Jonathan Clements's Blog, page 161

Profiting From Losses

WE TRIMMED THE TAXES we owed on investment gains in 2021 by using losses we’d realized during 2020’s stock market swoon. Now, 2022’s market decline has allowed us to repeat this process, once again offsetting capital gains with tax losses that we’d earlier harvested.

My wife and I haven’t just saved on taxes, however. The sales have also allowed us to reposition our taxable portfolio away from active management and toward more of an indexing bent. Along the way, we sidestepped one mistake but made two others—mistakes you’ll want to avoid if you decide to make similar trades.

Here are some of the investment moves we’ve made over the past year:

We realized losses when selling an actively managed fund and invested the proceeds in a broad-based index fund.
We sold municipal bond funds at a small loss, again moving the proceeds to a stock index fund. At the same time, we moved from stock investments within a 401(k) to a stable value fund to maintain the same overall stock-bond mix.
We realized losses on some index funds and invested the proceeds in similar index funds, in some cases doing so repeatedly.

Regarding this last move, you might wonder why we swapped index funds back and forth. We did so purely to harvest losses that we could then use to offset later gains. While the index funds we’re switching between are not identical—that would disallow the tax loss—they’re similar enough for our investment purposes.

At this stage, we’re happy to own these index funds no matter what the market does. If the market continues higher, great. If it drops, we may trade between these funds again—and harvest new tax losses.

Our losses allowed us to offset $3,000 in ordinary income last year. That was a bonus because our marginal tax rate—the rate we pay on our last dollar of income—is higher than the 15% rate we pay on long-term capital gains, and thus it’s especially attractive to offset losses against ordinary income rather than capital gains. With more tax losses from 2022, we have the same tax-saving opportunity this year.

Other harvested losses allowed us to sell one actively managed fund and reduce our position in another. Both of these sales created some gains, but we could offset them with recently harvested tax losses from one of our index funds.

While all these trades have worked as intended, this kind of exercise isn’t foolproof. If you choose to realize gains and losses, here are three things to watch out for.

Violating the wash-sale rule. A few years ago, I broke the rule and wasted a small loss. You may be wondering how I could possibly mess this up. You sell at a loss and wait 30 days before buying the same or substantially identical security again. Easy, right?

Wrong. The issue is that the 30 days work in both directions, before and after the sale, and includes buying any shares through the automatic reinvestment of dividends. So, if you had even the tiniest dividend reinvested within 30 days of selling at a loss, that creates a wash sale and the entire transaction is not tax-deductible.

To avoid this, check for dividends from the stock or fund before you sell. To make it even simpler and foolproof, have your dividends paid in cash to the money-market fund connected to your brokerage account.

Also, know that you must do this for every account in which you hold the security, not just the one where you’re selling. If you sell a stock or fund in one account, and the tiniest dividend is reinvested in the same security in another account, that’s still a wash-sale rule violation.

Buying the dividend. This happens when you purchase a stock or fund just before the ex-dividend date. Buyers of shares before that date will receive the next dividend payment. In my case, I harvested a loss in one fund and bought its replacement just in time to get paid a dividend.

Since the share price drops when a dividend is paid, isn’t this all even? Yes—except we owed taxes on the dividend paid. Had I remembered to check, I’d have waited a few more days to realize the loss and buy the new fund.

Avoiding a taxable dividend payment like this is very simple. You just need to remember to do your homework. Check the ex-dividend date of the security you’re about to buy and, if a dividend is near, consider waiting until after the ex-dividend date, especially if it’s a large amount of money.

Breaking tax thresholds. This hasn’t happened to us, but realizing taxable gains could be costly in unexpected ways. Enough harvested gains might push you into a higher marginal tax bracket or trigger the net investment income tax, alternative minimum tax or Medicare’s income-related monthly adjustment amount, otherwise known as IRMAA. To avoid all these, keep an eye on how close you are to crossing the thresholds involved.

When I wrote about using capital losses in 2021, I was in my last few months before retirement. That summer, I was already thinking about the details of what I would sell and when, and how I’d keep track of dividends and capital gains distributions toward the end of the year. Now that I’m fully retired, I somehow seem to have less time to spend on these details.

This process does require time—and thought. It takes me a few hours to identify losses, find appropriate investments to take their place and keep track of our income so we don’t inadvertently go over certain tax thresholds. Some of these hours are required late in the year, toward holiday time, when we often have more fun things to do.

I intended to make some of these moves in the last week of December. No matter, the strategies still work even if the calendar changes. With another few years of harvesting, we’ll have eliminated the actively managed funds in our taxable accounts and realized a chunk of their embedded capital gains without paying taxes.

Our portfolio will be simpler and more tax efficient, too, with fewer annual capital gains distributions. Any loss harvesting will likewise be much simpler, likely limited to exchanging one index fund for a similar one.

Michael Perry is a former career Army officer and external affairs executive for a Fortune 100 company. In addition to personal finance and investing, his interests include reading, traveling, being outdoors, strength training and coaching, and cocktails. Check out his earlier articles.

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Pay No More

IF YOU PUT DOWN less than 20% on a conventional home loan and you’re still paying private mortgage insurance (PMI), do what I did: See if you can get those pesky PMI payments eliminated.

I purchased a home in September 2017 for $341,000. The interest rate was near 4% and I put down roughly 10%. Why not put down 20%, so I could avoid PMI? My thought: If I can borrow money at an interest rate below 5% and get a reasonable rate of return elsewhere, why not make a smaller down payment and invest that extra money instead?

After I bought the house, interest rates dropped even further, so in 2019 I refinanced my home loan to 3.25%. Yes, that was only a 0.75-percentage-point reduction in my mortgage rate, versus the common advice to refinance only if you can get a full one-point reduction. Still, I went ahead, believing rates couldn’t fall further. Boy, was I wrong. Rates fell to under 3%. I thought about refinancing again, but the cost wasn’t worth it.

All during this time, I was paying PMI. PMI is a type of insurance that's required by mortgage lenders if your down payment is less than 20% of a home’s purchase price. PMI protects the lender against loss if you default on your mortgage. My monthly PMI was just $116, but it still felt like I was throwing away money.

As you know, home prices have gone up considerably, and I began to realize that I could get rid of that PMI payment by getting my home’s value reappraised by the lender and then asking that PMI be removed based on my new loan-to-home value ratio.

Initially, I received a notice of rejection from the lender, which said it didn’t have sufficient information to act on my request, so I called. It turned out that my PMI removal request wasn’t rejected, but was actually going through the approval process. The whole process was surprisingly quick.

Want to get rid of those PMI payments? Try taking these steps:

Start by contacting your mortgage lender to see if you’re eligible for PMI removal.
If you’re eligible, send a letter that lists your loan number and requests the removal of PMI. Be sure to sign and date the letter. I would also advise including two or three different ways to reach you. You don’t want the lender to use the fact that it couldn’t contact you as a reason to reject your request. In addition, specify any home improvements you’ve made, with the date and cost of those improvements.
The lender will order an appraisal or BPO, short for broker price opinion, to value your residence. The appraiser or broker will then come by and take pictures of the front and back of your home, each room and any improvements you’ve made.
After the broker or appraiser sends in the valuation, wait perhaps five business days and then call the lender to check on the status of your request.

One caveat: This process is only available with conventional loans, not Federal Housing Administration mortgages. The FHA is more stringent, and in most cases won’t remove the PMI unless you meet certain standards put in place when the loan was originated. Also, PMI rules can vary among lenders. My lender required a 70% loan-to-value ratio, rather than the traditional 80%, to remove PMI. My lender also used my home’s current market price, while other lenders may insist on using the original purchase price.

Kevin Thompson is a former Major League Baseball player and founder of 9Innings Capital Group LLC . He is a Certified Financial Planner ® and Retirement Income Certified Professional ®. Kevin graduated from the University of Texas at Arlington in 2011 with a degree in finance. Check out his earlier articles.

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Adios, America

OVER EIGHT MILLION Americans have said “so long” to the U.S., heading overseas to work or retire. These expats—short for expatriates—most likely have eight million different reasons to leave our shores for life in another country. My wife’s cousin Chuck and her brother John are among them.

John had his eye on living abroad when he took his first engineering job with Litton Aero Products, where he helped support aviation customers in the Middle East. Headquartered first in Tehran, then London and eventually France, his work and a penchant for travel took him to destinations throughout Europe, Asia and Africa. John was always on the lookout for exotic treasures to bring home. His best discovery was a gem of a woman named Rosemarie.

Rosemarie was a New Zealander living in France and working as an English teacher. She soon consented to marry John, and together they started a family in the U.S. Within a few years, however, they were on a plane with four young children bound for New Zealand.

Chuck was also looking to leave the U.S. for a life elsewhere. With the family wanderlust pulling him toward a job overseas, he packed up his occupational therapy skills and headed for Saudi Arabia. Chuck’s love of travel has taken him to 66 countries and fostered friendships all over the globe. After retirement, moving to Panama was hardly a daunting decision. He relished the chance to immerse himself in a new culture and explore that part of the planet.

Chuck says Panama is a global crossroads with a long history of welcoming visitors and immigrants alike. Eight years ago, he and his wife Jeanne moved to the mountain town of Boquete. Even with a busy travel schedule that takes them all over Central America and Mexico, they’ve managed to settle into the community and make friends with both expats and locals. Chuck even donates a few hours of his occupational therapy expertise each week to help local children with disabilities.

Taking up residence in an idyllic tropical country doesn’t take away a U.S. citizen’s obligation to the IRS. Expats everywhere are required to file a U.S. tax return each year listing all worldwide income. There’s a good chance, however, that many won’t owe U.S. taxes due to the foreign tax credit and the generous foreign earned income exclusion. There’s even a foreign housing exclusion to offset the higher cost of living in many other countries.

An expat’s tax responsibility to the host country varies. In Panama, for instance, taxes are owed only on Panama-sourced income. No one is required to report worldwide income for Panama taxation. Since Chuck earns no income from within Panama, he only files a U.S. tax return.

Meanwhile, John has been enjoying life in the South Pacific as a Kiwi for more than 25 years. Unlike Chuck, who resettled in Panama after retiring, John and Rosemarie moved to New Zealand with the intention of starting new jobs and raising their family. The tax policies of New Zealand are somewhat complicated. Income is taxed based on the source of the income and the taxpayer’s residency status. Residents like John and Rosemarie are taxed on worldwide income, but there are protections against most double taxation.

A tangle of tax laws is just one potential hassle for U.S. citizens who live abroad. Another is the IRS reporting requirements for assets held by a foreign financial institution. To minimize reporting hassles, John advises keeping your financial life simple.

In New Zealand, there’s one tax wrinkle that works in John’s favor: U.S. Social Security income is not taxed. John is still working, with no immediate plans for retirement, but he also draws a U.S. Social Security check every month. John waited to collect Social Security payments until last year, when he turned 70, so he’d receive the highest possible payout. John had a choice between Social Security and New Zealand’s superannuation, an old-age pension available to all residents, regardless of work history. Social Security was the easy choice because the sum was quite a bit bigger. Even Rosemarie’s spousal benefit is larger than the New Zealand pension.

The additional income that came with claiming Social Security got an even bigger boost from last year's surging dollar. Like Americans traveling abroad in 2022 and many other expats, John found the U.S. dollar a choice currency to carry. At one point last year, the New Zealand dollar was worth about 56 U.S. cents. John joked that his new obsession was checking the exchange rate every day.

Ed Marsh is a physical therapist who lives and works in a small community near Atlanta. He likes to spend time with his church, with his family and in his garden thinking about retirement. His favorite question to ask a young person is, "Are you saving for retirement?" Check out Ed's earlier articles.

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Quinn’s Favorites

I STARTED WRITING for HumbleDollar almost five years ago—and it’s become a big part of my retirement.

Some folks have likened me to Andy Rooney. It’s a comparison I’ve happily embraced. I try to offer pointed opinions leavened by a measure of humor. Here are my 10 favorite articles that I’ve written for the site.

Choosing Badly (April 24, 2018). This was my first piece for HumbleDollar. Employer-sponsored 401(k) plans are underutilized and misused. Sadly, not much has changed over the decades. Asset classes, diversification, dollar-cost averaging: This is the language of investment professionals. But it isn’t the language of everyday Americans, including those saving for retirement in their 401(k), and that’s one reason things often go badly.
How Not to Move (April 17, 2020). Retirees often downsize. I hope they do a better job than I did. My strategy was intended to lessen stress, but instead it achieved just the opposite.
Quinn’s Commands (Aug. 29, 2021). Sometimes, life experience provides guidance for the future—assuming we pay attention. Here is my not-so-fatherly advice to an 18-year-old.
My $233 Surgery (June 1, 2022). I’ve been writing about health care and its cost for many years. But there’s nothing like a real-life experience.
Scraping By? (Oct. 8, 2021). This tackles one of my recurring themes and pet peeves: Why is it so hard to live within one’s means? We think the phrase “living paycheck-to-paycheck” applies to low-income families. Not true.
Ten Years Retired (Dec. 28, 2020). I’ve been retired for 13 years and loving it. Still, it’s not for everyone. I know someone who was working at age 87 in the same job I had when I worked alongside him in 1961 at age 18.
Banking from A to F (July 27, 2020). Multiple linked bank accounts, each designated for specific purposes, allow my wife and me to manage money without a budget or frequent kerfuffle. But many readers said our strategy was too complicated.
Home at Last (April 9, 2020). Who would start a 30-day cruise around South America as the world entered a pandemic? This was the last of four articles telling our seafaring tale, which included being quarantined in our cabin for two weeks. Two journalists even turned the story of the cruise into a book titled Cabin Fever . But don’t believe everything you read.
Mercedes and Me (Sept. 11, 2019). Let’s face it, many buying decisions are emotion-driven, especially when you’re purchasing your dream car. That was the case when I fulfilled a teenager’s promise to his dad. It took me 53 years. Now, the car is eight years old. Why would I spend $4,000 repairing it? And yet I just did.
America the Drivable (Nov. 25, 2022). This story was about our third roadtrip around the U.S., covering 7,000 miles and 21 states in 23 days. We have also visited 44 countries since I retired. I can’t get enough of traveling—and I can’t understand those who don’t like it.

This is the sixth installment in a series devoted to the favorite articles and blog posts penned by HumbleDollar’s most prolific writers. The earlier installments were from Dennis Friedman, Mike Zaccardi, Kristine Hayes, Adam Grossman and Rick Connor.

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Why We Get Fooled

IN JANUARY 1987, I was an unmarried junior Coast Guard officer just beginning the flight stage of U.S. Navy flying training. I decided to see a financial advisor who’d been recommended by friends.

This wasn’t just any advisor, but rather a retired Air Force lieutenant colonel and fighter pilot. He worked for a firm whose advisors were comprised mostly of retired military officers, and they marketed their services primarily to military officers. If there was anyone I could trust, I thought, it was this man and this firm. With a Distinguished Flying Cross on the wall awarded for combat in Vietnam—something I deeply respected—I had no doubt his recommendations would be in my best interest.

I was wrong.

His firm mainly offered two products: front-end loaded mutual funds and whole-life insurance. Because I had virtually no knowledge of these products, his sales pitch seemed sensible to me. There are, after all, certain advantages to whole-life insurance and, as he explained, the front-end loaded fees would average out, over many years, to a normal cost structure. Wasn’t I in this for the long run? Unbeknownst to me at the time, I fell for the sunk cost fallacy.

About six years later, I canceled the life insurance policy, cashed out of the mutual funds, bought a term life policy—I now had a wife and children—and began dollar-cost averaging into solid no-load stock funds. I’ve often reflected on that time not so much with regret, because it taught me a great deal, but rather wondering why I was so easily fooled. As the pandemic unfolded, I became even more curious about why so many people believed what to me was obvious misinformation—and which, in some cases, cost them their life.

In his book, Talking to Strangers, Malcolm Gladwell explains why it’s so difficult to determine who to trust. When faced with a decision regarding whether to trust another person, we often “default to truth” and presume the person is trustworthy. Why? Because it’s much more likely than not that an established “expert” is the real thing, because it would take a great deal of hard-to-find evidence to overcome any doubts to the contrary, and because it’s often unimaginable that the person would be lying.

It never occurred to me that this particular financial advisor would mislead me or sell me anything not in my best interest. I defaulted to truth. But I was lucky. Think about all the people who invested their life’s savings with Bernie Madoff. Surely this former chair of the NASDAQ and pillar of the Wall Street community could not be running a Ponzi scheme? Even the SEC, after two cursory investigations of his investment advisory business, “defaulted to truth.”

More recently, how could a floppy-haired billionaire, Sam Bankman-Fried, the erstwhile SBF, be running an alleged fraud? Several famous billionaire investors trusted SBF and were fooled. Heck, even Jim Cramer, during an appearance on CNBC, called SBF the new J.P. Morgan.

Social proof also plays a huge role in fooling ourselves. This involves following the actions of others we trust and relying on experts, because we believe they may know more than we do. Rather than do the hard work ourselves, we assume experts have it figured out and have done the appropriate due diligence, so we’re tempted to simply mimic the “smart money.”

We often forget the lesson that intelligence, by itself, does not ensure sound decision-making, whether we’re dealing with investments or many other aspects of life. Even Isaac Newton got caught up in the South Sea Bubble. Over the long term, it’s our behavior—not our intelligence—that will determine our success in so many of our life’s endeavors. I’ve learned that mistakes of omission are much less costly than mistakes of commission. At age 61, I’ll take an opportunity cost over a cash cost any day.

It's a jungle out there, so be careful who you listen to, where you get your information, and understand the motives behind those persons or organizations who may be trying to influence you. We live in an age with few shared truths, and that’s rife with disinformation and fraud. Be patient, be skeptical, think critically and remember—when faced with doubt or ambiguity regarding some course of action—doing nothing often works out just fine.

Patrick Brennan is a retired Coast Guard officer and aviator currently residing with his wife of 34 years in Mobile, Alabama. He earned a bachelor's degree in government studies from the U.S. Coast Guard Academy and an MBA from Spring Hill College. Besides an interest in finance, Pat enjoys traveling to visit family and friends, and especially enjoys visiting our National Parks.

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Paper Chase

I BEGAN BUYING Series I savings bonds in 1999. At the time, you could purchase them at a local bank and receive paper bonds. Amid 2022’s spike in inflation, those early bonds that I bought were—for a six-month stretch last year—yielding an annualized 13.08%. Not bad for a low-risk investment.

One drawback to buying savings bonds: the limit on how much a person can purchase each year. When I began buying Series I savings bonds, the maximum was $30,000 per person per year. The current annual limit on I bond purchases is now $10,000 per person, plus $5,000 more if you buy I bonds using a tax refund.

While paper savings bonds were once easy to buy, redeeming them is another story. Many banks have stopped cashing them, and the ones that still do have stringent requirements. You typically need to have an account at the bank and to have been a customer for more than a year. In my experience, most banks won’t cash more than $1,000 in bonds at any one time.

I recently visited my local bank to cash a few EE bonds that had reached their final maturity. The bank’s staff told me they no longer cashed savings bonds. Fortunately, I have an account at another major bank and was able to redeem them there.

When I went to that bank recently to cash a bond, I encountered a new teller. After a series of mistakes, she assured me that everything was okay. Then she handed me my deposit slip. It only showed the amount of a check I deposited—but not the proceeds from the bond. The bank manager then straightened everything out. Still, the whole experience was a little unsettling.

It's likely simpler to redeem paper bonds by sending them to Treasury Retail Securities in Minneapolis, a service of the Federal Reserve. Along with the bonds, you have to fill out FS Form 1522. If the bonds are worth more than $1,000, the form will need to be signed in front of a notary or certifying officer.

I used this service when some HH bonds matured because banks aren’t permitted to cash them. In my case, a medallion stamp was required. The first bank branch I visited didn’t have this particular stamp, so I had to go to another branch 10 miles away. It took me the better part of the day to get the form stamped, and then mail the form with the bonds from my local post office.

In the not-too-distant future, the U.S. Treasury will handle all savings bond transactions through its TreasuryDirect website. Banks will no longer handle redemptions, just as they haven’t sold savings bonds for some time.

One improvement that the TreasuryDirect’s website has made: adding its savings bond calculator, which can give you the value of your paper bonds. It’s more convenient than the old method of figuring out the value of your bonds using redemption tables.

To those of you who plan to cash in paper bonds at a bank, it’s a good idea to call ahead and see if the branch still provides that service. And if it does, check your bonds’ value using the TreasuryDirect calculator beforehand—so the teller credits you with the right amount.

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No Fixed Address

THE BEST DESCRIPTION for my career would be “corporate vagabond.” I moved the family six times to five different states over 42 years.

Because we never settled down in one place, my wife and I spent 15 years visiting potential retirement locations. We visited sprawling metropolitan areas, small towns, retirement communities and the town where we both grew up. We also considered the areas where we’d lived, but nothing appealed to us.

One evening, a TV commercial prompted me to ask my wife if buying an RV and traveling the U.S. might be a starting point for our retirement. We’d never camped or owned an RV, so I expected a sharp “no” and the discussion would end. But instead, a quick “yes” led to a conversation that extended through the weekend. Five months later, in 2020, we purchased a 35-foot motorhome.

To be clear, our goal wasn’t ”living in a van, down by the river.” The freedom to travel and visit the vacation spots we missed was compelling but not necessarily simple. Living fulltime in an RV has unique issues, including designating a legal domicile, having a mailing address, and dealing with water, sewer and electricity. Still, those were relatively simple problems to resolve.

Filing for Social Security and Medicare while on the road, and the journey’s emotional issues, proved more difficult. After 44 years of marriage, we have few secrets, but learned new things living in 300 square feet.

We built a flexible financial plan with an exit route for when we found the right retirement location. The financial plan focuses on an RV lifestyle now and an exit to a more traditional retirement later. This started with three buckets of short-term investments: the RV emergency fund, the exit fund and two years of cash for spending. The rest of the portfolio consists of widely diversified longer-term investments with a target total return of 6.5% a year.

Our budget highlights the nature of the RV lifestyle and is focused on three highly variable RV items: campsite costs, fuel and repairs. It’s not if you’ll need repairs, it’s when. Many folks have a perception that the RV life is inexpensive. While that might have been true in Nomadland, the reality depends on your lifestyle. Do you travel fulltime as a lifestyle or do you vacation fulltime in an RV? While living off the grid on public lands allows us to roam the country at a very affordable cost, visiting Key West is a vacation splurge. We try to strike a balance between the two.

We used the IRS’s required minimum distribution calculation as the guide for our withdrawal budget, setting our annual budget at around 4% of our nest egg’s year-end value. This forces us to react to market fluctuations and adjust our travel plans accordingly. We also need to maintain the RV emergency repair fund.

The exit plan gave us the wherewithal to purchase a home for cash on short notice without changing our withdrawal budget. The exit plan began with the sale of our house at the start of our journey. We used the proceeds to build a ladder of two-year Treasury notes. I also checked with our credit union in case we needed a bridge loan between purchase of a home and maturity of the bond ladder.

Has this been a success? After 20 months, we’ve traveled to 27 states and visited friends across the country. My wife and I have enjoyed the diverse geography of the U.S., from the Jersey Shore to the Badlands of South Dakota. We’ve experienced the challenges of driving an RV through downtown Atlanta and the serenity of country roads in West Virginia. Winter on the Gulf Coast was memorable. The list of unfamiliar places we want to visit continues to grow.

Financially, we’re spending slightly less than our budget. While the financial markets have gone down, the fundamentals of our investments appear strong, so we have few concerns. A hit-and-run driver challenged our budget and our resilience. Still, repairs on the RV have been about what we expected.

An opportunity came up to buy a home near our first grandson in Iowa, so we went ahead and purchased our retirement home. But we plan to spend winters further south as we continue our travels in the RV. This may not be the lifestyle for everybody. But for us, it’s made for an amazing retirement.

Mark Eckman is a retired CPA spending more time traveling America in an RV than at home. In retirement, he's realizing that saving and investing were just the start—and maybe the easy part. His priorities: family, food and fun. Follow Mark on Twitter  @Mark236CPA and check out his earlier articles.

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Was That It?

HOPE SPRINGS ETERNAL for mega-cap tech, meme stocks and cryptocurrencies. And the bond market is starting to party again, too. True, the financial markets have pulled back in the two trading days since Friday morning’s strong jobs report. Still, year-to-date performance has been startling.

Investor’s Business Daily reported recently that just 10 stocks, including Apple, Amazon, Tesla, Alphabet (parent of Google), Nvidia, Microsoft and Meta (parent of Facebook), have accounted for half of the S&P 500’s 7% year-to-date rally. Bitcoin is up more than 38% since year-end 2022, and movie-theater meme stock AMC has jumped 67%. Meanwhile, though the Federal Reserve continues to raise short-term interest rates, iShares Core U.S. Aggregate Bond ETF (symbol: AGG) and iShares iBoxx High Yield Corporate Bond ETF (HYG) are up more than 7% since late October.

So, is the bear market behind us? Was that it? Is big tech back? Color me skeptical, especially on that last question.

The four biggest technology stocks in the S&P 500 as of December still represented a greater percentage of the index than the four largest did at the peak of the dot-com bubble, notes Goldman Sachs. Valuations in the rest of the stock market may look good, but can the same be said for mega-cap tech?

The market seems to be sending mixed signals. Intermediate and longer-term Treasurys are trading as though the Fed will soon start cutting rates, perhaps as the result of a recession. Yet stocks and high-yield bonds are acting as though corporate profits and the ability to repay debt will weather any economic slowdown.

The spread—or extra yield—of high-yield bonds over Treasurys is just under four percentage points, below the 25-year average of 5.4. During past recessions, the high-yield spread has reached eight percentage points and sometimes much higher, including 11 points in 2002 and 20 points in 2008. If the yield spread were to widen to eight points, that would mean steep losses for high-yield “junk” bonds.

The rally in bonds and growth stocks caught me a little flat-footed. My lean toward value stocks and short-term Treasurys—which benefited me so much last year—is causing me to miss some of this year’s headline-grabbing action. I had expected the cycle of value outperformance to last at least a few years, as happened after 2000, when the dot-com bubble burst.

The good thing is, I didn’t bet the farm on that. I’m fully invested based on my target asset allocation. Index funds and balanced funds make up most of my portfolio. That means I’m capturing much of 2023’s unexpected upside—but not all of it.

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House in Order

"I WOULD SAY TO the House, as I said to those who have joined this government: I have nothing to offer but blood, toil, tears and sweat. We have before us an ordeal of the most grievous kind. We have before us many, many long months of struggle and of suffering…. You ask, what is our aim? I can answer in one word: victory. Victory at all costs—victory in spite of all terror—victory, however long and hard the road may be, for without victory there is no survival."

What Winston Churchill said to his House during Great Britain’s darkest hour, I would say about selling yours. Selling a house shouldn’t be easy. If you sold one and it was, you didn’t do it right. It’s likely the biggest financial transaction of your life, so I don’t think it’s too much to ask that you put in a little effort.

The non-comprehensive checklist below is based on a lifetime of experience. I haven’t always followed it, though when I didn’t, I paid for it.

Know your home’s value. When you meet with your agent, you need to have an idea of what your home is worth. If you don’t, how can you be sure the sales price your agent suggests is the correct one?
Find the right agent. Using the agent that sold you your home may be the easiest route, but it may not be the most profitable one. It may take a while, but you need to spend the time to find the best agent to sell your home. Remember, they all cost the same, so you might as well hire the right one. News flash: You need to interview more than one agent. And maybe, just maybe the best agent may be… you, via a “for sale by owner” or discount broker.
Listen to your agent. You spent some time and effort hiring her, so now listen to what she says. If she doesn’t dig the lime green paint in the living room, the 10-foot-by-10-foot bridal portrait over the fireplace or the trampoline room, then maybe some changes are in order. Don’t take her constructive criticism personally. In the words of the world’s greatest businessman, “It’s not personal, it’s strictly business.”
Stage the place and clean it so prospective buyers fall in love at first sight. Think curb and entry way appeal. The house I recently purchased has a stunning three-floor modern staircase that was highlighted with lights and artwork. When my wife first walked in the door, she wanted it—bad. It also needs to be clean, and I mean clean clean. Think Martha Stewart and Felix Unger had a love child clean. Decluttering can help, as it makes every home look bigger, better and cleaner. I realize you and your family still need to live there, but you need to make it appear as though no one actually does.

Spend some money. If, like most people, you delayed some work on your home due to frugality or procrastination, the time is now. Not too much, but enough to put a nice shine on the place.
You need good photographs for the MLS. Obviously.
Market it. Your agent is going to list your home on the MLS, which will then syndicate the listing to the far reaches of the internet. She may also use other routes like direct mail, print and blogs. But you can’t let that be the end of it. You also need to market the place yourself. You have lived in your neighborhood for some time, so you have a circle of friends, neighbors, colleagues and acquaintances. You need to use them to get the word out: Facebook, LinkedIn, bulletin board at work, your sister’s friend who’s head of the PTA, and so on. When I sold my house in Houston, my personal marketing effort played a key role in getting the job done.
If the above steps fail to work, there’s one final step that may be tried. Bury a statue of St. Joseph upside down in your backyard. It’s a well-known technique to enable a real estate miracle, as a subsequent "successful closing won’t be long in the offing." The reason is obvious, as St. Joseph is the patron saint of house hunters. Don't believe me, you heathens? Well, it’s well documented here. Not Catholic or Anglican? Uh-oh.

You are the captain of your real estate ship. As the former First Lord of the Admiralty may have once said, “Victory will never be found by taking the path of least resistance.”

Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles.

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Sticking the Landing

WALL STREET WAS stunned Friday morning by the strength of the jobs market. While technology company layoffs have lately hijacked the fear-mongering media’s narrative, the truth is that the employment picture is quite strong.

With a 517,000 gain in net employment last month, along with ebbing wage growth, the “soft landing” crowd is one big step closer to winning the battle against the recession prognosticators. True, January’s jobs jolt is merely one data point. What’s maybe more impressive is that there have been 10 straight better-than-expected monthly payroll reports. That trend is a job seeker's friend.

Something would have to be truly wonky for the U.S. economy to be in a recession right now. There’s a revealing chart from J.P. Morgan Asset Management that illustrates the point. Variables such as industrial production, and wholesale and retail sales data, suggest modest economic weakness. But inflation-adjusted personal income, growth in payrolls and real consumer spending all indicate the economy is in decent shape.

Even more encouraging for investors is that the global economic tide may be turning for the better. Consider that there have been significant upward revisions to GDP growth forecasts in Europe and Asia over the past two months. A mild winter across the euro area has sent energy prices plunging, while China’s swift reopening is a demand driver for the world.

Does all this sanguine news justify current stock market levels? That’s always hard to determine. The S&P 500 now trades at a somewhat elevated 18.4 times forward earnings, according to FactSet. What’s more, value stocks and some European indexes are already at all-time highs. The recent good news may bolster investor confidence. But this doesn’t seem like a time to be making radical portfolio changes.

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