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208: 4 Choices for a Former Employers' 401(k) Nov 28, 2016

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4 Choices for a Former Employers' 401(k)

Hi Linda,

I would like your opinion on the following; my wife is beginning a new chapter in her career and starting a new job after 11 years. She has a 401k with a significant amount of funds and now we have to make the decision on what to do? The one decision that has been made is that we will not withdraw any money from the account, but we are not sure what our best option is:

1 Keep it as is within her old company's 401k plan? I am not a fan and I know that we could incur administration fees plus we have a limited investment selection.

2 Rollover into her new company's retirement plan? My reservation with this option is again having limited investment options.

3 Fidelity has a 401k rollover IRA plan that allows us to have full control of our investments (funds, stocks, etc.). I like this option but I know you are fan of ROTH IRAs better, but if we try to convert from a 401k to a ROTH IRA—would we get taxed?

We believe the best option is #3 but I value your opinion and your expertise which will help finalize the decision. I appreciate your time and look forward to your feedback.

Thank you, Ray

I'm glad you didn't have "cash out" in your list of options! You know that would be the worst and most costly mistake and you won't even get all of your money.

If you cash out, your employer is required to hold 20% for the IRS and you have 60 days to put it into a qualified retirement account or it's taxed as ordinary income, plus any state tax that's applicable. If you're under age 59-1/2, you'll also have a 10% penalty to pay, so you can see, that's not a good option!

The first option you mentioned was leaving it with her old company's 401(k) plan. Keep in mind, since she's no longer an employee, she can't make any more contributions to it. While that's where most people end up leaving their money (by default), it's not the best choice. As you said, you have a limited investment menu.

Most 401(k) investment menu's are quite restrictive, offering one or two choices per asset class. It's like trying to do your grocery shopping at Starbucks instead of at the grocery store! In the grocery store, you have all types of possible food available to you, not just a few things. So you can see why you will want to roll over your 401(k) into an IRA so you can have the whole grocery store available!

You might be able to take a loan against it if you need to, but if you already have one against it, you have to pay it off before moving it, other wise it will be treated like a taxable distribution.

Same grocery store reasoning goes into why you don't want to roll it into her new company's retirement plan. Limited menu. For example, you know I've been talking about how tangible investments are making a comeback and paper investments are going out of favor. Most 401(k) plans have several paper choices (ST bond, Long-term bonds, High Yield bonds, International or Global bonds, etc.) and NO (ZERO) precious metals, agriculture, commodities, or mining stock choices.

I agree with you, option #3, rolling it over into an IRA is your best solution. Set up a new brokerage account before you start the transfer. Then make sure the funds go directly to the new account and not to you. It's called a trustee to trustee transfer. Otherwise, if the check comes to you, 20% is withheld and if not rolled over within 60 days you'll be taxed. You get the 20% returned when you file your taxes. That's not a good scenario, so go for the trustee to trustee transfer.

You mentioned that there are sizable assets in the 401(k), so I wouldn't think a ROTH IRA would be feasible. Of course you'd have to qualify to be able to open a Roth IRA by not exceeding the income limits and you'd have to pay tax on your 401k. That doesn't sound like a good plan in your case. Just roll it into a traditional IRA.

Once you have the money in your brokerage account, not only can you invest in mutual funds, but ETFs, stocks, master limited partnerships, etc. that you didn't have access to before. You can broaden your diversification and widen your investing horizons.

To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

207: Should I Repair My Car or Buy a New One? Nov 26, 2016

Show notes

Q. Linda, I bought a 2002 Porsche Boxster in 2013 for $13,000, low mileage, not much to repair until this year, I think my repair cost became 4K. I guess my car still worth about $8000, do you think I should trade in for another car? or drive to the ground? The engine is still very good, no problem in driving, but a little here and there problems are annoying.

First, good for you for buying a used car!

You saved yourself thousands of dollars and I hope you were able to invest some of that extra savings.

When a large repair bill occurs, it can create a crossroads - fix or trade in?

Here are some things to consider:

1. A $4,000 repair is still a lot cheaper than buying a new car, especially a new Porsche! New cars lose about 20% the first year, so that's a big hit.

2. Often a larger bill will occur every 3 to 5 years. If it's more frequent than that, consider a trade. Paying $4,000 every 5 years is still a lot cheaper than buying a new car.

3. If you feel like you're being nickled and dimed to death, consider a trade.

It shouldn't feel like things are always going wrong. You don't want a car thats a pain in the neck and not operational. If your car is breaking down frequently, replace it. I'm not talking once or twice, but regularly. It's dangerous and not something you should be dealing with.

4. Your insurance and registration fees can increase with a new car.

5. As a rule of thumb, I would put off buying a new (used) car as long as possible. It's almost always better to repair a car that to buy a new one! I love my older cars and take great care of them. They are lasting really well!

To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

206: Seasonality & Cycles with Garrett Jones Nov 23, 2016

Show notes

Learn about stock market seasonality and cycles in this interview with Garrett Jones from Peter Eliades Stock Market Cycles Management, Inc.

Get 11 quick tips to boost your wealth at www.lindapjones.com.

205: Who is Buying Homes in 2016? Nov 10, 2016

Show notes

According to Nat'l Association of Realtors, who is buying homes in 2016?

Let's take a look at who is buying homes, by marital status:

Married 66% Single females 17% Unmarried couples 8% Single males 7%

Interesting because from 2005 - 2010, 20% were single females, but only 15% in 2015.

Homebuyers' median income:

Married couples $99,200 Unmarried couples $84,800 Single males $69,600 Other $69,100 Single females $55,300

So although single females have lower incomes than others, they are a big group of buyers. Why?

1. Possess own home 38% 2. Change in family situation 11% 3. To be closer to family/friends 9% 4. Desire for smaller home 7% 5. Retirement 5%

To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

204: 5 Moves to Make With President-Elect Trump in 2016 Nov 09, 2016

Show notes

These are financial moves, not a pro or con commentary for a candidate.

Check your taxes - income deferred if possible If Trump gets the 15% corporate tax rate in, then look for the dollar to soar and almost $3 trillion to come home.

2. Health care - look for new plans. Participate in health savings accounts - a savings account used in conjunction with a high-deductible health insurance policy that allows users to save money tax-free against medical expenses.

3. Faster growing economy. Possible raising of the economic growth to 3 - 4% annually. During the Reagan years the stock market boomed and the economy boomed. I hope that can happen again!

4. FED has signaled higher inflation will be allowed. Expect higher interest rates.

5. Cycles don't change based on who is President. Cycle going into higher inflation favoring commodities - metals, mining, grains, agriculture, farmland, etc.

One sobering fact - inheriting $20 Trillion in debt is a lot. I don't believe taxes can pay that back. At some point we will have to deal with the debt and reboot the system. That's another good reason to be out of financial instruments like bonds and be in tangible assets like I just mentioned.

To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

203: Should I Buy Amazon's Stock? (CANSLIM Overview) Nov 04, 2016

Show notes

Learn how to look at investment opportunities in stocks like Amazon. (CANSLIM Method)

Listener question Friday!

One of the members of the Be Wealthy & Smart VIP Experience asked this question:

Linda,

Do you have an opinion on Amazon stock? We live in the Seattle area and have watched Amazon change the entire landscape of Seattle. Because the fundamentals always say Amazon is too expensive, we never bought any stock, but you said not to worry about the PE ratio too much on growth stocks. What's your thought on this hometown company?

Mandy

What are some of the things to consider when looking at an individual stock to buy?

Consistency of earnings

CANSLIM:

C - Current quarterly earnings per share. Have they increased quarter over quarter in a year?

A - Annual earnings increases over the last 5 years?

N - New products, management and other new events. In addition, the company's stock reaching new highs?

S - Small supply and large demand for stock? Acquiring their own stock?

L - Leader or laggard in an industry? Use relative strength as a guide.

I - Pick stocks who have institutional sponsorship by a few institutions with recent above average performance.

M - Determining market direction by reviewing market averages daily.

How does this apply to Amazon?

According to CNN Money: "Amazon posted a profit of $252 million for the third quarter, or $0.52 a share, falling short of consensus estimates for earnings of $0.78 per share. Its guidance for earnings in the upcoming quarter also came in below estimates."

What new innovations do they have?

The company is also adding 26 fulfillment centers this year, compared to 14 last year.

Amazon Echo could be BIG.

"Bezos is fond of talking about the "three pillars" of the company's business. Those include its e-commerce marketplace, the Prime subscription option and Amazon Web Services."

"During an appearance at the Economic Club of New York on Thursday, Bezos said either the Echo or its TV division "could become a fourth pillar on its own." - CNN Money

Consistency of earnings?

It may also be a reminder that investors always want more. For years, Amazon was rarely profitable for long. Now it has been profitable for six straight quarters -- but apparently not profitable enough.

Jeff Bezos, Amazon's founder and CEO, has traditionally focused on reinvesting all (or almost all) profits back into big bets like fulfillment centers, hardware, video streaming and cloud computing.

Profitability?

Amazon posted a profit of $252 million for the third quarter, or $0.52 a share, falling short of consensus estimates for earnings of $0.78 per share. Its guidance for earnings in the upcoming quarter also came in below estimates.

Do you want to have a short or long-term investment?

Could be moving to $1000 according to analysts.

What is the market capitalization?

Mkt cap $367.35B

Could this be the first trillion dollar company?

Yes. That's a triple from here.

P/E ratio 194.22 - that means you are paying $194.22 for each $1 of earnings. Does that make sense?

Growth has already averaged 37.94% for the last 10 years.

Can that rate of growth continue? It would have to be historic.

Is that possible? Maybe. Could take over retailing for most retailers. There's more competition coming I'm sure. They have other areas of business they are moving in. Those are also huge growth areas.

They are building warehouses and buying airplanes and the hard costs of that don't thrill me.

Is it your best investment? No.

The time to buy the stock was 17 years ago like I did!

Would you rather have something that could triple or something that could rise 20 or 30 times?

Personally I don't own the stock anymore. I do think it will reach $1,000. If I were going to pay that per share, I'd rather own priceline.com because it's leveraging cyberspace and is not becoming physical.

To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

202: Should You Buy or Rent High-End Homes? Nov 02, 2016

Show notes

Learn whether it makes sense to buy or rent a high-end home.

Interview with Jason Hartman of the Creating Wealth podcast. http://bit.ly/wealthpod

To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

201: 10 Quality Dividend Stocks Oct 31, 2016

Show notes

Learn what to look for with dividend stocks.

I saw an article about 3 stocks that are a "must own" for retirement.

Whaaat?

One was a huge telecom, one was a gas company and one was an insurance company.

No where did it talk about earnings growth or dividend growth.

I've talked about stocks.

What makes them go up.

It's all about earnings.

Dividend stocks are no different, except they also have a nice dividend.

You still want to have companies that are high quality, steady growth, increasing dividends, etc.

IBD does a good job of curating dividend leaders. I've taken their list and picked 10 that seem to me to be a good mix and diversified.

1. International Paper 4.11% 2. Altria Group Inc. 3.7% 3. Toronto Dominion Bank 3.67% 4. IBM 3.67% 5. Cisco 3.4% 6. Paychex 3.34% 7. Prudential Financial 3.31% 8.Merck 3.13% 9.Qualcomm 3.1% 10. Proctor & Gamble 3.07%

Again, all the credit goes to IBD, but I wanted to share a list of dividend paying stocks that are quality and fit all the aspects we talk about. You can find this in your IBD and I'll post on my website under podcast #201.

Have you checked out the Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. http://bit.ly/wealthpod

To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

200: Is Value Investing Dead? Oct 28, 2016

Show notes

Learn ways technology is impacting value investing and ways it's not.

Excited to have podcast #200! Thank you for listening to Be Wealthy & Smart! If you're a regular listener, I'd love to have a review from you and hear your thoughts about the show!

Listener question Friday! Here's a question from Torben.

Hi Linda,

I've listened to your podcast for several months now and find it very useful. Your pragmatic approach to finance is very applicable in real life. I personally apply the value investing approach with inspiration from the growth investment theories. Perhaps you could do a podcast about value investing? From Graham and Buffet, over the ModernGraham approach, to how value investing will play a role in an investing world, where tangible assets are much smaller than intagibles, and most products and services can be replaced by technological developments in an instant? These developments challenge the fundamental value approach, which looks for large, stable, and cash generating businesses - so how are these theories going to survive in a world where these types of companies become more scarce?

I hope this could be inspiration for a podcast topic.

Best regards, Torben

In value investing, you're looking to buy businesses below their value. Of course a business is worth it's assets minus liabilities + a multiple of cash flow. What is the multiple? It depends on the type of business, how regular the income stream is, etc. A steady rental income vs. a biotech.

Being overly concerned with a PE ratio can be a value trap. Today, many financials have low PE's, but I wouldn't want to own them. I've found many of the best quality stocks have high PE ratios and I've always been ok with that as long as it's not excessive.

There are times that the whole stock market can get excessive PE ratios, that's a time to be cautious. In 1999, PE's hit 50 and higher, but it was in 2009 that PE's hit 120! Today, they are at about 23-24 which is on the higher side historically, but no where near where they have been. A PE will average around 18, so anything above that is more expensive and below is considered a value or cheap.

I've found placing too much emphasis on PE is NOT the way to buy stocks. For me, earnings are everything and IBD is good at putting stocks through a CANSLIM filter that picks the best for you. Some in the IBD 50 even have PE ratios of 14, 16, & 22 if that's important to you.

They are not "value" stocks, they are "growth" stocks, but that's a matter of philosophy, personal choice and comfort level. I've not found a lot of investors who can copy Warren Buffett's success, but I have seen a lot of investors who are very successful investors without following his or Ben Graham's formulas.

So what about valuing businesses?

If a business doesn't have tangible assets, but is intellectual property, like an app, you're going to base the valuation more on the cash flow.

If you're buying a gold mine and there's gold in the ground, obviously you have to value the gold separately from the cash flow.

It doesn't change value investing. You still want to buy at a discount. You still can have a "margin of safety" if the valuation is higher than the stock price.

If Google is worth X because of it's advertising revenue, but it's selling at a lower price because the stock market drops, you'll still want to buy it on sale!

The fact that there are more businesses being started with intangibles is probably a long-term trend.

But there are still a lot of brick and mortar businesses that are getting funded. Clothing, food, beverages, restaurants, etc.

When making a long-term investing decision, you will want to think about such things. I think that's why Buffett was reluctant to invest in tech in the past, because it was hard to know who was going to be a winner long-term.

I remember Nokia phones and Blackberrys and how they were the rage before iPhones replaced them. If Apple doesn't keep innovating, another phone may come along and replace it!

Think about the things that we will still need to be using in 10 - 20 years. Keep away from a "trend" that could be a "flash in the pan" like maybe "Pokemon go"?

Want to move ahead and get your money, wealth & net worth moving in the right direction?

199: Why Are Individual Stocks Despised by Financial Experts? Oct 27, 2016

Show notes

Learn why individual stocks are never in style and why they might be right for you.

If you've listened to me for a while, you know my story - that I was in the financial world working for money management firms. It was sacrilege to invest in stocks on your own. I did it any way and I turned a 5 figure investment into $2 million in several years.

When I first got into financial services, there were "stockbrokers" who picked stocks for you.

They had companies they built positions in and would put all of their clients in them. If it changed they would sell them all out of them.

I had a friend who was my mom's age who was the secretary of the stock analysts. When they recommended stocks, she bought them for herself. She retired a multi-millionaire even though she had a modest salary.

The only way that is possible is by compounding at a high rate.

After the stock phase came the mutual fund phase. Instead of stockbrokers, they became "Financial Advisors" who placed your money with money managers (like the companies I represented). The FA's became asset gatherers but didn't manage the money themselves, they outsourced it and collected fees.

Today passive investing is the rage. ETF's came into being because many professional managers were not outperforming the indexes, so ETF's were created to mirror indexes. Investors no longer try to out do the mark This year the S & P is up 3.5% YTD. That's it.

That's all the return you're getting in the S & P.

Small caps are outperforming. With the dollar so strong, it's hard for multi-nationals to make money. Corporate profits have been declining for 3 quarters. Small companies might not have business outside the US so they aren't impacted. Therefore their earnings are doing better. Small caps also do the best at the end of a bull market, this one being one of the longest in history.

Asset allocation becomes important. Where your money is invested matters most. It's time to look at individual stocks again because I think you can do better than 3.5% YTD!

Not on your own, not by throwing darts, not by "buying what you know", but by following earnings. Corporate earnings are the biggest determinant of a stock's price.

IBD does the work for you and screens stocks through their funnel. If you haven't heard podcast #195 about the 8th graders in St. Agnes' school who picked stocks and got 25% in 2 years, you need to listen.

Peter Lynch wrote about them in his book. I have the portfolio on my website. When you look at what they owned in 1990, it was Disney, Nike - some great companies that you recognize today.

Success leaves clues and good companies are growing at high rates for a lot of years before they become blue chips.

Start learning about individual stocks. I'm going to be teaching about them because I think it's a lost art, but one that is to worthwhile.

Did you hear about the stocks and the compounding rates in my last podcast? I mentioned:

Netflix 42% Amazon 37% Apple 28% Nike 20% Google 15% Starbucks 14%

Get a current IBD and William J. O'Neil's book off the Resources page on my website. Thank you.

It's time to resurrect individual stock picking, but only with the right tools.

To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

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