PACFS News & Updates

Navigating These Market- From PFS Viewpoint

Mon, 07 Apr 2025 18:58:51 GMT

Navigating These Market- From PFS Viewpoint

With recent headlines full of market volatility and economic uncertainty, it’s natural to feel concerned about your financial future. At times like these, it’s important to pause, take a breath, and refocus on what truly matters—your long-term goals and the disciplined strategy we’ve put in place to help you achieve them.

Market Volatility in Perspective

Yes, markets have been turbulent. What should have been a normal correction is now being exacerbated by tariff talks and uncertainty in global trade. But here are a few things we want to remind you of:

Market cycles are normal. Ups and downs are part of the journey, not signs that your plan is off course.
As you know, we at PFS, take pride in the fact that we are “value” investors. We dig deep and only invest in what we feel will be able to withstand not only market volatility, but market competition, recessions, wars, and yes- tariffs too. When making our decisions, we look past trading trends, and more into the fundamentals of each company we hold. This is similar to legendary investors, Warren Buffet, and his mentor, Benjamin Graham's, approach to investing, we are not here to reinvent the wheel.
Equally important to us (and to wildly successful investors such as Graham and Buffet) we urge clients to remember these key things: Focus on the long-term, ignore market noise, and practice patience and discipline.

The Fundamentals Remain Strong

Despite the headlines, many core economic indicators continue to show resilience. Employment numbers remain solid, consumer spending is steady, and corporate earnings—while varied—still reflect long-term growth potential. These are signs of an economy that may be adjusting, but not unraveling. Should these events be happening in a weak economy, we would be suggesting a different approach.

What We Know Works: A Long-Term Approach

Times like these can tempt even the most seasoned investors to make emotionally driven decisions. But history consistently shows that trying to time the market—especially by selling when prices are low—can do far more harm than good. Our goal is not just to weather downturns, but to come out stronger on the other side. In fact, we have all seen that the worst days are always followed by the best days. That’s why we remain committed to disciplined investing, diversification, and staying aligned with your personal financial plan.

Recent History

We know that these periods of times are rough. We made major headway in the markets last year and came way off our lows from 2022. However, if we are going to talk about where we are now, and where we are headed, we cannot without first remembering where we came from.

Not too long ago (2022) we had our last recession. In January of 2022 the S&P 500 was at about 4,677, by October of 2022 we had hit the bottom at 3,583. Since then, the S&P has climbed to record highs of around 6,100. That means that if you weathered that storm in 2022, and did not sell out, you would be better off today than you were then.

Prior to that, in 2020, we had the shortest recession, which lasted about 2 months, during COVID. Right before the COVID “crash” the S&P was hitting record highs of about 3,200. Within only a few weeks we dipped as low as 2,100 (March 2020), but then recovered to back over 3,200 by July 2020 and ended the year about 3,700- new highs.

The S&P is currently - even after the last week in the market - sitting at about 5,000.

Why does this history lesson matter? Because for those of you that were sitting in my office in March of 2020, or October of 2022, asking if it was time to sell, and I told you no…would you have believed me when I said that in 3-5 years you would have not only made your money back, but also hit new highs? More so, did you believe me when I said it would be much faster than 12 months? (See attached graphs below for proof!)

The Average Bull market lasts around 8.9 years, and the average bear (down) markets last about 1.4. Please take a look at the attached "Bear Vs. Bull Markets" document. This should help you understand what I am getting at here, and give some perspective. This graph doesn't even show the two recent ones I just discussed - which were even shorter!

Again, this is all to urge you to keep your eyes forward, looking into the long-term. I know you are probably sick of hearing the “ride it out” and “stay the course”, but that really is the reality of investing. Where we get burned is by trying to attempt timing these events…because we can’t.

We’re Here for You

All of this being said, we understand, we really do, that this is scary. You are not in this alone. We are continuously monitoring the markets, analyzing your investments, and making adjustments when necessary—not out of fear, but with strategy and care. If your personal situation has changed or if you simply need reassurance, don’t hesitate to reach out. We’re always happy to talk through your questions and provide clarity.

Stay the Course (oof- sorry! But it’s true!)

The best way to reach your goals is to stick with the plan we built together. The path forward may not always be smooth, but your goals haven’t changed—and neither has our commitment to helping you achieve them. No matter who is in office, what is causing a correction, or how much the news tries to instill fear, we will recover. Remember, corrections are normal and healthy. In the last graph attached below, "S&P Corrections Since 2009", you will notice that this is nothing new.

So, I will leave you with this quote that I love from legendary investor, Peter Lynch - “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

As we always say, buckle up, sit tight, and this too shall pass.

As always, thank you for your continued trust, we are forever grateful to all of you!

- Anna and the PFS Team

5-Year S&P Returns

Bull Vs. Bear Markets

S&P Corrections Since 2009

QCD's: GETTING AROUND THE IRS WITH A CHARITABLE CONTRIBUTION FROM YOUR IRA

Wed, 19 Jul 2023 18:18:29 GMT

GETTING AROUND THE IRS WITH A

CHARITABLE CONTRIBUTION FROM YOUR IRA

You can beat the federal income tax system. How? By using qualified charitable distributions (QCDs). Most of us are philanthropic and have no problem making contributions to any 501c3 nonprofit entity, like Major Projects (Purple Pig), ENF or even Scholarships.

Until lately most of us were able to deduct charitable contributions on schedule A of our federal tax return. With the new tax laws in effect many of us can no longer take a deduction for our contributions to charity. You lose that tax deduction but, not if you use a QCD. Under the rules you make a tax-free transfer from your IRA directly to the charity of your choice. You will never be taxed on the amount you contribute and don’t have to worry about tax law restrictions that apply to itemize charitable write-offs. The general rules are as follows:

1. As the IRA owner or beneficiary, you must have reached age 70½.

2. You must meet the regular tax-law requirements for a 100% deductible charitable donation. If you receive any benefits that would be subtracted from a donation under the regular charitable deduction rules (such as free tickets to an event) the distribution cannot be a QCD. Beware of this rule!

3. It must be a distribution that would otherwise be taxable. A Roth IRA distribution can meet this requirement if it’s not a qualified (meaning tax-free) distribution. However, taking QCDs out of Roth IRAs is generally inadvisable for reasons explained later.

Important Notes on QCDs:

Important point 1: The Distribution must be made out to the charity! If YOU are writing a check and you donate it to the charity this will not count as a QCD. For it to be a QCD the money must move from your IRA to the Charity directly.

Important point 2: If you inherited an IRA from the deceased original account owner, you too can do the QCD drill with the inherited account if you’ve reached age 70½.

Important point 3: There is a $100,000 limit on total QCDs for any one year. But if both you and your spouse have IRAs set up in your respective names, each of you is entitled to a separate $100,000 annual QCD limit.

Tax-saving advantages

QCDs have Four potential tax-saving advantages:

Advantage No. 1: QCDs are not included in your adjusted gross income (AGI). This lowers the odds that you will be affected by various unfavorable AGI-based rules, such as those that can cause more of your Social Security benefits to be taxed and more of your investment income to be hit with the dreaded 3.8% Medicare surtax (the so-called net investment income tax).

Advantage No. 2: QCDs always deliver a tax benefit while “regular” charitable donations might not. The Tax Cuts and Jobs Act (TCJA) almost doubled the standard deduction amounts for 2018-2025, so higher standard deductions make it that much harder to claim itemized charitable write-offs.

Advantage No. 3: A QCD taken from your traditional IRA counts as a distribution for purposes of the required minimum distribution (RMD) rules. Therefore, you can arrange to donate all or part of your annual RMD (up to the $100,000 limit) that you would otherwise be forced to receive and pay taxes on.

Note: April 1 deadline: If you turned 70½ in 2019 but have not yet taken the RMD for your 2019 tax year, you must do so by April 1 of 2020 or face a 50% penalty on any shortfall. Then you must take your RMD for the 2020 tax year by Dec. 31, 2020. If you waited until 2020 to take your 2019 RMD you then find yourself in this situation: having to take two taxable RMDs in 2020 with the resulting double tax whammy. Not good! But if you go the QCD route you can replace those taxable RMDs with tax-free QCDs

Advantage No. 4: Say you own one or more traditional IRAs to which you have made nondeductible contributions over the years. Your IRA balances consist partly of a taxable layer (from deductible contributions and account earnings) and partly of a nontaxable layer (from those nondeductible contributions). Any QCDs are treated as coming first from the taxable

Are you a good QCD candidate?

If you can afford to donate IRA money, you can benefit tax-wise if you match one or more of the following profiles:

1. You won’t itemize deductions this year due to the bigger standard deduction. So a “regular” charitable donation won’t deliver any tax savings, but a QCD will. That’s the first way to beat the system with a QCD.

2. You want to avoid being taxed on the RMDs that you must take this year from your IRA(s). Replacing taxable RMDs with tax-free QCDs is the second way to beat the system with a QCD.

3. You are looking for a quick-and-easy estate tax reduction strategy. This is a third way to beat the system with a QCD, but it only makes a difference if you’re quite well off.

The bottom line

If you haven’t taken your RMD for this year, there is still time. If you’ve already taken your RMD for this year, then plan on this opportunity for next year. For further information contact Anna Brockschmidt at 818.991.7794, or your financial advisor.

Any accounting, business or tax advice contained in this communication, including any attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Contact a tax advisor for specifics.

Is It 2008?!

Tue, 14 Mar 2023 19:29:48 GMT

Is It 2008?!

Hello �� Family Of Clients,

I wanted to reach out to ease your minds over the recent actions in the market.

As I am sure most of you have heard by now, we just witnessed the second largest bank run and bank collapse, after 2008. I want to start off by first giving you an explanation on what exactly happened, why; then give you our outlook going forward.

What was SVB (Silicon Valley Bank)?

SVB was a commercial bank located in Santa Clara, CA, and despite the fact that most people had never heard of them, they were actually the 16th largest bank in the US and was the hub for start-ups, venture capital and tech funding. Since 2019, we have seen a massive increase in these areas. Not to mention, for the last 40 years, interest rates were low, and money was cheap, which meant more people than ever were starting businesses and borrowing money. SVB was the golden child of banks in the silicone valley area. They were known for taking anything from the smallest of startups to large business and IPOs, like Beyond Meat, Coinbase and Roku. The majority of SVB’s client base was in fact corporations, not individual investors like us. This is important to note because as we all know FDIC insurance covers our deposits up to $250,000, well, many corporations have much more at stake than $250,000. This will be one of the contributing factors to SVBs demise.

What Actually Happened?

Well, without getting into the nitty gritty of macroeconomics, the simple way to put it is that SVB was strapped for cash and couldn’t provide enough liquid cash (money that is not tied up in investments) fast enough.

As I mentioned above, this past year the Fed raised rates at an alarming rate. The Fed does this as a tool of monetary policy in order to slow the flow of dollars in our economy. The higher the interest rates, the harder it is to borrow money. It becomes too expensive to get a loan. It increases monthly payments due and makes spending slow down. Just before we saw this massive push to raise interest rates, we had a period of time where interest rates were historically low, tech stocks were on the rise, and start-ups were borrowing money left and right to fund their ventures. This all came slowly to a stop as the rates continued to rise. These smaller start-ups and other business were burning through cash at a much faster rate, thanks to both the rates and inflation.

Meanwhile, SVB, along with many other banks, was investing deposits made by it’s clients in government bonds – a practice that is neither bad nor uncommon. However, basic economics will tell you that when interest rates go up, bond prices go down. That means that these investments, in safe government bonds, were at a loss.

It is also important to note the difference between realized and unrealized losses here. SVBs losses were unrealized, which means they haven’t actually lost anything UNTIL they sell. At which point, the loss becomes realized. Bonds, especially government bonds, are very safe- when held till maturity. If you decide to sell prior to that expiration date, well, like anything else, they sell at market value. Again, market value of those bonds today are much lower, thanks to rising interest rates. This loss in value caused a gaping hole in SVB’s balance sheet.

So when SVB needed to raise about $2 BILLION in capital to meet demands and shore up its balance sheet, they sold those government bonds – at a massive loss. Their investors panicked. The stock price began to fall and shortly after we witness a historic “run on the bank” which means exactly what is sounds like. People were running to the bank to pull out every dollar of theirs that they could. Like I mentioned before, these banks do not just sit on that cash, so it comes as no surprise that the bank could not provide everyone with their cash all at once. This only ensured even more panic, until regulators took control of the bank on Friday afternoon.

Shortly after, the FDIC stepped in to reassure everyone that they would receive up to $250,000 back by Monday. However, remember how I mentioned commercial customers usually have much more than $250,000?? That would mean thousands of business were looking at bankruptcy and liquidity issues in the coming weeks. Well, because of that, the government stepped in and agreed to bail them out. They reassured SVB costumers that they would all be made whole and paid back any losses incurred. Phew for them- but what about the bigger implication of such a move?

What Do We Do Now?

It seems very likely, at this time, that there will be other banks that will step in and take over the loans and accounts from SVB to ensure that no one, or no business, cannot operate as usual. The markets liked this consensus, because if it wasn’t for this aide, we may have witnessed a much broader economic attack as all the business that banked with SVB felt fiscal pressure and/or went under. However, the backing of the government, along with the selling of the accounts, proves to be a confidence boost for investors.

What we just witnessed, although very similar in nature to 2008, was in fact very different than the 08/09 banking crisis. Why? Because in 2008 we saw the liquidity crunch when investing in crummy junk bonds and below investment grade garbage. Last week, we witnessed a bank crumble and fall all thanks to poor monetary policy and mismanagement. It had more to do with the Fed and their -in my opinion - way too reactive, instead of proactive, response to 2020, than it did with the actually investment choices made.

We also just witnessed a much faster response than we saw in 2008. In 2008, it took weeks to do what they did in just one weekend. It proves their dedication to making sure that we, as the consumers, don’t panic and create our own problems. We know that they are preventing us from making a run on all banks, which would be the worst thing we could do right now.

That being said, my biggest advice right now is to not panic. We are not witnessing the start to a crash due to systemic issues; we are not witnessing a banking crisis, we are not even witnessing anything that is groundbreaking or new. SVB is not unlike other banks in their investment choices, they are unlike other banks because of their nature of business. Their venture capitalist and startup client base is the “bubble” that is bursting right now. We saw it months prior to this that the tech industry was hurting. We were seeing tech layoffs, IPOs slowing, and startups being put on hold. So no, I don’t think you should be selling out of the market. In fact, I think this just provides another great opportunity to buy stocks on sale.

However, if you’re in the tech industry, or thinking of joining a startup, I would suggest double checking those emergency funds, check in on your budget, and prepare for a potential cut back in your industry.

Remember, it is important to maintain a long-term time horizon in these moments. The one thing history has taught us, when it comes to investing, it’s that the market always recovers. Of course, none of us know what the future holds- but what I do know is that trying to time the market, or trading based on fear and emotions, will always get you burned.

As always, this is a friendly reminder that we are here, watching everything, researching everything, and making sure that we make the best possible decisions for all of you. If you have any questions, or would like to discuss further, I am more than happy to talk. In the meantime, we stay the course and carry onward.

Warmest Regards,

Anna Brockschmidt and the PFS Team

We Are Almost There

183:866266467 (Anna Brockschmindt) — Fri, 28 Oct 2022 19:43:07 GMT

We Are Almost There!

Hello All,

Here we are again, another year wrapping and I am in shock that it is already almost November. I know I say this every year, but time really flies.

I am writing you all for a few reasons. One, I want to remind everyone of some end-of-the-year housekeeping items, and two, to give you all an outlook on these markets and what we predict through the end of the year (spoiler alert: we are optimistic!)

So, for starters, let’s cover some of necessities before we reach the end of the year:

· If you are age 72 or older, and have not yet taken your 2022 RMD, please contact our office to make sure we get that done before December 31 ^st .

· If you are ANY age, and have an inherited IRA or Inherited Roth IRA, please also contact our office to pull your 2022 RMD if you have not done so already.

· If you have not had a meeting with myself, or another advisor in the office, at all this year, please contact Casey so we can get you on the books. We like to meet with our clients at a minimum of once a year, but we prefer simi-annually.

· As a reminder, if you have moved, changed phone numbers, or got a new email address, please contact our office to let us know so we can update your file on our end, and direct you on how to update it with Schwab. If Schwab does not receive the updated information, your account may be put on a trading freeze, which is not good, for obvious reasons. So, please always call us right away with any changes to personal info.

Now, on to the juicy part. What the heck is happening in the markets? Are we in a recession? What’s going on with inflation and those darn interest rates??

Well, let’s do what we always do and take a step back and take a birds-eye view. We are all aware that the markets are well into correction territory, and depending on how long you’ve been a client, you have probably heard us say “these corrections are good and needed.” However, we are fully aware of the pain and fear these markets incite.

So why are we here? Well, coming out of a pandemic in 2020 (where people were forced to stay home and net spend), and then an unprecedented 2021 (where people were cash rich as eager to spend, but faced supply chain issues -too many dollars chasing too few goods), we came to a screeching halt. Partly because of supply chain issues and partly because of rising interest rates - but primarily because of investor outlook and fears. Since early 2022 we have seen the Fed raise rates rapidly (and probably a little delayed), which has caused us to feel the effects of inflation, but despite those factors, we have still been able to maintain strong fundamentals. Historically speaking, with inflation where it is, we would have seen a much harder hit to the economy, unemployment, consumer spending and overall corporate earnings, but we just haven’t seen that this year.

The truth is, we are in a recession - according to the textbooks at least (2 consecutive quarters of negative GDP). However, because this is not a traditional recession, and we have strong forward looking indicators, we are optimistic going into to Q4 and 2023.

The first reason we are hopeful looking forward is the upcoming election. Without getting into politics, we believe that the anticipated outcome will result in a positive reaction in the markets. Slow moving politics equals a happy market.

Also, with supply chain issues easing, and the holiday season upon us, we anticipate continuing to see corporate earnings performing. Sure, we do have inflation that may make is slightly slower than in years past, but we are all human and will be spending more money over the next 3 months than we have the rest of the year. Consumer spending equals happy markets.

Finally, and possibly the most important, we are optimistic because of our technical indicators. We have seen a decline in the VIX (the index that tracks market volatility) and have seen the market test and retest its lows (this is a good sign).

Also, It was recently brought to our attention that one major technical indicator, the McClellan Oscillator, has reached a number that signals to us that our markets are oversold. The McClellan Oscillator, without getting too technical, is a measure of the money going into the market vs the money going out of the market AND the stocks that are advancing vs declining (breadth), which allows us to have a very broad, birds-eye view of the overall market and therefor predict trends.

Recently, this indicator reached a mark of -15, which at the surface level tells us that the market is oversold and that there is more money leaving the market than joining it, and more stocks losing than winning. However, here is the good news: since 1990, the McClellan Oscillator has dropped below -15 109 times, 100% of those times, stocks were up higher 12 months later, with the average return being 29%! This indicator, coupled with other fundamenals, like consumer spending still up 10% year-over-year, and unemployment still relatively low, indicates a bull market ahead.

So, yes, we are in the middle of a selloff that hurts and is scary, but if we can share any wisdom with you, from our professional standpoint, it would be this: do not let this selloff scare you away. Like we have always preached, we do not sell at the bottom. And now, more than ever, we are confident that that’s exactly where we are- the bottom.

What does that mean for you? Well, if you’re fortunate enough to have extra cash on hand- now is the time to invest it. If not, that’s okay, you hold tight and remember that we (PFS) are here, watching and waiting, and we are confident that we are almost done with this wild ride…at least until the next bear market… because, as we all know, bear markets will always be the price we pay to “play.” This is why we preach high-quality, long-term investing.

If you ever need any extra support or to hear a voice of reason, you can contact us, but know that we are optimistic and confident and that we are almost out of this mess.

So, on that note, I hope you all have a wonderful Halloween next week, and very Happy Thanksgiving next month!

As always, thank you for your endless support, trust and referrals. We are so grateful for all of you.

Stay healthy and safe everyone!

Warmest Regards,

Anna Brockschmidt and the PFS Team

Going On A Bear Hunt

183:866266467 (Anna Brockschmindt) — Thu, 19 May 2022 22:03:49 GMT

Maybe a bear market- so what?

Hello Friends,

We really need to stop meeting like this… but here I am again to share some perspective and ease some fears. We are yet again feeling the pain of the market sell-offs right now. For 2022, the Dow is down 14%, Nasdaq is down 27% and the S&P is down 18%. That’s never fun, however, we believe that despite volatility through the end of the year, we will be okay. Here’s why:

Historically speaking, since World War II, the S&P 500 has fallen, from its market high to its market low, by a median of 24%, and the average decline is 30%. Current fears that are being calculated into this market are fear of inflation and recession. We would need to fall another 18% for us to be in a recessionary environment, and with the Feds recent comments that they would not hesitate to combat inflation, I do not see this happening.

We believe the market is factoring in inflation and even recession now, but the fears of recession are, in my opinion, misjudged, or at the very least, premature. Sure, we have rising rates, and a are now seeing a slow down on spending with consumers being more discretionary. However, we have a strong job market right now, consumers have very strong balance sheets and are cash rich, people that are eager to travel, and the reopening of our economy post-covid is still very much underway.

Despite the doom and gloom news stating that we are headed toward a bear market/recession, we believe we are simply in the middle of a mid-cycle correction. This growth slow down is only setting us up for larger economic expansion and higher highs. If this seems hard to believe, I urge you to look back at our history. I have attached a chart at the top of this article that shows, historically, our market downturns versus the subsequent market recoveries. I don’t know about you, but those down markets look like an opportunity that I don’t want to miss out on.

Selling in the red, especially at the bottom, is the worst choice we can make right now. As I mentioned in my last market commentary, now is the best time to be investing, and if you’re not in a position to add funds, then the least you can do is sit tight and let this ride. I repeat, now is the time to get any extra dollar that is lying round, and dump it in this market, with the exception of your emergency funds, or at a minimum, sit tight and do not sell!

I know this seems scary, I know the news is saying the sky is falling, but I cannot emphasize this enough…we always recover after down markets/bear markets, and we always come back stronger and higher than before.

I’ll close it with this, it is hard to not let fear drive our emotions and decisions, we know that. However, that’s why we are here, to remind you that fear in and of itself is not reason enough to sell. We love you all so much and are so grateful to have such a wonderful group of clients. Thank you for being so understanding, supportive and patient. We will get through this. This too shall pass.

God Bless you all.

Warm Regards,

Anna Brockschmidt

No Gain Without Pain

183:866266467 (Anna Brockschmindt) — Tue, 10 May 2022 18:58:33 GMT

No Gain Without Pain

Missing 2020 yet?? Welcome to the price of play. It was easy to sit back over the past two years and assume “this is easy”. Wouldn’t life be nice if it was ALWAYS that easy? Unfortunately, that just isn’t realty. But fear not, because that’s why we are here.

I’m sure many of you are sitting at the edge of your seats wondering when is enough finally enough?! Well, I am here to remind you that now is not the time. We are still hanging tight and here is why….

What do we know? We know that unemployment is low, consumers are coming out of the pandemic cash rich, and we know they are spending. Just look at corporate earnings. Traditionally speaking, if we were heading to recession, we would see those numbers reflected in earnings. On top of consumer spending, Covid concerns are rapidly slowing. What does that mean? Well, let me ask you: do you have any upcoming travel plans, or have you finally taken that trip you postponed the last few years? Yup. You and everyone else. People are ready and eager to get back out there and travel, with that comes even more spending. More spending means a boost in our GDP. All good things.

Next, we have midterm elections coming up. Most likely we will see a split in both congress and the White House. The market likes that. A split means things are at a standstill, nothing gets done. And while that might not sound good from a political standpoint, the market appreciates the stability- and we all appreciate market stability, right?

We often get the question: “is it time to sell? Should we go to bonds?” Our answer: NO.

First of all, we don’t want to run to bonds. As we all know, interest rates are on the rise. Long-term bond investments are too sensitive to rate rises. However, that doesn’t mean we are stuck. As I mentioned earlier in the year, high quality equity is good place to be. We are in unprecedented times (as we have been the last 2.5 years…). Some are crying inflation, but numbers and fundamentals are showing a potential for growth. We have rising interest rates, supply chain issues, and simultaneously have a country that has positive cash flow and are ready to spend (usually not the case in recessionary environments) The bottom line is this: we are going to have volatility, we warned of this in the beginning of the year. Expect this to continue, but remind yourself of two things:

We never want to sell at the bottom. It’s okay to be nervous, but remind yourself of your time horizons, and remind yourself that selling at the bottom is how you get burned in these markets.
Now is the time to invest. Just like we search for the best sales on our food, clothes and gadgets, we also want to shop the sales in the stock market. And right now almost everything is on sale. If you’re wanting to fund your IRA, process a rollover, or make any contributions, now is a great time to do so.

Lastly, I’ve attached a great graphic that shows the infra-year declines as compared to the year-end results. “Intrayear declines in the S&P 500 have averaged -13.7% since 1952, yet annual price returns have been positive in 51 of those 70 calendar years.”

So what’s the moral of the story? Stay the course. It’s okay to have some fear, it’s a normal human response, but remind yourself that reacting to your emotions too soon can cause you more harm than it would to just sit tight. This is your reminder to not act on your emotions, call or email us if you need to be reassured, but remember that we are here. We are watching, and we are always ready. Hold on to your hats, because it may be a bumpy ride, but for now, we say this not enough to sell out.

As always, we are here for you if you ever have any questions or concerns. Hoping you are all staying healthy, safe and happy!

God Bless.

Anna Brockschmidt

What Is A Roth Conversion, And Should I Do One?

183:866266467 (Anna Brockschmindt) — Thu, 07 Oct 2021 17:46:00 GMT

What Is A Roth Conversion, And Should I Do One?

We get these questions a lot, and for good reason. We are always talking about how great the “Backdoor Roths” and Roth conversions are. So, what exactly is a Roth conversion? Well, to put it simply, a Roth conversion is when you take money from your pre-tax IRA and move it into your after-tax Roth account. Sounds great, doesn’t it? Well, there are some caveats:

You will pay taxes on the amount you pull from your pre-tax account, in the year you complete the transfer
Be careful not to pull too much, as the distribution from the pre-tax IRA is considered income from a tax perspective, and can bump you into a higher tax bracket
Remember, you cannot pull the money you deposit into your Roth for 5 years. The IRS will charge a 10% penalty on any of those funds pulled within 5 years. No matter what your age is.
That 5 year rule mentioned above applies to each conversion you do.
Be careful how much you pull from your IRA if you are already on Social Security, again, this distribution is considered income and can affect your benefits.

All that being said, there are some really great advantages to a Roth conversion:

Number one, of course, is tax-free growth and distributions in retirement. Since you are pulling the funds out of your pre-tax IRA and paying the taxes now, you do not owe any taxes when you make withdrawals (assuming you’ve met the 5 year rule)
If you think taxes are going up (which most likely they will, since historically speaking, we are in a low tax rate environment), then this is a great way to hedge against that rate increase.
If you have a large IRA, first of all, congrats, that’s great! But, that may mean really high RMDs (required minimum distributions). Doing a Roth conversion will minimize your IRA balance and therefor minimize your RMDs. High RMDs are a good problem to have, but they do come with some issues. A high RMD means your taxable income is higher, and that may in turn affect your social security benefits, as well as increase your tax bracket.
If your goal is to leave money behind for your heirs, the Roth does so tax-free! They will still be required to pull all the assets by the end of the 10 ^th year (thanks SECURE Act of 2020), but they will not owe one ounce of taxes. Score!

As you can see, a Roth conversion is not just black and white. At first glance it is an amazing planning tool that allows you to receive tax-free retirement income. If you make too much money to contribute to a Roth, the Backdoor Roth (Roth Conversions), are great and allow you to still participate in a Roth.

However, there can be great tax consequences if not done properly. In the past, the IRS allowed Roth conversion to be re-characterized in the following year. Meaning, if you took too much out of your IRA and got hit with a giant tax bill, you could go back and reverse some or all of that. Not any more. Once a Roth conversion is done, it is done. So, be careful how much you do and when. We always recommend talking to us first, as well as your tax advisor. You tax advisor should be able to work with you to figure out an amount that won’t negatively effect your taxes.

As always, if you have any questions, or want to discuss this planning tool with us, please feel free to contact us! We are happy to help!

Happy Planning!

-Anna Brockschmidt

What is an IRA?

Wed, 28 Apr 2021 16:34:12 GMT

I get a lot of clients that come in and often don’t know what an IRA is, or what the difference is between the different types of IRAs. It’s totally understandable, this industry is confusing and there are so many rules that apply. However, it’s my job to know what everything means, when you can use them, and how you can use them. So, I decided I would dedicate this blog post to the topic of IRAs. I am going to keep it general, and will follow up with more post that go into detail on all the different IRAs available.

I’m sure you have heard the term IRA before, or maybe Roth IRA, they are very popular retirement planning tools. The acronym IRA stands for Individual Retirement Arrangement. Many people call them Individual Retirement Accounts, and that’s all it is really; an account where you put funds with the intention of saving those funds for retirement.

So, why are they important? Well, long gone are the days of pension plans and corporate funded retirement. Yes, plenty of government jobs still offer pensions, but for the majority of people, the responsibility of planning and saving for retirement is on them. In place of these pensions, we now have 401(k)s and IRAs. I will have another post that covers 401(k)s and other similar retirement accounts in more detail, but for now, just know this: A 401(k) is provided by companies and corporations and allows an employer to provide an outlet for retirement savings to their employees. The employee can choose to contribute a portion of their paycheck directly to the 401(k) account, and in many cases, the companies will provide a match of the funds contributed.

So, since the responsibility now falls on the individual; the government created IRA accounts to provide an incentive for people who do not have 401ks, or choose not to use their 401ks, to save for their future.

These are some of the main types of IRAs:

Traditional IRA/Rollover IRA
Roth IRA
SEP IRA
SIMPLE IRA
Inherited IRA

Each of these plans has different rules and apply to different people, like for example, the SEP IRA is used for people who own their business or are self-employed. The most popular and most common IRAs are Traditional/Rollover IRAs and Roth IRAs. I am going to focus on these two for now.

Traditional/Rollover IRAs:

The traditional and rollover IRAs are essentially the same thing, the only difference is that the rollover IRA usually is funded by another account it came over from (or, rolled over from) a 401(k), another IRA, or some other pre-tax plan. Both of these IRAs are funded with pre-tax dollars, this means you have not paid any taxes on this money yet.

Pros of an IRA :

When you contribute to a Traditional or Rollover IRA, it reduces the amount of income you claim on your taxes, therefor providing a tax benefit for you
Anyone can contribute to these IRAs, as long as you had earned income. If you made over $6,000 you may contribute the full $6,000, however, if you made less than $6,000, you may only contribute up to the amount you earned. For example, if you made $5,000 in 2019, you would only be allowed to contribute $5,000.
All the growth in these IRAs grow tax-deferred. This provides you an opportunity to let your assets grow over time without worrying about taxes until you withdrawal from the account. Over time, this ends up being a huge benefit.
The SECURE Act of 2019 now says you do not need to take your RMD (required minimum distributions) until age 72. Basically, you can let these funds grow, tax-deferred until age 72!
You can pass on your IRA accounts directly to your beneficiaries when you pass away. Meaning, if you have a beneficiary listed, the account will go directly to them, they will not need to go through probate- which saves them time and money!

Cons of an IRA:

Any withdrawals before age 59 1/2 are subject to a 10% penalty. There are exceptions to this rule, such as a first time home purchase or qualifying medical expenses, and a few others, but in general, it is not wise to withdrawal from your IRA before age 59 1/2. Doing so would mean paying that 10% penalty, plus income tax on the funds withdrawn
You can only contribute $6,000/year (or $7,000 if you’re over age 50) for 2020*
You will pay taxes on any funds withdrawn from the account. The idea here though, is that most people hope to be in a lower tax bracket in retirement (ideally when they are pulling from these funds), therefor giving them a tax benefit. However, taxes will always be due on distributions.
Depending on your AGI (adjusted gross income), you may not be able to deduct some or all of your annual contributions.
Your deduction limits may change if you are covered by a retirement plan at work (like a 401k)

Overall, the Traditional/Rollover IRAs are great for saving for retirement. However, these accounts are best utilized by those who:

Know they will not touch the money until at least age 59 1/2
Are in a higher tax bracket now, but believe they will either be in a lower tax bracket when they make withdrawals, or that taxes overall will be lower by the time they take withdrawals
Meet the annual contribution AGI limits and are able to deduct the contributions. If you want to check if you fall within these limits, you may review it here at the IRS website: https://www.irs.gov/retirement-plans/ira-deduction-limits or you can reach out to me and we can discuss it.

Roth IRAs:

The Roth IRA is one of my all-time favorite retirement accounts. These accounts allow you to contribute after-tax dollars, meaning, that when you withdrawal from these accounts, you do not pay ANY taxes!! Yes please!

Pros of Roth IRAs:

All of the growth in Roth IRAs is tax-free, and since you contribute after-tax dollars, this means that all withdrawals (after age 59 1/2) are 100% tax-free!
Just like your Traditional IRAs, most withdrawals before age 59 1/2 are subject to the 10% penalty.
You can, however, withdrawal your contributions (not the growth), penalty free.
There are NO RMDS (required minimum distributions).
Like the Traditional IRA, you can pass on your IRA accounts directly to your beneficiaries when you pass away, bypassing probate.

Cons of Roth IRAs:

You do have to pay the taxes up front. So, if you are in a really high tax bracket right now, this might not be the best option.
You cannot deduct contributions to a Roth IRA, since you are contributing after-tax dollars.
Just like with the Traditional IRAs, you can only contribute up to $6,000 ($7,000 over age 50) or your total earned income, per year*
There are income limits on the Roth IRA. If you make over a certain amount of money, you may not be eligible to contribute to a Roth. You can check out those limits here: https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020 or, reach out to me and we can discuss.
In order to withdrawal the earnings without penalty, you must be at least age 59 1/2 AND have had your account opened for 5 years.

I am huge fan of Roth IRAs if you are eligible to participate. I generally have a rule that taxes are only going up, and with that mindset, the Roth is a wonderful planning technique. I always advise my young clients to first fund your Roth IRA, then whatever you have left over (over the $6,000) you can invest elsewhere, although this isn’t the case for everyone, so be sure to talk to an advisor about your options. The Roth IRA is perfect for:

Young kids/young adults that are in a low tax bracket and have earned income
Anyone that feels taxes will go up in the future, or that they will be in a higher tax bracket in retirement
Anyone that wants to save for retirement, but also not be so restricted to keeping 100% of the funds in the account until retirement. (You can withdrawal your contribution amount at any time)

*Please note that the maximum contribution for BOTH the Traditional and Roth IRAs is $6,000 total. Meaning, you cannot contribute $6,000 to a Roth AND $6,000 to your Traditional. The total contribution to both accounts cannot exceed the $6,000 (or $7,000 if over age 50).

Also, please keep in mind that, again, these accounts must be set up on your own, they are not offered through employers. The amount you contribute must be determined and completed on your own as an employer will not help you with this (like they would with a 401k, or other employer sponsored plans). Please remember that there are limits, conditions, and exceptions to both these accounts. Be careful not to over fund either one.

If you are ever unsure, I am always happy to help guide you, and even get one started for you. You can email us at general@pacfs.com for more info.

Disclosure: This communication is for informational purposes only and does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. The opinions expressed reflect our judgment now and are subject to change without notice and may or may not be updated. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful before registration or qualification under the securities laws of any such state. Readers who are not market professionals or institutional clients of Pacific Financial Strategies, Inc. should seek the advice of their financial advisor before making any investment decisions based on this communication.

Top 5 Things To Know When Saving For A House

Wed, 28 Apr 2021 16:34:11 GMT

Buying a house is a big step, and if you’re like me, you will want to double, no - triple, check that everything is done right. The whole process can be scary, and often times clients wonder if they really can afford that house. Here are some tips to help you have the right mindset when investing and saving for your home sweet home:

Know Your Time Line - If your goal is buy a house within the next two years, I do not suggest investing your down payment. If you do, you may run the risk of higher taxes and investment loses. If you are buying in the near future, consider finding the highest paying savings account you can and stash your money there. Otherwise, if your goal has a slightly longer time horizon, investing is, almost always, the way to go. Just be sure to invest in things that are safe and appropriate for your specific time horizon (yes, we can help you figure this out!).
Know Your Budget - This is huge because you need to make sure you are living within your means. I repeat, LIVE WITHIN YOUR MEANS. This is always good advice, but it is especially critical if your goal is to save for a house. Every extra penny, every extra $6 Starbucks that you skipped out on, makes a difference. You should have a solid budget plan, and be disciplined in sticking to it. If you don’t have a budget, well guess what, it’s your lucky day…contact PACFS and we will get you started on one, FOR FREE.
Know Your Options - In most cases, it is highly recommended to have 20% of the total cost of the house, in cash for the down payment. In fact, you should always assume this is the case, but that being said, there are options for some people that will offer you a way to have less down, like for example first time home buyers and veterans. Now, keep in mind that these loans tend to have large drawbacks and you need to be aware of them. Nothing is ever free, always remember that!
Know The Rates - If you plan early, then you will have time on your side. Interest rates will fluctuate year over year, and even month over month. It is always a good idea to stay aware of the rates and the direction they are moving. This will allow you to make educated decisions when it comes time to actually start looking. FYI- rates are REALLY low right now, so if you’re looking to buy (or even refinance) now is a wonderful time!
Know Your Ratios - When you apply for loans, many things are taken into consideration, like your income, your debt, your job, etc. There are a few key ratios that they will run based off of those stats. A huge one is the debt-to-income ratio, which, as I’m sure you guessed, takes the amount of debt you have divided by the amount of gross income you make. This ratio, along with a few other factors, are used to determine whether or not you will get approved. The loan companies will want to see that your ratios are below a certain level, which indicates you can afford the house at hand. If you are at the point where you are starting to look at houses, please contact us so we can first run a test and see where you land with these ratios.

There are so many factors that go into home ownership, and the process of becoming a home owner. The biggest piece of advice I can give is to know your budget and know your numbers BEFORE you even start looking. In fact, the sooner the better. Even if you think this dream is 5, 10, 15 years down the line, it is never too early to start planning; and who knows, maybe you’re closer than you thought!

If you want to start planning for a house and need help with one or all of these things, please contact us . Our budgeting sheets are free and super useful. As long as you are willing to put in the work, we are always here to help guide you!

Disclosure: This communication is for informational purposes only and does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. The opinions expressed reflect our judgment now and are subject to change without notice and may or may not be updated. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful before registration or qualification under the securities laws of any such state. Readers who are not market professionals or institutional clients of [Firm] should seek the advice of their financial advisor before making any investment decisions based on this communication.

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