dsmWealth: July 18, 2024

A look at the markets in a politically turbulent year
BY STEVE DINNEN

It’s the middle of 2024: time again to check on your investment portfolio and what lies ahead. At this politically fraught moment, the upcoming presidential election seems to be giving some guidance, however muddled it may be.

You’ve likely done well the past few years and so far in 2024. If your portfolio followed the S&P 500 Index, it would have risen 18.4% so far this year, and 24.16% year over year. The NASDAQ 500 rose 24.6% year to date and 29.16% over the last 12 months. Those increases left the Dow Jones Industrial Average in the dust: It’s risen just 6% year to date and 15.6% for the past 12 months. Those are pretty good numbers, the Dow aside, and with any luck, your portfolio has kept up with these benchmarks.

The economy remains strong. Everyone who wants a job appears to have one. The stock market is setting record highs, and the consumer price index fell ever so slightly in June. In remarks this week, Federal Reserve member Chris Wallace, a voting member of the Federal Open Market Committee, played sweet music for the interest rate-sensitive ears of Wall Street when he said, “I do believe we are getting closer to the time when a cut in the policy rate is warranted.”

All of this and more are reason enough for Kate Gudgel, senior investment strategist at the West Des Moines financial advisory firm Gilbert & Cook, to counsel staying the course with investments. Markets rise and markets fall, sometimes dramatically, but she and most other investment professionals advise staying in the market for the long term rather than trying to time transactions with current events.

“The stock market does not live or die on who has control of the White House or Congress,” Gudgel said at a midyear review event held by Gilbert & Cook.

Looking at records dating to 1926, the stock market as a whole actually performs better in presidential election years than on average, up 11.6% versus 10.3%. (I’m not picking sides here, but historical figures show the market tends to fare better when a Democrat lives in the White House.)

On the horizon, some investment outlooks or tax changes may well occur after the November election. Joe Biden has talked about boosting taxes for people earning more than $400,000 a year and has teased about tinkering with capital gains taxes, which could hurt investors. For his part, Donald Trump has spoken about higher Chinese tariffs. And either president will get an opportunity to revisit the Tax Cut and Jobs Act, Trump’s 2017 tax overhaul, which includes provisions that will expire at the end of 2025.

Some credit card companies are willing to deal
BY STEVE DINNEN

The annual fees for credit cards can range from easy, as in zero, to unreasonable, as in $500 or sometimes even more. When they get into the upper range, Kurt Adams of Going With Points, an online site that looks at travel incentives and credit card rewards, said he looks at the overall value the card provides and whether it’s worth keeping.

If Adams is on the fence about the card, he says, he’ll ask the card issuer for a retention offer — in other words, an incentive the company promises if you stick with them for another year. It could come to you in several ways. The issuer could waive all (unlikely) or part of the annual fee. It could award you bonus points or miles, which often come with a spending requirement. Or it could give you a statement credit, basically a rebate that would be paid after you pay your annual fee.

Credit card companies don’t advertise this, so it’s up to you to call them and make the request. They may or may not grant your request. But as Adams points out, you miss 100% of the shots you don’t take.

I've never asked for a rebate. But I have called a card company or two to request they lower their interest rate. Nowadays, many cards charge interest rates of more than 20% on unpaid balances, even for people with a top credit score. I’ve had some luck in this, though I have struck out a time or two. I once canceled a card when the company failed to grant my request for a lower rate. Sometimes you just have to play hardball.

Using your retirement account as an emergency ATM just got easier
BY ASHLEA EBELING FOR THE WALL STREET JOURNAL

There is a new, interest-free, penalty-free option if you need a quick $1,000.

The Internal Revenue Service has now made it easier to take a limited amount of money out of a traditional retirement account penalty-free. While previously you could tap your savings without penalty in more limited ways, and often with more paperwork, you can now take out up to $1,000 of your funds for any self-defined emergency.

The change comes after the IRS spelled out what counts as an emergency personal or family expense under a 2022 retirement law that went into effect this year. The reasons can include medical care, funeral expenses and auto repairs, but the key phrase is the catchall “any other necessary emergency personal expenses.”

The $1,000 provision is different from other retirement account withdrawal options because you can just say that you have an emergency, without specifying what it is. So you can get the money faster. It is one of several ways Congress keeps making it easier for people to use their retirement savings as emergency funds.

When you take money out of a pretax retirement account early, you pay income tax and a 10% penalty, unless an exception applies. Taking out $5,000 for adoption expenses doesn’t incur a penalty, for example. That’s how the new $1,000 emergency expense exception works, too.

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New 60/30/10 budgeting rule offers a flexible alternative
BY ERIN BENDIG FOR KIPLINGER

As inflation strains an increased number of household budgets, many financial advisers are finding that the 60/30/10 budgeting method is a better fit for many households than the long-standing 50/30/20 budgeting model.

The 50/30/20 rule, created by U.S. Sen. Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan” has been a gold standard for budgeting since 2006. The method advises individuals to allocate 50% of their income toward necessities, 30% toward “wants” and 20% toward savings and paying down debt. However, many individuals may find that 50% of their income just isn’t enough to cover all necessary expenses. This is why the new model can work better for a growing number of individuals who spend a higher portion of their monthly income on necessities.

For example, the number of cost-burdened (when a household has a cost ratio of over 30%) renter-occupied households was 20.1 million in 2021, according to the U.S. Census Bureau. That marks an increase of around 1 million households since 2019. Additionally, the number of severely cost-burdened households (when a household has a cost ratio of over 50%) was 10.4 million in 2021, up from 9.4 million in 2019.

"The 60/30/10 budgeting method is a flexible alternative to the traditional 50/30/20 rule, which may be a better option for many consumers in today’s inflated economy," Andrew Harris, managing director at Jenius Bank, told Kiplinger. "With half of Americans paying more than 30% of their income on housing (let alone additional necessities), they must reevaluate their financial priorities and adapt their budgets for the current times."

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