Articles and Headlines that forewarned of the next Stock Market Downturn

7/4/23
The 'superbubble' in stocks and housing will burst - but the AI boom might delay the crash, Jeremy Grantham says

Blackstone Announces Major Asset Liquidations As Redemption Requests For Its REIT Continue

Best in Class ETFs - Paul Merriman

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Large cap value: RPV

Alternatives: AVLV, VONV, IUSV, SPYV, 

Michael Burry's Most Important Tweets of 2023

Legendary investor Michael Burry occasional drops some wisdom about the markets on the Twittersphere. 

Here are his significant tweets from 2023.

This is a good chart/guide.
(The Y-axis shows uninsured deposits greater than $250k at major banks. The X-axis shows the realized losses percentage of CET1 Capital.)

The crisis could resolve very quickly. I am not seeing true danger here.

2000, 2008, and 2023, it is always the same. People full of hubris and greed take stupid risks, and fail. Money is then printed. Because it works so well.

It is possible today we found our Enron.

It's time memesters look up what a death spiral convertible is.

2/9/23

1/31/23

"Sell."

Burry deleted his Twitter account briefly after posting this. 

Dividend tax rate tables

 

Qualified dividend tax rate

Non-qualified dividends tax rate

iBonds are paying a hefty 6.89% until April 2023

iBonds purchased before April 2023 are paying a whopping 6.89%.

Your money will be locked up for a year, but you'll also receive a risk-free guaranteed rate of return. 

The current rate is almost 3% higher than the top level High Yield Savings Accounts (HYSAs) that are paying around 4% interest. 

A $10,000 max investment in iBonds would earn almost $300 more interest in a year than an HYSA. 

PMCC - Poor Man's Covered Call Explained

Stumbled on Poor Man's Covered Calls through two YouTube channels.

This was one of the videos that did a great job explaining how the trades work and how to collect regular premium.

Poor Man's Covered Calls Explained - Markus

MSFP - Masters of Science in Financial Planning

A USO transitions specialist connected me with Act Now Education, a nonprofit created by a military veteran to help people transitioning to civilian work life and veterans navigate benefits offered by colleges, Fortune 500 companies, and other nonprofits. 

During the Act Now Zoom orientation, they mentioned two  Master’s degrees that had a full ride scholarship for qualifying military members.

My interest was immediately piqued in the MSFP - Master’s of Science in Financial Planning.

The program prepares their graduates to take the CFP exam, giving them one of the gold standard certifications in the industry. 

"The Master of Science in Financial Planning (MSFP) is an accredited graduate degree program that gives aspiring and active financial professionals the practical and relevant skills they need to improve the financial well-being of their clients.

Students in the MSFP program receive a strong foundation in financial planning principles using sound, ethical, business practices, and have the option to choose one of three concentrations representing the fastest-growing and most relevant fields in financial services today: Financial Planning, Retirement Planning, or Legacy Planning."

The program is also listed on the VA website as an accredited institution that qualifies for the GI Bill.

"The MSFP program consists of 10 courses and 30 credits; four core courses (12 credits) along with six more courses (18 credits) in each of the three potential concentration areas."

Core Courses:

MSFP 551- Introduction of Financial Planning (Residency I)

MSFP 559 - Fundamentals of Estate Planning (Residency I)

MSFP 559 - Fundamentals of Estate Planning (Residency I)

MSFP 650 - Capstone Case Development (Residency II)

Courses in the financial planning concentration, as of October 2022:

MSFP 554 - Income Taxation 

MSFP 555 - Fundamentals of Insurance Planning

MSFP 557 - Retirement Planning 

MSFP 558 - Investment Planning

MSFP 615 - Advanced Estate Management and Planned Giving

MSFP 631 - Advanced Retirement Planning Issues

15-50 Rule of Investing

I first heard this investing principle from finance YouTuber Andrei Jihk.

The principle goes that if you plan to live for at least 15 more years, then 50% of your investing portfolio should be in stocks.

And for people trying to understand how much money they can have in retirement and not run out of money, the 4% rule (or 4.5% rule) states that you can withdraw 4-4.5% of the value of your investing portfolio and never run out of money in the account. 

If you have $1 million in a retirement portfolio, using the 4% rule, you could withdraw $40,000-45,000 per year.

Dividend investors also like to get to a magic number of having their portfolio yield about 4% in dividends. This alloes an investor to theoretically live off the dividends and not need to sell the stocks. 

YCharts.com - see performance of funds in the same category

 YCharts.com

Link to VUG ETF on Ycharts

Periodic total return (including 5, 10, and 20 year percentage returns).

Cumulative Total Returns Versus Peers

Yearly Returns and YTD Versus Peers

How Much to Save for Retirement and Financial Order of Operations - Money Guy Show

How much to save at every age for retirement - and multiplication factor

Financial order of operations 

Investment Returns from 15 Years in the S&P 500 index (from July 2005 to July 2020)

The S&P 500 investment calculator can help you see hypothetical market returns over time.

Investing in the S&P 500 from July 2005 to July 2020 and merely investing $100 per month would have grown $18,000 to a whopping $41,905.  After capital gains taxes, this would have been closer to $38,889.

This period of 15 years would have provided an annualized return of 10.59%.

Here's the breakdown, as a screenshot from their website:

A comparative annual return of 9% would have yielded $38,124 (using Nerd Wallet's investment calculator).

Yearly salary - per workday pay equivalents

How much are you paid for each workday at different salary levels?

A $50,000 per year salary translates to $192 per workday.

To calculate this, I took 50,000 ÷ 52 weeks ÷ 5 days. A simplified way to do this would be 50,000 ÷ (52×5) or 50,000 ÷ 260. In essence, people with standard five day work weeks are working about 260 days per year. 

$60,000/yr = $230/workday

$70,000 = $269

$80,000 = $307

$100,000 = $384

$120,000 = $461

$150,000 = $577

These daily pay rates do not factor in the added value of 401K matching, health insurance benefits, and other benefits paid by the employer.

When is coffee a deductible business expense?

 The deduction for business meals changed in 2021 and 2022 to encourage business owners to patronize restaurants, coffee shops, and more.

See all the rules here: Is your coffee a tax write-off? 

In essence, you must be meeting with a client, or providing the coffee to a client or employees to write off the coffee as a business expense. In 2021 and 2022, business meals are 100% deductible, whereas in previous years it was only a 50% deduction.

Getting Rich with the TSP

 

At the very minimum, you should contribute 5% of your pay to get the free matching money.

However, to get rich using the TSP, you want to max it out each year. In 2022, that maximum is now $20,500 per year. This is the same 2022 limit as a traditional 401K for all people who have one through their job. For 2022, the IRS increased this amount by $1,000.

The employer contributions don't count against your maximum contribution.

For most young servicemembers, ROTH is more advantageous, because at a lower income level this is better. All money you put into a ROTH is completely tax free when you hit retirement. All of the growth your money sees over the decades is tax free. Only ROTHs offer this.

The matching contribution from the government will always go towards traditional.

Ever even year, you'll get a pay raise. If you got a 4% pay raise, maybe you put a little bit of that and increase the percentage being contributed to your TSP. You were living without this money anyway.

If you're not going to do any of your own research, the L-funds (life cycle funds), this will set you up for retirement. Can leave that in the year that you turn 60. The L-funds will automnatically adjust as you age, so you don't have to tweak your investments.

However, if you're younger, you can leverage the C and S funds that will grow a lot more during your career.

The C fund is large cap stocks (similar to the S&P 500).

The S funds is small cap stocks.

If you want to be a little more aggressive, you could put into the Life cycle fund for 10 years after you hit 60.

Read the book Simple Path to Wealth. They cover the TSP and explain index funds.

Suggested ratio:

75% C fund / 25% S Fund.

High home prices in Bozeman, MT

Normal families, couples, and individuals have been forced out of the Bozeman Real Estate market because there is almost nothing available for under $400,000 now.

To qualify for a $400,000 condo (which has stricter lending requirements than a Townhome), a buyer would need to have:
* Annual income around $80,000-85,000
* No debt (ie: no student loans and no car payment)
* $20,000 down payment

In 2019 and early 2020 before Covid and a flood of cash buyers hitting the local market, plenty of 2 and 3 bedroom condos and townhomes were available for $400k or less.

Early December 2021 Listings under $550,000.

Two bedroom condos are now approaching $400,000.  

A centrally located 2 bedroom condo with 1,088 sqft is listed for $385,000. It was built in 2004.

And another 2 Bedroom condo located just west of the Bozeman Pond is 1,210 sqft for $399,900.
$330 per square foot.  This home was built in 1997 and is already almost 25 years old!

Very curious to see if these properties actually sell for these astronomical prices. A family of three would likely avoid these properties because of growing pains.  A single person or a couple could be comfortable in these spaces, but they would need to be okay with a one car garage and minimal space for storage.

A minimalist could thrive in these spaces, but if the person didn't care about living in the main areas of Bozeman, they could buy a Tiny Home on a small plot of land 10-20 miles from the city for about half this price (or less).

 

Samples of current home price listings in November 2021

4276 Monroe St #B
$385,000
2 BR 2 BA and 1,190 sqft

That's $323 per square foot and only a 2 bedroom condo that part of a four unit complex.

This new construction on Baxter Creek way near the new high school is massively inflated, and sadly, most of these units are probably already sold since not many properties are available near the city center right now.

1020 Baxter Creek Way Unit B

$520,000

3 BR 3 BA, and 1,572 sqft

$330 per sqft and this place only has a one car garage. 

Without pooling two incomes, this place would be very difficult to buy for a normal family. You would need a six figure income or a huge pile of cash to buy this place.

4050 W Babcock St APT 45
$510,000
3 BR 2 BA and 1,548 sqft
$329 per square foot for a central location that is about 10 minutes to downtown in normal traffic. This home looks nice, but it's a basic 3 bedroom condo for a half a million dollars. A prime example of Bozeman's real estate market getting inflated by cash buyers, low supply, and high demand.

 

Last Will packages from Legal Zoom

 Legal Zoom's will packages are as cheap at $89 for a basic Will that includes free revisions for 30 days after purchase. The prices below were captured on 10/28/21.

Click on the image to view full size.

Spending an additional $10 will provide 2 weeks of legal questions answered by their attorneys.

Federal Taxes and Montana Taxes for Active Duty or Combat Zones

Military Members in Combat Zones do not pay Federal Taxes

Although any base pay earned by a member of the armed services while serving in a combat zone is excluded from federal income tax, it is still subject to Social Security tax and Medicare tax.

• For enlisted service members, the amount of the exclusion from federal income tax is unlimited.
• For officers, the exclusion is limited to the maximum amount of enlisted pay.
• States vary on whether or not the federal combat pay tax exclusion applies to state income taxes.

source: QuickBooks: Combat Pay, Tax Style: Benefits When Serving in a Hot Zone

Montana does not tax active duty pay. 

(2) (a) The salary received from the armed forces by residents of Montana who are serving on active duty in the regular armed forces and who entered into active duty from Montana is exempt from state income tax.

Source: Montana Tax 

Real Estate in Silicon Valley - Parkington Ave

 

1151 Parkington Ave
Sunnyvale, CA 94087

Basic, three bedroom tract home built in the early 50s. Modest backyard with some landscaping.

Realtor.com estimates:
Median est. home value: $1,858,800.
Median neighborhood price: $1,990,000

Collateral Analytics: $1,603,000
Core Logic: $1,858,800
Quantarium: $1,984,000


Zillow estimate: $2,106,000

Average of Realtor media and Zillow estimates: $1,982,000

Building Wealth with VA Home Ownership

 A service member I chatted with recently said that she has bought three properties with VA loans. When first hearing about these loans, they sounded so special that I was shocked to learn that they can be used multiple times.

Own a new property every two years!

National Guard members who have served for six years or were on active duty for 90 days also qualify for VA loans. A young person who joined in their 20s could become a homeowner more easily before age 30.

After buying my first home (with a conventional loan) in 2021, I plan to buy a second home in 2024 or 2025 after qualifying for a VA loan. Then we'll live in the new home and rent out the first (small) home that we purchased. By that point, the rents in the hot rental market where will live will likely reach the point where the renter is paying our entire mortgage.

And if we want to, we could rinse and repeat the same process to buy a third home.

After owning three properties for 10-15 years, we could cash out of the first two homes. Then live off of the profits of those sales until retirement when our 401Ks and Roth IRAs would accessible.

Use Zillow or a Property Management Agency to Find Reliable Tenants

A buddy (non-service member) who just bought his second home in Bozeman, MT was able to use Zillow's Rental Application Form to find qualified renters in less than a month, on multiple occasions.

He rented out his first home, showed the bank the lease, and was able to co-sign with his in-laws to get a single family dream home in the same city! He was expecting a third child and they were outgrowing their original home, a modest 3 bedroom townhome in a newer and desirable neighborhood. He now rents this Townhome for $2,700 per month, which is far more than the total cost mortgage they got in 2014 (7 years ago). Their mortgage, including HOA fees on that rental is only $1,400-1,500 per month. 

Not only is his tenant paying their mortgage completely, they are also paying for part of their current mortgage on this nicer home so his family has more affordable living. 

This service Zillow offers is free for the homeowner and only costs the renter applying a flat $29, which they can also use to apply to other Zillow rentals within 30 days. This is a big win-win for both landlord and tenant. The landlord has better piece of mind getting the history of the tenant for free, and the applicant does not have to pay high fees to apply to multiple properties. 

Some property management agencies swindle big bucks out of applicants in hot rental markets by charging $50, $75, or more to apply, when their costs for the application are almost nothing.

VA Loan Occupancy Requirement Before Renting

Buyers must live in the home for 12 months before renting out the property.

Moving into the VA Loan Home

Generally buyers have 60 days to occupy the property, but up to one year if there is a special circumstance, like a service member who is returning from deployment, or time is needed to perform agreed upon repairs to the property.

"The VA allows for a spouse to fulfill the occupancy requirement for an active duty military member who is deployed or who cannot otherwise live at the property within a reasonable time."

Single Member LLC vs. a Sole Proprietorship

This article from BizFilings details the advantages and disadvantages of a Single Member LLC vs. a Sole Proprietorship.  The primary difference is that the LLC comes with a legal shield and may require more licenses/registrations, depending on the state where it's registered.

Unless the single member LLC has employees, the EIN is the owner's social security number.

LLCs typically do not pay taxes at the business entity level. Any business income or loss is "passed-through" to owners and reported on their personal income tax returns. Any tax due is paid at the individual level.

An article from Entrepreneur magazine: What to Consider When Deciding Between Forming a Sole Proprietorship or LLC