25 Stocks Every Retiree Should Own

The following first appeared on Kiplinger’s as 25 Stocks Every Retiree Should Own.

Retirement is a major life milestone, eclipsed only by marriage or the birth of your first child in terms of financial impact. For many, it’s an exhilarating leap into the unknown. In your working years, you can take investing setbacks in stride, as portfolio losses can be offset by new savings or working an extra year or two.

But once retired, you no longer have that luxury. Your portfolio must last for the the rest of your life, and that of your spouse as well. So, the decision of what retirement stocks you should include your portfolio is an important one.

An ideal retirement stock will pay a healthy dividend. As Sonia Joao, president of Houston-based RIA Robertson Wealth Management, explains, “Four out of five of our clients are in or near retirement, and essentially all of them tell us the same thing. They want safe, secure streams of income to meet their living expenses and replace their paychecks.”

While a good dividend is probably the most important characteristic to look for, it’s certainly not the only one. Yields across most asset classes are lower today than in years past, and retirees need growth to stay ahead of inflation. So, while a retirement portfolio should have a large share of income stocks, it also will include some growth names for balance.

The following are 25 stocks every retiree should own. This group of retirement stocks includes both pure income plays and growth companies, with a focus on very-long-term performance and durability.

Public Storage

Self-storage REIT Public Storage (PSA) may be the single least sexy stock in the entire Standard & Poor’s 500-stock index. If you mention it at a cocktail party, don’t expect to be the center of attention.

But the boringness is exactly what makes Public Storage such an ideal retirement stock. Self-storage is one of the most recession-proof investments you’re ever likely to find. In fact, recessions are often good for the self-storage industry, as they force people to downsize and move into smaller homes or even move in with parents or other family – and their stuff has to go somewhere.

With the economy looking a little wobbly these days, that’s something to consider. But there’s another angle to this story as well. According to Ari Rastegar – founder of Rastegar Equity Partners, a real estate private equity firm with expertise in the self-storage sector – changes to the broader economy are at work.

“Despite unemployment being exceptionally low, wages haven’t kept pace with rising prices,” Rastegar explains. “This has led to the rise of micro apartments and the general trend of smaller units closer to city centers. All of this bodes very well for the future of the self-storage sector. Your apartment might be shrinking, but you still need to put your personal belongings somewhere.”

Public Storage has a diversified portfolio of nearly 2,500 properties spread across 38 states and additionally has a significant presence in Europe. While the REIT has kept its dividend constant at $2 per quarter for the past two years, it historically has been a dividend-raising machine. Over the past 20 years, Public Storage has raised its dividend by nearly 10-fold.

At current prices, Public Storage yields 3.4%. That’s not an exceptionally high yield by any stretch, but it’s still better than what you’re able to get in the bond market these days – at least not without taking significantly more risk.

To continue reading, please see 25 Stocks Every Retiree Should Own.

This article first appeared on Sizemore Insights as 25 Stocks Every Retiree Should Own

11 Stocks to Buy That Prove Boring Is Beautiful

The following first appeared on Kiplinger’s as 11 Stocks to Buy That Prove Boring Is Beautiful.

Stocks aren’t all that different than cars, in some ways. Sure, the Ferrari is a lot of fun to drive, and you look cool sitting behind the wheel. But it’s also going to cost you a fortune, and high-performance cars spend a lot of time at the mechanic’s shop.

Now, compare that to a Honda Civic. You never really notice a Honda Civic on the road. It’s utterly forgettable. But it’s also just about indestructible, requires virtually no attention from you, and it quietly and efficiently does its job.

Consider that mentality when you’re tracking down stocks to buy. A highflying growth pick can be a lot of fun to own. You look smart owning it, and it’s fun to talk about at parties. But when the market’s mood swings the other way, you’re often left with some nasty losses and a bruised ego. Meanwhile, that dividend-paying value stock in your portfolio might not be particularly interesting. But over the long haul, it’s a lot less likely to give you problems. Like that Honda Civic, it will quietly do its job with no stress and no drama.

“Some of our most profitable trades over the years have been some of our most boring,” explains Chase Robertson, principal of Houston-based RIA Robertson Wealth Management. “We’ve done well for our clients by mostly avoiding the trendy sectors and focusing instead on value and income.”

Here are 11 boring but beautiful dividend stocks to buy now. They might not be much to look at, but they’re likely to get the job done over the long term. And when you need them most – in retirement – they’ll be less likely to break down on you.


AT&T (T) has been a boring play for many years now. Even its seemingly transformative recent buyout of Time Warner (which owns HBO, Cinemax, TBS and TNT) was a drawn-out affair that got bogged down in court battles.

It seems almost silly now, but in the late 1990s and early 2000s, AT&T was a bubble stock. Investors couldn’t get enough of everything related to telecommunications, and AT&T delivered the goods. But when the bubble burst, AT&T crashed hard. Today, nearly 20 years after the peak of the internet mania, T shares still are more than 40% below their old highs.

Of course, 20 years later, AT&T is a very different company. Its mobile and home internet businesses are mature, and its paid TV business is actually shrinking, albeit slowly. AT&T is essentially a utility stock. But T belongs on any short list of boring stocks to buy now given its current pricing.

AT&T took a tumble in 2018 that brought it to its most attractive prices in recent memory. The stock has recovered somewhat, but not completely, and still offers a value at less than 10 times analysts’ expectations for future profits, and a fat dividend yield of 5.9%.

Are you going to get monster growth from AT&T? Of course not. But modest capital appreciation and high levels of income should deliver a very respectable total return.

To continue reading, please see 11 Stocks to Buy That Prove Boring Is Beautiful.

This article first appeared on Sizemore Insights as 11 Stocks to Buy That Prove Boring Is Beautiful

13 High-Yield Dividend Stocks to Watch

The following first appeared on Kiplinger’s as 13 High-Yield Dividend Stocks to Watch

High-yield dividend stocks have gained even more allure lately in the face of shrinking bond yields. However, while a handful are ready buys right now, several more sport alluring yields – at least 5%, and up into the double digits – but need a little more time to simmer before it’s time to dip in.

Patience is a virtue in life. That’s particularly true in the investing world. It’s even true across investing disciplines. Sober value investors wait for their price before buying, but disciplined market technicians also know to wait for the proper setup before trading.

Sometimes, you need to wait for a fundamental catalyst to make your trade worth making. Other times, it’s simply a matter of waiting for the right price. But the key is having the self-control to wait for your moment. Lack of patience can be a portfolio killer.

“We tell our clients during the onboarding process that we won’t be investing their entire portfolio on day one,” explains Chase Robertson, Managing Partner of Houston-based RIA Robertson Wealth Management. “We tend to average into our portfolios over time as market conditions warrant, and we’re not opposed to having large cash positions. Our clients thank us in the end.”

Today, we’re going to look at 13 high-yield dividend stocks to keep on your watch list. All are stocks yielding over 5% that you probably could buy today, but all have their own unique quirks that might make it more prudent to watch them a little longer rather than jump in with both feet.


The high-yield dividend stocks of the tobacco industry have been resilient survivors during the past 50 years. While smoking rates have plummeted around the world, the major brands have managed to stay relevant by raising prices and cutting costs.

The best-run operators, such as Marlboro maker Altria (MO), have managed to chug along despite a difficult environment and have managed to reward their patient shareholders with regular dividend hikes. Altria has hiked its dividend every year without interruption for nearly half a century, and the shares yield an attractive 7% at current prices.

All the same, the popularity of vaping has come as a new shock to the industry. Nielsen reported annualized volume declines of 3.5% to 5% throughout 2018. But the declines have accelerated this year, and recent Nielsen data saw volumes declining at an 11.5% rate during one four-week stretch this past spring.

Big Tobacco benefits from the popularity of vaping, but margins tend to be smaller than on traditional cigarettes. Furthermore, there is a growing concern that much of the growth in vaping is due to underage smokers picking up the habit. The U.S. Food and Drug Administration has stepped up its regulation and has gone so far as to order some vaping products removed from store shelves.

It remains to be seen how hard the regulators crack down or if traditional cigarette volumes continue to shrink at an accelerated pace. Like Ford, Goldman likes Altria right now. But it might make sense to watch Altria and the other Big Tobacco players for another quarter or two before committing. The shares have been in near-continuous decline since 2017, and trying to catch a proverbial falling knife is a good way to cut your hands.

The continue reading, see 13 High-Yield Dividend Stocks to Watch

This article first appeared on Sizemore Insights as 13 High-Yield Dividend Stocks to Watch

10 Emerging-Markets Stocks That Will Survive the Trade War

The following was first published on Kiplinger’s as 10 Emerging-Markets Stocks That Will Survive the Trade War

Photo credit: Financial Times

The old saying goes: When America sneezes, the world catches a cold. As the world’s largest importer – and holder of its largest trade deficit by a country mile – the United States is the planet’s indispensable economy. And emerging-markets stocks, with their dependence on foreign capital and high concentration in cyclical and commodity sectors, are particularly vulnerable to weakness in the U.S.

There’s nothing quite like a good trade war to give investors the jitters. But it’s not just the ongoing spat between Presidents Donald Trump and Xi Jinping that has investors unnerved. U.S. economic growth appears to be topping out for this cycle, and issues in the American market have a way of spilling across borders.

When western investors go into de-risking mode, they tend to throw out the baby with the bathwater, dumping high-quality emerging-markets stocks in a flight to cash. But in doing so, they often create fantastic buying opportunities.

Jeremy Grantham and his colleagues at Boston-based asset manager GMO are not known for being wide-eyed Pollyannas. They’re sober value investors best known for calling the last two major bear markets in 2000 and 2008. Perhaps not surprisingly, Grantham & Co. see U.S. stocks performing poorly over the next seven years, losing 3.7% per year. But interestingly, GMO expects emerging-markets stocks to return 5.2% per year over the next seven years. Even more interestingly, they see EM value stocks returning 9.8% per year.

Today, we’re going to look at 10 strong emerging-markets stocks that might give you a bit of heartburn, but ultimately should weather the trade war and reward new money. Most depend heavily on domestic EM consumers rather than on exports or trade flows, and all should be considered potential buys on any weakness in the coming months.

Tencent Holdings

We’ll start with Tencent Holdings (TCEHY), one of China’s leading technology conglomerates and, at nearly $400 billion, one of the largest emerging-markets stocks you can buy.

Tencent is a little hard to define and has no exact Western equivalent. It’s part-Facebook (FB), part-PayPal (PYPL), and part-Netflix (NFLX) with elements of Alphabet (GOOGL) and Activision Blizzard (ATVI) sprinkled in. You can consider Tencent a one-stop shop for all things related to Chinese mobile services.

Its most important product is the mobile chatting app WeChat, which is similar to Facebook’s WhatsApp (though light-years ahead of it in terms of features). In addition to the chat, audio phone calls and video conferencing you might expect from such an app, WeChat also is a leader in mobile payments via WeChat Pay and serves as an e-commerce platform.

Importantly, Tencent has sparse exposure to trade-war risk. A deep recession in China could mean lower transaction-based revenues for WeChat Pay. But most of Tencent’s revenues come from “disposable luxuries” such as smartphone games. Interestingly, while people might cut back on things such as big vacations and expensive dinners if the economy hits the skids, they tend to hang on more tightly to small, disposable luxuries. The somewhat addictive nature of video games even resembles another pair of consumer goods that do well in recessions: tobacco and alcohol.

Tencent is down about 30% from its old 2017 highs. There’s no guarantee it resumes an uptrend tomorrow, but it’s certainly a stock to buy on dips.

To continue reading, please see 10 Emerging-Markets Stocks That Will Survive the Trade War.

This article first appeared on Sizemore Insights as 10 Emerging-Markets Stocks That Will Survive the Trade War

Hate Your 401(k) Options? Try This

As you probably know, I’m a big believer in the humble 401(k) plan. Even though it’s a very basic tax shelter widely available to regular middle-class Americans, I challenge you to find something better. I’ve spent my entire professional career looking, and I have yet to find one.

If you religiously max out your 401(k) plan every year (currently $19,000 per year or $25,000 for those 50 or older), it will likely grow to become your single largest financial asset.

There’s just one big, glaring problem with the 401(k): The investment options are often terrible.

Cruddy Investment Options 

Most plans are limited to a menu of mediocre mutual funds that move the same direction as the market. They’re fantastic when the stock market is moving higher but a financial death sentence during a bear market. The gallows humor following the 2008 bear market was that “My 401(k) just became a 201(k).” That joke will be making the rounds again after the next bear market.

And these days, hiding in bonds won’t do much for you. With yields now hitting new all-time lows almost daily, a portfolio invested in bond funds is essentially dead money.

Some 401(k) plans have a brokerage window that allows you to buy individual stocks. That’s a nice feature if your plan offers it, but it’s not available on most plans.

No matter how cruddy the investment options are in your 401(k), taking the funds out really isn’t an option. If you’re under 59 ½, you’d have to pay a 10% penalty, and at any age you’d have to pay taxes on whatever you pull out.

An Alternative to a 401(k)

Well, I have good news for you. If you hate your 401(k) investment options, you might be able to bail on them without triggering a tax nightmare. It can be possible to roll over your 401(k) balance into an IRA while you’re still working.

As you probably know, you can always roll over your 401(k) into an IRA whenever you switch jobs or retire. But if you’re 59 ½ or older, you can legally do the same thing without having to quit your job. This is what’s called an “in-service rollover.”

Your plan might or might not offer this. It really just depends on your employer. But if your company plan does offer it, an in-service rollover might be exactly what you need.

This article first appeared on Sizemore Insights as Hate Your 401(k) Options? Try This

Opportunity Zones: Beyond the Hype

This piece was originally published on WealthManagement.com.

Opportunity Zones are the subject of endless speculation and conference fodder, especially in commercial real estate investment circles. As most know, these zones allow investors to defer and reduce taxes on any gains from property or business equity from investments in Qualified Opportunity Zones. A recent Prequin survey found that to date, capital raised by private real estate has reached $946 billion, with $124 billion raised in 2018 alone.

Despite the hype, wealth advisors and financial professionals need to be diligent in how they research and evaluate Opportunity Zone investments before recommending them to clients.

I’ve found that as the excitement grows around an investment vehicle, and advisors and reps are inundated with endless marketing spin, it can be hard to see the forest for the trees. Capital gets raised too quickly and is funneled into projects that meet the tax benefit criteria, but do not meet other fundamental requirements for sound investing. Before recommending an Opportunity Zone investment to a client, it is critical that you have a firm understanding of the investment in question, and the OZ program itself.

Understanding Tax Structure

There are three main benefits offered by Opportunity Zone investments: temporary capital gains tax deferral, a step-up in basis, and permanent exclusion of taxable income from OZ capital gains. It is important to note that temporary capital gains tax deferral is only pertinent to capital gains that are reinvested into a Qualified Opportunity Fund. In addition, investors must recognize their deferred gain prior to the OZ disposal date or before December 31, 2026. As with any client counsel, it’s important to determine if an investment of this length is suitable for that individual. It’s also equally important that the client understand what this expiration date means and can adjust other investments to ensure they meet their capital needs for everyday life.

On this topic of liquidity and how it relates to an investment cycle, the second benefit is a step-up in the basis for any capital gains reinvested in an Opportunity Zone project or business. I am constantly troubled by the apparent lack of understanding surrounding these nuances. Keep in mind that the basis is increased by 10% only as long as the investment is held for five years. If the OZ investment is held for seven years, the basis goes up by an additional 5% for a total of 15% — no small sum when we’re talking large investment opportunities and real estate developments.

The third and final benefit is a permanent exclusion from taxable capital gains income from the sale of an investment in an OZ Fund, as long as the investment is held for 10 years. This is relatively straightforward, but still must be communicated effectively to clients who may not realize just how long their investment is illiquid.

Beware of Misrepresentation

In order to meet the criteria to become a “Qualified Opportunity Fund,” a corporation or partnership must invest 90% or more of their holdings in a Qualified Opportunity Zone. The investments that qualify include partnership interests in businesses that operate in a QOZ, stock ownership in a business that conducts most of their operations within a QOZ, or ownership of assets that sit within an Opportunity Zone, like machinery or real property. All of this must be articulated by an advisor directly to their client so they know what they’re options are and what’s suitable for them.

Opportunity Zones work best as long-term investments that benefit both the investor and the local community. What I’ve found to be effective is moving capital gains from other investment opportunities into the right OZ Fund or property development, not just jumping into the OZ sphere with no regard for traditional fundamentals and due diligence.

Because of the tax benefits offered by Opportunity Zones, the term has become a popular buzzword in financial and real estate circles. Advisors and their investors need to be cognizant of the developers and money managers out there using the hype around OZs to raise capital, and act accordingly. As always, be thorough in your due diligence to determine whether a money manager is putting lipstick on a pig or providing a sound investment opportunity.

As a financial advisor, it is ultimately up to you to determine which of your clients might benefit from Opportunity Zone investments, even if real estate tax-deferral or reduction is the goal. If your client needs liquidity, or if they need to realize gains before the five, seven, or 10-year holding periods, OZ investments might not be the best choice.

Ari Rastegar is the Founder and CEO of Rastegar Property, a vertically integrated real estate investment firm, and Light Tower, a newly launched educational resource for investors.

This article first appeared on Sizemore Insights as Opportunity Zones: Beyond the Hype

What The New SECURE Act Means For Your IRA

How can you argue with an act of Congress named “Setting Every Community Up for Retirement Enhancement” (SECURE)? Who wouldn’t want an enhanced retirement?

The SECURE act, which recently passed the House of Representatives with a vote of 417-3, is now being debated in the Senate. And at first glance, it looks great. If passed, Americans over the age of 70 ½ would still be able to contribute to traditional IRAs. And the dreaded required minimum distributions (RMD) wouldn’t start until age 72.

With Americans living and working longer, these are solid, if not exactly revolutionary, enhancements.

There’s just one big problem with it. The SECURE Act, if passed by the Senate and signed by President Trump, would turn the world of inheritance and estate planning upside down.

The Not-So Secure Act

Today, you can leave your traditional IRA to your spouse with no tax consequences. Your IRA simply becomes their IRA upon your death, and they’re then required to take RMDs based on their own life expectancy. And the IRA could then be passed on your children upon the death of your spouse, with the RMDs then based on their life expectancy.

Depending on how long your heirs and their heirs live, your original IRA can potentially be stretched out forever, indefinitely deferring the taxes on the accumulated gains.

Well, all of that might now be changing. Under the new rules, non-spouse inherited IRAs would have to be distributed within 10 years of the death of the original account owner.

Now, before this starts to sound like a scare piece, the IRS isn’t “coming after your IRA” to seize it. At least not yet. But there are some things to keep in mind.

There Are Some Key Takeaways Here

To start, the IRS will be getting more of your money and sooner. By forcing you or your heirs to distribute your IRAs sooner, your gains become taxable sooner. Ultimately, this means that your nest egg will grow slower or deplete faster.

Of course, money taken as an IRA distribution doesn’t just disappear. Once you pay the taxes on it, you’re free to reinvest it in a regular, good-old-fashioned brokerage account. It’s still able to grow and compound. It just loses the tax advantages of an IRA.

But I don’t like Congress moving the goal post on us. If they shorten the distribution timeline, they are setting a precedent for making IRAs less advantageous. That’s a remarkably short sighted move. In trying to get your money a couple years earlier, they are disincentivizing people to save for retirement.

Given that the average American has nowhere near enough money saved to last them through their golden years, that’s just about the last thing our government should be doing.

So, with all of this as a backdrop, will IRAs still make sense under the new rules?

It’s A Resounding Yes

The changes impact your heirs. I hate that my kids or future grandkids would have to pay more in taxes. But this doesn’t affect me. I still pay less in taxes today with every dollar I shelter in my 401(k) and other retirement plans, and the nest egg I need to support myself in retirement will grow a lot more quickly.

And while we’re on that subject, we’re now well into the second half of the year, but there is still plenty of time to increase your contributions to your retirement plan. You can put $19,000 into your 401(k) plan this year, not including company matching, and $25,000 if you’re 50 or older.

If you’re not on track to hit those limits, try to increase your savings rate, even if it’s just a couple hundred dollars per month. Every dollar you contribute lowers your tax bill and gets you one step closer to leaving the rat race in style.

This article first appeared on Sizemore Insights as What The New SECURE Act Means For Your IRA

Give Your Smartphone a Frontal Lobotomy

It’s Monday, and I want you to answer a question for me honestly: Did you check your work emails last night? Don’t look down at your shoes. You know you did it. Sunday night has become the new Monday morning, a time to go through messages on your phone, do a little light paperwork and get a start on the week.

You probably feel a little guilty and ashamed about it. I know I generally did when I found myself answering emails on a Sunday. Yet I still do it. I also found myself doing it after hours on weeknights, on Fridays and Saturdays, and on holidays and vacations.

And You Want To Know The Worst Part About It?

No one actually asked me to do it. People are reasonable, and I can credibly say that no one writing me on a Sunday afternoon really expected a reply that minute. They wrote me for the same reason I answered: We were both addicted to our smartphones and had a misplaced need to be constantly busy.

This is no way to live. It’s a dystopian nightmare in which devices that are supposed to make our lives easier and better actually make them worse. And don’t even get me started on social media. Mark Zuckerberg quite literally destroyed human civilization with Facebook. We’re now living in the new Dark Ages.

At any rate, my beat is income investing. I help my readers find a respectable stream of income in a low-yield world. But all the money in the world is meaningless if you’re too plugged in to enjoy it.

So, today we’re going to do something a little different. I’m going to help you get your life back.

I know you’re not going to get rid of your smartphone. That Pandora’s Box is open and there’s no closing it again. But we can at least claw back a little bit of our pre-smartphone humanity.

Turn Off Email Notifications

Having access to your email is great. If you’re sitting in a doctor’s office or airport, why not get a little work done?

But do you really need your phone to buzz every time a group email about the office pizza party hits your inbox?

No, you really don’t. And this is why you should turn off the notification settings. All of those pizza party updates can build up in your inbox, and when it’s convenient you can sort through them. (And by sort through them, I mean delete them all in one swoop). The important thing is that you won’t be interrupted by your phone every 45 seconds.

I know what you’re thinking… What if there is an emergency?

I’d argue that there is no such thing as an emergency email. If it is important enough, they can call you. They have your number.

Follow my lead here. I turned off all notifications on my phone except for incoming phone calls, text messages, and Uber. (I need to know if my cab is waiting for me…) And I’m considering turning off text message notifications. My colleagues know that they can always call me if something is truly urgent or time sensitive. I’m available when they need me, even if it’s after hours. They just have to call me.

Literally everything is turned off. My phone never buzzes to tell me there is an exciting new show on Netflix or that my Amazon.com package just left the warehouse. And after a week of this, I found I stopped hating my smartphone and actually began to view it as a useful tool again.

Delete Social Media Apps

I deleted virtually all social media years ago. I had a moment of truth when I looked down at my watch and realized I had just wasted two hours of a would-have-been productive day looking at pictures of fat people I went to high school with. I barely knew them in high school, before they let themselves go. So why did I just waste two hours of my life looking at photos of their trip to Cancun?

Frankly, I didn’t like the kind of person that social media made me become. Reading other people’s political rants made me miserable.

So, I pulled the plug on all of it. I have no Facebook, Instagram, or Snapchat accounts. And I can assure you that I haven’t missed anything. You don’t “have to” have social media accounts. You really can walk away from it all.

If you’re not ready to take that leap, you can at least take a preliminary step. Delete the apps from your phone. If you have to log in to Facebook on your computer, you’re going to spend a lot less time looking at cat photos than if you have the app in your pocket at all times.

I recommend you delete your accounts altogether and that you storm Facebook’s headquarters like the Bastille. But even taking the baby step of removing the apps from your phone will make you happier. Countless studies have linked social media to depression, anxiety, low self-esteem, and a host of other mental health problems. The less of it you have in your life, the better.

No Phones At The Table

We don’t have a lot of rules in my house. If I’m to be honest, I’m really a softy. There is one rule, however, that I enforce with an iron fist: no phones at the dinner table.

When we sit at the table as a family, the phones have to go away. I’m a Nazi about it. The phones have to be in a different room while we eat.

As much as I’d love to go full retrograde Luddite and banish all smartphones from my household, I know that’s not happening. But we have to have standards or we’re no better than animals. So, no phones at the dinner table. Period.

If you have a few suggestions of your own for how to regain a little shred of dignity and decency in the smartphone era, I’d love to hear them. You can write me at info@charlessizemore.com.

This article first appeared on Sizemore Insights as Give Your Smartphone a Frontal Lobotomy

The 2018 Tax Filing Numbers Are In, and Most People Won’t Be Happy

Well, the IRS numbers are in from the 2018 tax-filing year. It’s the first under President Trump’s tax reforms, and the results won’t make anyone particularly happy.

It’s not that most Americans are paying more in taxes. In fact, most are actually paying less. It’s just that the difference isn’t big enough to matter to most taxpayers. The narrative is all wrong.

Red-state voters were really hoping for a windfall, but that didn’t happen. Seventy-nine percent of taxpayers got a refund. Of that, the average was $2,879. The year before the tax cuts, 80% of taxpayers got refunds, and the average was $2,908.

Sure, most taxpayers also benefitted from lower tax withholding throughout the year. It’s just that it wasn’t all that much money. The median taxpayer saw a tax reduction of less than $800. Spread out over an entire year of paychecks, that’s simply not enough to notice, let alone matter.

Meanwhile, blue-state voters believed the tax cuts to be a handout to the rich. Yet exactly the opposite was true. Many high-income earners actually saw their taxes rise by a significant amount, particularly if they were previously benefitting from a large state and local tax (SALT) deduction. The Trump reforms capped the SALT deduction at $10,000, meaning that taxpayers with large state income tax or property tax bills had a major tax deduction taken away.

Those self-employed are happy. The Trump tax breaks on self-employment income and income from LLCs and partnerships likely lowered your tax bill by a meaningful amount. But everyone else who isn’t self-employed has something to be unhappy about.

Well, I have some bad news for you. It’s not likely to get better any time soon…

Tax Rates Will Only Go Up

Let’s say the Democrats take presidency, the Senate, and manage to hold the House of Representatives in next year’s election. It’s going to be tough for them to say with a straight face that they support the downtrodden while simultaneously raising the SALT deduction for high-income homeowners. They’d be more likely to raise taxes across the board and keep Trump’s SALT deduction cap in place.

Now, let’s say that Donald Trump wins reelection and that the Republicans managed to win back to House of Representatives and hold the Senate. Additional tax cuts are still going to be a tough sell with the country running a trillion-dollar budget deficit… in peacetime… and during a steady, stable economy. The rates we have today are likely the lowest we’re going to see for years… if not ever.

Looking at the bigger picture, it’s hard to see a scenario where taxes don’t rise from today’s levels.

Next year, interest payments are expected to make up little over 10% of the total budget. One out of every 10 dollars spent will be to pay the interest on expenses from previous years. Interest is projected to be 13% of the budget by 2024. And from there, it should just snowball due to the compounding effect of interest, eating up a larger and larger share of the budget. New borrowing used to pay back old borrowing won’t leave much room for anything else.

If bond yields continue to drift lower, these numbers might end up being a little smaller. But what difference would a few hundred billion really make when you’re looking at numbers this large?

Enough hand wringing. Let’s talk about more practical matters…

Solutions That Could Save You Thousands

To start, think long and hard before upgrading your house. If you already own an expensive home, consider downsizing. I know that’s easier said than done, but you’re likely facing a future of rising property taxes with no offsetting relief via the SALT deduction. Run the numbers. It could be that renting makes more sense for you.

Secondly, get in the habit of stuffing as much money as you can into a 401(k) plan or IRA. There’s no guarantee that the government won’t move the goalpost and start applying a tax on large retirement plans if things get bad enough later. But if something like that happens, it will likely be years down the road. In the meantime, you can grow your nest egg tax free.

And consider tax-free municipal bond funds as a destination for your savings held outside of 401(k) and other retirement plans. The federal government is unlikely to eliminate the tax-free status of muni debt because it keeps the borrowing costs low for states, cities, and other local governments.

This article first appeared on Sizemore Insights as The 2018 Tax Filing Numbers Are In, and Most People Won’t Be Happy

The Student Debt Slowdown: An Overhang of $1.4 Trillion

I was never the biggest fan of John Maynard Keynes. While he was a brilliant economist — and a sometimes solid investor — he was a disaster with policies. His ideas have given generations of politicians from both parties cover to run wildly irresponsible deficits. But while Keynes was wrong about a lot, his thoughts on the Paradox of Thrift are interesting.

The Student Debt Plague 

In a nutshell, frugality is a paradox — what is good for the part is terrible for the whole. If you or I are frugal and save our money, that’s good for us. But if everyone were as big of a cheapskate as me, the economy would grind to a halt, income would drop, and it’d be difficult to save much of anything.

And it’s an idea that pairs well with a current hot topic: student debt.

Just recently I watched a video of Democratic presidential contender Bernie Sanders talking about student loan debt forgiveness.

Now, I’m not a fan of bailouts. I wasn’t a fan of the banks getting bailed out back in 2008, and I’m not in favor of irresponsible universities and their former students getting bailed out today…

And it would absolutely be a bailout for both the universities and the students. I blame the universities more than the students, who were, after all, impressionable children at the time they were suckered into taking on debts. Universities irresponsibly raised tuition prices to unaffordable levels knowing that students could always borrow whatever they lacked. But the students went right along with it, never stopping to ask if the numbers made sense.

That kid who worked his way through college waiting tables… well, he’s just a sucker. Didn’t he know his rich Uncle Sam would have eventually picked up the tab?

And never mind that forgiveness of college loans is about as regressive a tax on poorer and less educated people as you’re ever going to find. Blue-collar taxpayers without a college education would be paying for the educations of white-collar professionals or even doctors who almost certainly make more money than them. That hardly seems fair.

But I digress…

The Potential In Forgiveness

The loan forgiveness debate actually did raise some valid points.

A dollar spent on student debt service is a dollar that’s not available to make a down payment on a house or car. That debt overhang reduces the lifetime spending potential of the debtor. Permanently. And when you’re talking about a large generation of people, that’s a problem.

If they all collectively spend less due to their debt service, then the economy grows much slower, which leads to slower wage growth and makes it harder for them to pay their debts.

There’s no real solution to this problem. If we forgive student debt, then all of us — including the debtors — suffer from higher taxes and slower growth. If we don’t forgive the debt, then we also suffer from slower growth due to the debt overhang.

So, no matter what happens… we’re all paying the price for decisions made by others, even if they’re sometimes underinformed decisions, or misinformed, or just plain poor… There’s a lesson here, and it’s to be sure that your children or grandchildren — perhaps even you, yourself — read and research the risks and costs that come with student loans. And have that discussion with whoever might want to attend college about the cheaper, alternative options — like community college or trade school — instead of going straight to a four-year institute so they can live like Van Wilder.

An Idea To Solve It All…

Here’s an idea. It’s probably not legal, but legality seems to be a murky concept these days. Why not fund partial debt forgiveness with the hundreds of billions of dollars sitting in university endowments?

Harvard alone has nearly $40 billion sitting in its endowment fund. With that kind of money, it’s questionable why they charge incoming students at all. They could certainly afford to chip in. And if we’re voting to spend other people’s money, I’d prefer that Harvard pay rather than the American taxpayer.

Of course, that’s not likely to happen. But there are some other solutions here, too.

College sports are massive money makers for ostensibly non-profit institutions. Perhaps a tax on college football tickets or TV rights with the proceeds dedicated to lowering tuition or outstanding debt of the students of the respective school is a nice start.

Or perhaps rather than a government mandate to raid the college endowments, alumni band together to pressure the endowments to share the wealth a little.

And in your personal life, let’s instead focus on some more practical actions.

If we know that growth is likely to be more modest due to debt overhang, this favors value and income strategies over growth strategies in the decade ahead.

Buying high-quality, high-yielding dividend stocks and other securities that benefit from a low-inflation environment makes sense.

This article first appeared on Sizemore Insights as The Student Debt Slowdown: An Overhang of $1.4 Trillion