions to your employer-sponsored retirement plan — 401(k), 403(b), 457, or TSP. In 2016, you can defer an additional $6,000 from your salary into your retirement savings account for a maximum of $24,000 ($18,000 plus $6,000).


3. If you turned 70½, remember to take your Required Minimum Distribution.

After you reach the age of 70½, you are required to take a Required Minimum Distribution (RMD) from your retirement savings by December 31 of each year (except for the first time, when this distribution can be delayed until April 1 of the following year).

Therefore, if you happened to turn 70½ this year (2016), you can either: 1) take your first annual RMD by December 31, 2016 or 2) delay your 2016 RMD until April 1, 2017. In either case, you must also take your 2017 RMD by December 31, 2017.

If you turned 70½ last year (2015) or before, you must take RMDs from all of your IRA and 401(k) retirement accounts prior to December 31, 2016 or be subject to a maximum penalty of 50% of the amount you should have withdrawn. These distributions are taxed as ordinary income for the current tax year.

RMD tips:

Request that your annual RMD be broken into a monthly or quarterly automatic distribution in 2017 to avoid future RMD penalties.

If you have several retirement accounts, you can take your RMD from each account (which will preserve a record within the account that you in fact took the RMD), or you can take it from just one or some accounts, as long as it adds up to the full required RMD of your total retirement accounts.

wrapped up 100 dollar bills.

Use a QCD to minimize taxes and thereby enhance your retirement savings.

4. Use the Qualified Charitable Distribution (QCD) rule to minimize taxes. 

If you would like to avoid paying taxes on your RMD, and you are planning to make charitable contributions for 2016, you can do both in one step by taking advantage of the QCD rule. This rule allows you to use your RMD (or a portion of it) as a donation to a preferred charity or charities and have that amount of your distribution excluded from your gross income calculation for tax purposes.

Caveat: You must make the distribution to the charity directly from your IRA or 401(k) plan! To benefit from this rule, you must have a check issued by your broker or investment advisor directly to the charity or charities. Taking the distribution yourself and then paying the charity using your own checks subjects you to taxes on the distribution. You are limited to a maximum annual charitable contribution of $100,000 under this rule. Call your brokerage or investment advisor or tax professional for assistance if needed.

QCD Tip:

If you want to use the QCD rule to make multiple contributions to different charities, make a list of those charities and the dollar amounts, and send your list to your investment advisor or broker now to get ahead of the December rush. Also, keep a copy of this list handy; you can use it next year because the QCD rule became permanent in 2015.

In summary, be kind to yourself, your family, and your favorite charity — and help your retirement plan — by making retirement account contributions for 2016 before it’s too late!

Our Investment Perspective — Stay Calm and Carry On

Last night was very unsettling to many Americans. There are many issues in this election, but as your Chief Investment Officer, I am focused on your money and your investments:

1. We do well when we separate our emotional reactions from our investment process. A first rule is to not make any immediate, knee-jerk moves in response to the election outcome. The US stock market is incredibly resilient, and a recent example is the market’s reaction to Brexit in June. After an initial, sharp drop, the market recovered within the month.

Construction heavy equipment; caterpillar of excavator

Post-Election Investment Perspective

2. After the initial shock of Trump’s victory, I believe the market is digesting Trump’s three top fiscal policy priorities:

  • There will be corporate and personal tax reform. This is long overdue and has been stalled by gridlock in Washington. It is likely that Republicans who now control the three branches of government will be able to fix the policy that keeps $2 trillion trapped overseas in our large multi-national companies. Tim Cook of Apple said that as CEO he could not justify repatriating Apple’s foreign profits because the taxes due would be 40%. This will now change, and it will be good for the US economy and stock market.
  • Trump will spend significantly on infrastructure; Caterpillar is up 7% so far today.
  • The Republicans will roll back regulations. Not everyone will like how they do this, but it will benefit business in the near term.

3. Our whole team of analysts and advisors are watching investment results with utmost concentration. We work diligently with you to make sure you have the appropriate investment strategy for your long-term future. Please call your advisor if you care to discuss your investment strategy and how it is responding to post-election developments.

Yours truly,

Jim Bell, CFP®
Chief Investment Officer
President and Founder

Market Analysis – October 2016

A Growth Spurt for the US Economy, a headline in the October 29 Wall Street Journal, refers to the Commerce Department’s announcement that the US Gross Domestic Product (GDP) rose at a 2.9% annual rate for the third quarter ending in September. This is the fastest pace for GDP growth in two years, following the past three quarters below 2% growth. On October 31, another report announced that consumer spending climbed in September by the most in three months as incomes grew, signaling strength in the most important part of the US economy. These results show a solid handoff into the final quarter of 2016 and a chance for better growth in 2017.

stock or currency exchange market displau screen board

The 2.9% GDP growth announced October 28 helped the Dow Jones Industrial Average jump more than 80 points, but then fell to -8.5 after the FBI said it was reviewing new evidence regarding its email investigation of Hillary Clinton. As I wrote in last month’s letter, most analysts agree the US market favors a Clinton win at the polls November 8. Nate Silver’s 538 Forecast as of 6:30 pm on October 31 still has Hillary as a 75% favorite.

Also, business spending on research and development surged at an annual rate of 17% in the second quarter of 2016. This is the strongest research and development spending growth since 2006, which is significant, because during this recovery it has been weak. Economists consider research and development investment to be the most likely cause of a breakout in productivity and economic growth.

The 10-year US Treasury yield was 1.605% at the start of October and 1.834% at month’s end. This interest rate increase of 23 basis points or 14.3% meant negative bond performance in October. Bonds are a significant component of our Stable Growth and Cash Reserve strategies; fortunately, we emphasize short to intermediate-term bonds, which mitigates interest rate risk.

It seems we are all holding our breath to get past November 8, but there is no guarantee that eliminating the election uncertainty will have an immediate positive effect. Focusing on economic/investment fundamentals is strongly preferred to focusing on this disturbing election.

Qualified Charitable Distributions from IRAs

If you are age 70 ½ or older and have money in an IRA account, you must, as you may know, take a “required minimum distribution” or RMD from your account (excluding Roth IRAs). Not doing so can result in big trouble and penalties with the IRS. If you want to meet this requirement without increasing your taxable income — and support your favorite charity in the process, you might consider utilizing the Qualified Charitable Distribution (QCD) rule before the end of the calendar year.

wrapped up 100 dollar bills.

A QCD is an otherwise taxable distribution from a traditional IRA, owned by an individual who is age 70 ½ or older, that is paid directly from the IRA to a qualified charity. The maximum dollar amount of a QCD is limited to $100,000 per year, per taxpayer. A married couple, where both are subject to an RMD, may each contribute up to $100,000.

To complete a QCD from an IRA to a charity, you must:

  1. Be subject to a Requirement Minimum Distribution.
  2. Work with your IRA custodian and request a check made payable directly to the charity.
  3. Make certain the distribution does not have tax withholding.

While many custodians will mail the check directly to the charity, consider having the check made payable to the charity, then sent to you for forwarding to the charity. This allows you to keep a paper trail of the request and know the date of mailing.

Taking advantage of a Qualified Charitable Distribution takes a little extra coordination, but the benefit to your charity, and your taxes, make it worth the effort.


In addition to this Bell Finance Blog, you may want to read the insights at
the Bell Career/Life Coaching Blog.


Market Analysis – September 2016

The decision by the Federal Reserve at their September meeting to not raise interest rates brought some sunshine to the market. Financial and Technology stocks performed well in the third quarter. This alleviated concerns that advances in stocks are not sustainable unless the financial sector participates in the gains. The financial sector is rallying in spite of a couple problems. One is the thinly capitalized Deutsche Bank facing a potential huge fine in the US for its role in the 2008 mortgage crisis.The other is the sordid scandal unfolding at Wells Fargo over its unethical sales practices in retail banking operations. The prospect of the Fed raising rates by year-end strengthens banks because higher rates will increase their profitability.

The US Election

Now that we are past the first presidential debate, the odds point to Hillary Clinton as our Very close image of the red, white, and blue colors of an American flag.next president. Markets would likely prefer a Clinton win as Trump would bring major shifts in policy and considerable uncertainty. It seems clear Clinton believes trade is a net job producer for the US. From a market perspective, Clinton will be viewed more favorably on trade and immigration policy.

Stable Growth and Cash Reserve Strategies

Our Stable Growth Strategy is a combination of our conservative Class 4 Total Return Funds and our Class 5 Bond Funds. The goal of Stable Growth is to reduce market risk while aiming to grow ahead of inflation. Our Cash Reserve Strategy is even more conservative consisting of 100% bond funds. The Cash Reserve goal is to provide a better return than is available from banks and money market funds. Both these strategies have performed positively this year as conservative allocations have turned out well.

Heads Up

Each time a mutual fund or Exchange Traded Fund (ETF) pays shareholders a dividend or capital gain distribution, the share price declines by the same amount as the distribution. For example, a fund closes the trading day with a share price of $10.00. The next day the fund pays out a dividend of 32¢, and the share price of the fund will decline 32¢ to $9.68. Most shareholders reinvest distributions back into the funds, so the next day they automatically buy 32¢ more shares for each share they own. They now own more shares, and the total value of all the shares they own is accounted for by the 32¢ per share that was reinvested. Funds tend to pay out more capital gain distributions at the end of the year, so beware when you see a share price drop an unusual amount; check to see if the fund is paying a distribution.

A New Savings Plan to Help the Disabled Attend College: 529A

Millions of students will enroll in college this year, many using money from a 529 tax-advantaged savings plan to help defray the ever-growing cost of higher education. These plans have been in existence, in one form or another, since the late 1980s and have become the cornerstone for college financial planning. Two of the greatest benefits of 529 plans are: account earnings grow free from federal income tax, and withdrawals are tax-free as long as the proceeds are used for qualified higher education expenses.

Young disabled man studying at the table at home

What if significant disabilities stand between your child and college?

What if Disabled?

But what if significant disabilities stand between your child and college? Any family with a disabled member will tell you: even if college expenses are not in the future, it doesn’t mean significant educational expenses will not exist. Fortunately for these families, a new tax-advantaged savings plan was introduced in late 2014, through the Stephen Beck, Jr., Achieving a Better Life Experience Act, known by the acronym ABLE Act.

Long List of Covered Expenses

The plan, referred to as 529A or 529ABLE, is similar to an education 529 plan in that earnings on the contributions are not taxed as they accumulate and are tax-free when withdrawn if they are used to pay for qualified disability expenses for the designated beneficiary. The list of qualifying expenses is long, covering a greater range than 529 expenses, and includes education, housing, transportation, employment training and support, technology and personal support services.

Easier than a Special Needs Trust

Having a 529A account does not disqualify an individual from receiving federal and state aid for the disabled, such as Supplemental Security Income or Medicaid, as long as the amount held in the 529A does not exceed $100,000. This account can offer an easier, cheaper option than a special needs trust.

There are significant differences between the 529 and 529A plans. Final regulations for the 529A plan will be issued by the IRS later this year, and should be reviewed to determine if this plan could be right for your family. In the meantime, you can find more information by visiting http://www.savingforcollege.com/529-able-accounts/

Bond Market Outlook and Strategy 2016

In our last blog we shared an overview of our current thinking about the economy and the stock market this year. Here we will share our thoughts on the bond market. As always, please feel free to share your comments at the bottom of the page.

Vintage Bond - Background

Low Interest Rate Environment

The U.S. Federal Reserve raised interest rates for the first time in 10 years in December 2015 by one quarter point (0.25%). This was the first increase since June 2006. The historically-low interest rate environment over the last seven-plus years has created a demand for risk assets — one of the key drivers to the continued growth of equity markets.

The Federal Reserve has kept this low interest rate policy due to lower than expected U.S. inflation which has fluctuated between a calendar year low of 0.1% (2008) to as high as 3.0% (2011) through 2016. The Federal Reserve’s stated goal is to keep core inflation (based on Consumer Price Expenditures, CPE) above 2% annualized. Today the CPE is at 1.6% through the 12 months ended June 2016, so still under the Federal Reserve’s stated target.

Interest in Raising Interest Rates

The Fed’s interest in raising interest rates has been tempered by low inflation, a sluggish global economy, low oil prices, and by conflicts in a variety of both developed and emerging market economies. A strong dollar has also been a challenge for U.S. companies in terms of higher prices for U.S. exports.

The current 10-year Treasury yield has fallen from 2.27% at the beginning of 2016 to its current yield of about 1.56% and touched 1.36% in early July — a historic record low. Bell has lowered its expectation for an increase in interest rates and expects the 10-year treasury yield to remain in a range of 1.5% to 2.5% over the next 12 months.

Economic and Stock Market Overview 2016

As we enter the middle of the third quarter of 2016, we thought we’d share an overview of our current thinking about the economy and the stock market this year. Our next blog will address the bond market.

Global equity markets have been in a “bull market” (market in which share prices are in an extended uptrend) for the last 7½ years, since March of 2009 with the U.S. performing best among global indices. The U.S. market (S&P 500 index) is now in its third longest bull market in history.

An abstract closeup of two gold cast statuettes depicting a stylized bull and a bear in dramatic contrasting light representing a financial market trends on an isolated dark background

We view the current bull market as being in the latter stages of its life cycle. The valuation of U.S. stocks can be described as extended (though not in bubble territory yet). While U.S. corporate earnings have declined for the last four quarters, and sales growth has slowed, there are signs of improving conditions with forecasts for earnings moving back to positive territory in the latter half of 2016. As a result, we are cautiously positive regarding the U.S. economy and for U.S. stocks. We continue to favor U.S. over both Europe and Asia except for an allocation to Japan. Global issues, including BREXIT, have caused uncertainty in global markets making it unlikely that the Federal Reserve will raise interest rates quickly, if at all, in 2016. We continue to favor U.S. stocks, particularly dividend-paying stocks, over the rest of the world and believe the U.S. market can move higher for the rest of 2016 and into 2017 based on strong momentum and technical market indicators. However, we also expect more market volatility in the form of small downturns and corrections of between 10% and 20% as part of a normal market environment.

A point in favor of investing in Europe, Asia, and emerging markets in the future: An end to the bull market in U.S. stocks does not necessarily mean the end to the global bull market. Stocks are generally cheaper in nearly every locale outside the United States. Therefore, future weakness in U.S. stocks could simply mean a shift of investor focus from U.S. stocks to foreign stocks in search of more reasonable valuations and growth potential. We continue to look for investment opportunities outside the U.S. for signs of this transition.

Money Market Fund Reform

Driven by the 2008 financial crisis, the U.S. Security and Exchange Commission (SEC)SEC bldg has, in the last few years, implemented multiple rounds of reform regarding money market funds. These changes have been developed in an effort to increase fund liquidity and protect investors.

Financial institutions offering money market funds are required to implement the latest of these reforms by October 2016. The reforms involve:
1. A possible imposition of a liquidity fee of up to 2% and/or a redemption gate,
(which is a temporary suspension of redemptions for up to 10 business days)
2. The possibility of the share price dropping below $1
The rules vary somewhat among the three newly-established categories of funds:

Retail Prime and Retail Municipal Money Market Funds
Investors deemed to be “natural persons”, certain types of trusts, participant-directed retirement accounts, etc.
1. Funds are subject to a liquidity fee and/or a redemption gate.
2. Accounts are eligible for the constant price of $1 per share.
(Schwab will continue to seek to maintain a constant price of $1 per share).

Institutional Prime and Institutional Municipal Money Market Funds
Corporate accounts, certain types of trusts, non-participant-directed retirement accounts
1. Funds are subject to a liquidity fee and/or a redemption gate.
2. Price fluctuates and could drop below $1 or could be priced above $1.

Government Money Market Funds
For both retail and institutional accounts
1. Schwab does not plan to implement redemption fees and gates at this time.
2. Accounts are eligible for the constant price of $1 per share.

Charles Schwab, the custodian of Bell Investment Advisors’ client funds, began implementing the changes required by the SEC on June 1, 2016. No action is required by Bell or by our clients. If you have any questions, please contact us at 510.433.1066 or go to:


When Your Portfolio Isn’t Making Money

While preparing for our next gathering of The Women’s Roundtable later this month, “Keep Calm & Invest On: Taking the Emotion Out of Your Money”, where we plan to discuss investor behaviors and risk evaluations, we began to wonder what inherent reaction investors have in a market environment like the one we are experiencing  now — a highly volatile, low return environment. Let’s explain further.

Image of young businesswoman looks stressful with red stock exchange background

Safe or in Danger
As humans, we are built to perceive ourselves as either safe or in danger, and this concept can be applied to the markets. In years when the market is moving higher, investors perceive themselves to be safe and perhaps make poor decisions such as moving to a more aggressive strategy than his or her risk tolerance allows. When the market is moving lower, like it did to start this year with a correction of more than 10%, investors perceive themselves to be in danger and perhaps make poor decisions such as selling positions low.

The Question
This begs the question — how do investors perceive themselves when the market is rather flat and aimless?

The markets have done little since the beginning of 2015, with the MSCI All Country World Index declining -2.36% in 2015 and returning +2.30% YTD 2016 through June 3. Frustration with this lack of trajectory appears to be a common feeling among investors and advisors alike. Jeffrey Saut, Chief Investment Strategist at St. Petersburg, Florida-based Raymond James Financial Inc., which oversees $500 billion, was quoted in the Washington Post on May 23, 2016: “The past 19 months have been the most difficult stock market I have ever experienced in more than 50 years of investing,” In bear markets, “at least we knew stocks were going to go down. However, over the past 19 months the up one session, and down the next, has been extraordinarily frustrating.”

Frustration vs. Patience
This frustration may lead some investors to make poor decisions, just as the perception of being safe or in danger can. As maddening as slightly negative to slightly positive returns can be, years like these are not rare and can be expected about 10% of the time, according to the CNBC article “S&P 500 is Having a Dull Year, and That’s Good for Investors”, dated August 2015: “Going back to 1918, there are 11 instances of calendar years in which the S&P 500 was up or down by 3 percent or less, according to S&P Capital IQ.” Moreover, “In the subsequent calendar year, the market rose an average 13.3 percent and gained in price 82 percent of the time (nine of 11 instances), according to data from Sam Stovall, chief investment strategist at S&P Equity Research Services.”

We of course cannot know if solid positive returns are just around the corner or the opposite, but what we do know is that investing in the stock market has been the best way to grow wealth over time. The market is a resilient thing. If you have a long-term strategy that abides your risk tolerance and the patience to fight the urge for drastic action when you feel safe, in danger, or just down-right frustrated, we believe you will benefit from staying the course.

The Women’s Roundtable
If you’d like to hear more about investor behavior and how to limit emotional reactions during market movements, please join us for The Women’s Roundtable wine and cheese gathering on June 29 at our office in downtown Oakland.

More on Investor Behavior
You can also access more on the topic from our website resource center and from this blog:

“Mind Over Money Matters: How Our Psychology Reduces Investment Returns”
Bell webinar, September 2015

“Why Momentum Exists: A Perspective on Investor Behavior”
Bell white paper, October 2012

“The Endowment Effect”
Bell blog post, October 2014

“Stress is Good”
Bell newsletter article from The Opening Bell, July 2014

“Building a Better Bunker Portfolio”
Bell newsletter article from The Opening Bell, April 2012

“Momentum Investing: How to Gauge the Market’s Opinion of the Future”
Bell white paper, September 2011