Evans Wealth Management Blog

Articles written by Evans Wealth Management are designed to educate clients & potential clients on concepts important to their financial future.

The New Influence on Our Money

Charles Schwab and Company recently released its Modern Wealth Survey. The results suggest a change in all Americans but particularly the younger generations’ money influences. Below are key points from the survey.

  • Americans’ financial decisions are being influenced by social media. 57% report paying more attention to how their friends spend than save. 60% wonder how their friends can afford expensive experiences they see posted on social media.
  • Of the listed money management influences, social media was ranked by far the worst money management influence. Family members and friends were considered the best influences.
  • The pressure to spend as a result of social media is strongest with Gen Z and the Millennials. They reported being the most likely to spend as a result of something they saw on social media. Their likelihood to spend due to social media was approximately double that of Gen X and Boomers.
  • Despite most Americans considering themselves savers, 59% live paycheck-to-paycheck.
  • On the bright side, 63% of those with a formal financial plan feel financially stable while approximately 50% of those without financial plans are concerned they don’t have enough money to retire.
  • Americans with financial plans were more than twice as likely to exhibit discipline when it comes to their finances (e.g., pay bills and save each month, have an emergency fund, … etc.).
  • Wealth is increasingly being defined as the “way they live their life” rather than a specific dollar amount.

A key takeaway is social media and its “fear of missing out” phenomena is increasing the pressure on all Americans to spend. The pressure is felt the strongest among the younger generations. When we spend beyond our means, it impacts your long-term financial stability.

The other key takeaway is saving and investing habits of those with written financial plans are dramatically better than those without a plan.

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Trade Concerns Whipsawed Stocks in May

Trade negotiations dominated the headlines in May stalling the rally enjoyed to date. Given the strong market performance, investors may have been pricing in a trade deal between the US and China. When the prospects of a deal started to fade in early May, market participants became a little anxious about the future. For all the negative headlines, the S&P 500 is only down approximately 6.5% from its all-time high.

Our international counterparts struggled to gain traction as well. The internationally developed markets held their own better than emerging countries or the US. Of the developed countries Australia, Japan and Canada declined the least.

Bond investors and the Federal Reserve appear to be at odds with each other. Investor disapproval was signaled via the yield curve inversion (17 bps) at the end of the month.  The Fed continues to expect inflation that never materializes; bond investors are more focused on growth. With 2nd quarter GDP expected at 1.7%, they would prefer a more proactive Fed. Overall, it was a solid month for bond investors.

During May, large-cap stocks declined the least earning the honors for best performing segment of the US stock market. Growth outperformed value stocks and the defensive sectors including Utilities and Healthcare were impacted the least. It was a difficult month for US equities.


Notable Market and Economic Happenings:

  • With 95% of S&P 500 companies having reported, 1st quarter earnings are projected to rise 1.4% (Refinitiv). 75% of companies topped analyst estimates.
  • 2nd and 3rd quarter earnings estimates have declined modestly but remain in the low-single digits. Despite the trade headwinds, the US economy appears poised to grow, albeit at a slower pace than last year.
  • With the S&P 500 decline, its dividend yield has increased to 2.1%. It is comparing favorably to the 10-year Treasury yield at approximately 2.1% also. If you are looking for a reason to buy stocks, this is a start.


Inspirational Thought for the Day:

“What lies behind us and what lies before us are tiny matters compared to what lies within us.” – Henry S Haskins

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GDP Growth Exceeds Expectations Continuing the Rally

April was another strong month for investors. The much better than expected first quarter gross domestic product (GDP) number and corporate earnings season results were the primary drivers. Specifically, first quarter GDP came in at 3.2% which was much stronger than the 2.5% expected. Financials, mega cap tech stocks and industrials posted particularly strong earnings for the period.

It was a global rally as the international developed markets gained with the EAFE index ending the month up 2.8%. Emerging country stocks trailed their developed counterparts but nevertheless ended up 2.1%.

The investment grade portions of the US fixed income markets were largely flat for April. It was the riskier segments of the bond market posting the strongest returns. Leading the way were high yield bonds which rose 1.4% and the bank loan sector finishing up 1.8%.

During April, mid-cap stocks were the best performing segment of the US market. Growth outperformed value and the Financial, Communication and Materials sectors shined the brightest in what was a solid month for US equities.


Notable Market and Economic Happenings:

  • The average S&P 500 stock was up 3.5% for the month and 18.5% year-to-date. Stocks with low P/E ratios outperformed high P/E stocks in April.
  • Year-to-date, firms with heavy international revenue exposure outperformed their domestic-oriented peers and stocks that performed poorly in 2018 have bounced back the most in 2019.
  • At the end of April, nearly 200 companies had reported earnings with 65% of them exceeding their earnings estimate.


Inspirational Thought for the Day:

“Think twice before you speak, because your words and influence will plant the seeds of success or failure in the mind of another.” – Napoleon Hill

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A Warning When Using IRA Funds to Pay for College

It is that time of year when we celebrate our graduates and turn our attention to paying for college. According to the National Center for Education Statistics (NCES), the average cost of one year of college can be over $39,000. It is no wonder many parents turn to their IRAs to help fund it.

Originally, IRAs were established to encourage saving for retirement. Rules were developed to tax and penalize those withdrawing funds prior to 59.5 years of age. However, exceptions were allowed in certain instances enabling you to avoid the penalty. One such exception is paying qualified higher education expenses.

The IRS nor the Tax Court has had any problem with the use of IRA funds paying qualified expenses. However, they both have taken issue with what taxpayers have provided as proof the funds were used for qualified higher education expenses.

Tax Court Memo 2018-202 reminds us of the importance of keeping documented proof the funds were used in a manner qualifying for the exception. In this case, the taxpayers supplied email that were judged by the court as appearing inauthentic and other documents failed to prove the distributed amounts were used to pay for qualified higher education expenses. It caused the amounts to be subject to the 10% early withdrawal penalty.

The takeaway from this example is receipts for all eligible expenses should be kept in the event you are audited. Additionally, Form 5329 must be filed to claim the exception.

It should also be noted the taxpayers in this example prepared their own tax returns via tax preparation software and represented themselves in Tax Court. They walked out of court with a $65,235 federal income tax deficiency and an accuracy-related penalty of $12,378. Maybe, professional tax preparation is much more cost-effective than they thought.

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A Quick Assessment of the State of the Economy

The S&P 500 is near its record high following a four-month rally. What can we expect for the remainder of the year? The following are three statistics to inform your opinion.

  • According to the National Federation of Independent Business, small business owners were slightly less optimistic compared to a year ago. However, 2018 was the all-time peak and the current number is still quite strong from a historical perspective. Considering this group creates 75% of all new jobs, it is encouraging.
  • The 60 economists surveyed by The Wall Street Journal raised their forecast for 1st quarter growth from 1.3% to 1.5%. Similar surveys have noted the same trend. The Atlanta Fed’s GDPNow forecast which grows more accurate following a quarter-end is forecasting a 2.3% growth rate for the same period. It raises the possibility an upside economic surprise is possible.
  • The latest job openings rate remains near a record high. The latest figures on jobs open versus the number of unemployed remains at all-time highs also. An economy creating jobs is good for wage growth. Since a large portion of our economy is tied to consumer spending, this a very good sign.

These and other metrics seem to suggest the economy remains strong.

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