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Today's Date:
Friday, September 25, 2020
LPL Financial Logo
Today's Date:
Friday, September 25, 2020
Home of the Retirement Geeks

DAILY INSIGHTS

Stocks up again. Stocks in the US opened higher to end what could be a strong week after losses last week. Bloomberg reported China plans to accelerate US agriculture purchases on an otherwise light news day. Spikes in COVID-19 cases continue in several southern and western US states as the reopen continues and economic data improves. Asian markets gained ground, while European markets were showing green in midday trading.

COVID-19 news. Confirmed new US cases rose 27,800 yesterday, a 21.3% increase, with almost all of the increase coming from the South. Arizona, Florida, California, South Carolina and Texas all reported record-high single-day increases. The positive test rate nationally also moved in the wrong direction, jumping to 5.8% yesterday. In more optimistic news, hospitalizations dipped nationally for the first time in three days (Source: COVID-19 Tracking Project).

LEI Turns Positive The Conference Board released its Leading Economic Index (LEI) report for May yesterday, showing the series returned to positive monthly growth after suffering steep declines in recent months. We examine the data release, as well as its implications for future economic growth and investors, in further detail on the LPL Research Blog.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data are from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

For Public Use – Tracking 1- 05024315

Market Blog

Stocks have shaken off the 5.9% S&P 500 Index drop last Thursday by gaining three days in a row before yesterday’s modest weakness. While researching and reading this week, three charts stood out that tell us quite a good deal about how investors have reacted during this volatile market and what could be next.

“Incredibly, we saw nearly a third of all investors over 65 years old sell their full equity holdings,” explained LPL Financial Senior Market Strategist Ryan Detrick. “With stocks now back near highs, this is yet another reason to have a plan in place before trouble comes, as making decisions when under duress can lead to the exact wrong decision.”

As shown in the LPL Chart of the Day, according to data from Fidelity Investments, nearly 18% of all investors sold their full equity holdings between February and May, while a much higher percentage that were closer to retirement (or in retirement) sold. Some might have bought back in, but odds are that many are feeling quite upset with the record bounce back in stocks here.

View enlarged chart.

Along these same lines, investors have recently moved to cash at a record pace. In fact, there is now nearly $5 trillion in money market funds, almost twice the levels we saw this time only five years ago. Also, the past three months saw the largest three-month change ever, as investors ran to the safety of cash. If you were looking for a reason stocks could continue to go higher over the longer term, there really is a lot of cash on the sidelines right now.

View enlarged chart.

Last, we noted last week that the extreme overbought nature of stocks here is actually consistent with the start of a new bull run, not a bear market bounce, or the end of a bull market. Adding to this, the spread between the number of stocks above their 50-day moving average and 200-day moving average was near the highest level ever. Think about it; with the 45% bounce in the S&P 500, many stocks were above their 50-day moving average, but not nearly as many were above their 200-day moving average. So from a longer-term perspective, there could still be gains to be had.

Sure enough, looking at other times that had wide spreads, they took place near the start of major bull markets. Near-term the potential is there for a well-deserved pullback, but going out 6 to 12 months, stocks have consistently outperformed.

View enlarged chart.

For more of our investment insights, listen to our latest LPL Market Signals podcast.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

S&P 500 Index: The Standard & Poor’s (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.

All index and market data from Factset and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

For Public Use – Tracking 1-05023694

Home improvement has become big business in the United States. American households spend billions on home improvements annually. It’s no small wonder that renovations in recent years have become more upscale, and home remodeling businesses have expanded to meet the demand for more sophisticated projects.

The most popular remodeling job is usually for the kitchen, which also typically adds to the resale value of the home. Bathroom improvements are also extremely popular with homeowners, who are eager to sacrifice their small spare bedrooms to make way for huge bathing areas that often include a hot tub, separate shower, dual sinks, heated towel racks, bidets, and lavish marble floors and countertops. Moreover, ceilings are often being raised to the roof to create an atrium look with skylights and small trees. And it is not uncommon to convert a spare room or unfinished space into a home office.

Before you even think about making a home improvement, you need to find a reputable contractor, and that may not be easy. Even if you know one, a reputable contractor may have a long list of projects. It may take months or even years to start the work, as the boom in home renovation demand currently exceeds contractor availability.

When do you know it's time to make some major changes in your home? Most likely when you can't bear to look at your old bathroom fixtures and cracked tiles or the outmoded kitchen cabinets and shabby vinyl floor. Or it could be that you need some additional space to accommodate your growing family. Regardless of your reasons, you're certainly not alone when it comes to remodeling your home.

DEMAND DRIVES NEW PRODUCTS AND SERVICES

Even when the stock market falters or mortgage rates rise, home renovations help you build equity in your home. As a result, renovations have become more upscale and home remodeling businesses have expanded to meet the demand for more sophisticated projects.

THE OPEN KITCHEN

The most popular remodeling job is for the kitchen, which also leads in adding resale value to the home, according to Remodeling Magazine. One of the hottest trends is the "open design" kitchen, which is incorporated into the overall living area of the dining room, den and/or living room. Additionally, kitchens are being rebuilt larger to accommodate more people, food preparation, and storage. Space is being designed more efficiently with rollout shelves, lazy Susans, trash compactors, recessed lighting, and underground cook-top venting. Many designs include dual work areas with separate sinks and cutting areas or large granite "islands" doubling as preparation and dining surfaces. Skylights, dimmable lighting, stainless steel appliances, and wine coolers make the kitchen an attractive setting for entertaining guests while preparing a meal.

Manufacturers have developed many efficient appliances to meet the needs of the time-challenged consumer. For example, there are convection ovens that move heated air directly onto the food instead of into the oven cavity, reducing cooking time up to 25%. And at least one manufacturer offers an oven that uses intense light to reduce cooking time. Meanwhile, the so-called smart appliances on the market can interact with your computer, so you can activate or control the dishwasher, oven, heating/air conditioning, or Jacuzzi over the Internet.

THE LAVISH BATH

Bathroom improvements are also extremely popular with homeowners, who are eager to sacrifice their small spare bedrooms to make way for huge bathing areas that often include a hot tub, separate shower, dual sinks, heated towel racks, bidets, and lavish marble floors and countertops. Moreover, ceilings are often being raised to the roof to create an atrium look with skylights and small trees, and it is not uncommon to find dedicated telephones for the toilet and the Jacuzzi.

REMODELING RESOURCES

THE NEW HOME WORKER'S OFFICE 

An office at home is also in demand now, as workers choose to "commute" from home -- saving time, dry-cleaning bills, and transportation hassle and expense to become more productive and efficient. Since electronic communication can deliver corporate office and customer site meetings at home, an attractive, workable home office is needed to accommodate this new work culture.

HOW TO FINANCE RENOVATIONS

Home equity loan: Line of credit, at fixed or adjustable rates. Interest generally tax deductible on principal up to $100,000. Banks, credit unions, other lenders.

Second mortgage/refinanced mortgage: Based on percentage of home value minus amount owed on first mortgage. Fixed rate. Interest generally tax-deductible on principal up to $100,000. Banks, credit unions, finance companies.

FHA Title 1 Home Improvement Loan: up to 20 years. Home improvement lenders.

Cash value life insurance/profit sharing plans: Interest not tax deductible. Insurance companies, employers.

BUYER BEWARE

While these innovations are impressive, so are the costs. A standard kitchen redesign can run $20,000 to $40,000. Add in granite countertops and special appliances, and the price can climb well over $60,000. Although time-saving and fun, these new appliances can cause sticker shock, so comparison shop.

But before you even think about making a home improvement, you need to find a reputable contractor, and that may not be easy. Even if you know one, a reputable contractor may have a long list of projects. It may take months or even years to start the work, as the boom in home renovation demand often exceeds contractor availability.

And then there are some horror stories to give you pause. For example: A homeowner [in Canada] wanted his fire-damaged house renovated. The contractor asked to be paid in cash to avoid workman's compensation and taxes. The homeowner agreed, hoping to save a few bucks. Later, he found the work unsatisfactory and, unable to work things out with the contractor, decided to sue. The court did assess damages, but held that because the homeowner had participated in an illegal agreement [to avoid taxes], his right to receive compensation from the contractor was voided.

Other common stories include contractors who never show up; contractors who start the job and then disappear for weeks (leaving portions of the house open and exposed to the elements); and contractors who fail to return at all and never finish the job. Of course, then there's the contractor who does shabby work that's not up to code. Since the work can't pass inspection, sometimes the whole job needs to be redone.

In response to these scenarios, the American Financial Services Association (AFSA) has developed a voluntary standard designed to protect against home improvement scams. Under AFSA guidelines, members who provide financing agree not to make final payment until they receive a certificate signed by the homeowner and contractor acknowledging satisfactory completion of the work.

The best and most obvious way to avoid problems is to get the contract in writing. A worker injured on the job without workman's compensation insurance could sue you personally. There may also be complications with your homeowner's insurance if the contractor is not properly licensed. Without a contract, you have no recourse against shoddy work, work not done as specified, cost overruns, and potential legal proceedings.

A written contract will state the proper building materials to be used and that warranties from manufacturers be honored. Additionally, it will specify exactly how "change orders" from the homeowner will be handled by the contractor. If your contractor is interested in cheating or cutting corners, chances are it could happen on your project. Remember, laws are created to protect both you and the workers. Trying to save money illegally could end up costing you more.

DO YOUR HOMEWORK ON YOUR BIGGEST INVESTMENT

This may be a great time for home renovations. Sophisticated new appliances and larger living areas can create beautiful, stress-relieving surroundings while also saving you time and money. Banks are eager to make home equity loans, and loan interest is tax deductible as well. So take the time to find a reputable contractor. Do the research, talk to your friends, check references, get several estimates, and most important, get the contract in writing. These simple steps could keep your new dream home from becoming a "money pit."

POINTS TO REMEMBER

  • Remodeling demand is driving new product technology and costs.
  • Kitchen remodeling ranks first in popularity and resale value.
  • Retain a reputable contractor through references and estimates.
  • Do not proceed without a written contract.
  • Project financing is available through home equity loans, mortgage refinancing, and home improvement loans from banks, credit unions, and insurance and finance companies.

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2013 S&P Capital IQ Financial Communications. All rights reserved.

Tracking #1-098370

Paying down debt can be a daunting task. But with a little self-discipline and some faith in yourself, your financial picture can change for the better in about six months. Your key to success will be to establish a debt reduction plan and stick to it. That way, you may be able to bring debt under control and even eliminate it.

There are three potential keys to a successful debt reduction plan. First, you need to track your monthly income and expenses. Once you have a record of your spending, compare your monthly outlay with your monthly income. If you have a surplus, this is the amount you can apply each month to paying down debt and building savings. If you have a shortfall, you’ll need to cut expenses.

Second, you’ll need to establish good saving habits. Each month, use your income to first pay expenses. Dedicate whatever is left to savings or reducing your debt. And third, reduce debt by controlling expenditures. Certainly, paying off credit card debt and installment loans is easier once you stop using your cards.

The bottom line is that you may not be able to solve your debt problem overnight, but you can potentially solve it over time. Not only will a combined debt reduction and saving strategy begin to lighten the load now, it may help you feel better about your future.

Wherever you might be financially, getting ahead can feel like it's beyond reach. Current bills can seem to gobble up almost everything. Unexpected ones seem to crop up whenever you have a little extra cash.
Chances are, you find it difficult to do anything because you don't know where to start. Relax. A lot of people are in your situation. What you need to do is face up to the matters at hand and set up a plan of action. The time to do that is right now. With a little self-discipline and some faith in yourself, your financial picture can potentially change for the better in about six months.

PAYING DEBT AND SAVING

What should you do first? Reduce your debt or start saving? The following three-part strategy may help you control your cash flow, pay off your debt, and encourage saving so you can handle the unexpected expenses that may have gotten you into debt in the first place. In time, you'll be ready to invest. But first you have to know what you owe and what you're spending.

TRACKING SPENDING

The steps outlined in the box below will help you determine how much cash you have to pay off your debt.
Next, you'll want to keep track of your typical expenses for one month or so to find out where your money is going. Also figure your unexpected expenses for a year's time -- auto and home repairs, gifts, vacations, etc. -- and divide that number by 12. You may want to use one of the personal finance software programs available to track your spending. Once you have a record of your spending, compare your monthly outlay with your monthly income. If you have a surplus, this is the amount you can apply each month to paying down debt and building savings. If you have a shortfall, you'll need to cut expenses.

HOW MUCH DO YOU HAVE TO PAY OFF YOUR DEBT?

Step #1: Create a personal balance sheet and list your debts in order of interest rate, from highest to lowest.
Step #2: Add up your liquid assets, including savings and investment accounts, if any.
Step #3: List any major purchases needed in the next year. Subtract this amount from your liquid assets. What remains is the amount you may have to pay your debts.

HOW TO BUILD SAVINGS

A key to establishing good saving habits is to make saving even easier than spending. Here are some tips.

HOW TO REDUCE DEBT

Paying off debt is easier once you stop using your cards.

Pay Extra and Save

You can eliminate debt and save money by paying more than the minimum monthly amount on your credit cards. The table below shows the difference between making an assumed $20 minimum payment on a $1,000 debt versus paying $40 a month.

Total Payments

Months to Pay

$20/month

  

6%

$1,126.97

56

12%

$1,353.43

67

18%

$1,783.97

89

$40/month

  

6%

$1,025.24

25

12%

$1,103.28

27

18%

$1,199.00

29

Assumes a monthly compounding of the annual percentage rate and that the amount due (principal plus accrued interest) must be paid in full.

PUT TIME ON YOUR SIDE

You may not be able to solve your debt problem overnight, but you can solve it over time. Not only will a combined debt reduction and saving strategy begin to lighten the load now, it will help you feel better about your future.

POINTS TO REMEMBER 

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2013 S&P Capital IQ Financial Communications. All rights reserved.

Tracking #1-202517

Even though more than half of all new mortgages issued in recent years have been for homeowners refinancing their existing home loans, the decision to refinance isn’t necessarily the wisest strategy for everyone. The most important fact to consider is whether the savings from refinancing will compensate for the cost of the refinancing itself. If you don’t plan to stay in your home long enough to break even, refinancing could be a mistake.

For those homeowners who do decide to refinance, there are several other variables to consider. For example, although short-term mortgages typically offer lower interest rates than long-term mortgages, they usually involve higher monthly payments. On the other hand, they can result in significantly reduced interest costs over time. There is also a significant difference between a fixed-rate mortgage and an adjustable rate mortgage. The former allows a borrower to "lock in" a permanent rate, whereas the interest rate on the latter could go up in the future. In addition, some mortgages charge fees called "points" up front, but may offer lower interest rates in return. Always remember to check with your current lender about refinancing — your existing relationship could allow you to realize big savings in terms of both time and money.

In recent years, Americans seeking to take advantage of low interest rates have lined up to refinance their mortgages -- often resulting in significantly lower monthly payments.
But while it's true that refinancing has the potential to help you reduce the costs associated with borrowing money to own a home, it is not necessarily a strategy that makes sense for every individual in every situation. So before you make a commitment to refinance your mortgage, its important to do your homework and determine whether such a move is the right one for you.

TO REFINANCE OR NOT

The old and arbitrary rule of thumb said that a refi only makes sense if you can lower your interest rate by at least two percentage points for example, from 6% to 4%. But what really matters is how long it will take you to break even and whether you plan to stay in your home that long. In other words, make sure you understand -- and are comfortable with -- the amount of time it will take for your overall savings to compensate for the cost of the refinancing.

Consider this: If you had a 30-year $200,000 mortgage with a 6.5% interest rate, your monthly payment would be $1,264. If you refinanced at 4.5%, your new monthly payment would be $1,013, a savings of $251 per month. Assuming that your new closing costs amounted to $2,000, it would take eight months to break even. ($251 x 8 = $2,008). If you planned to stay in your home for at least eight more months, then a refi would be appropriate under these conditions. If you planned to sell the house before then, you might not want to bother refinancing. (See below for additional examples.)

REMEMBER -- ALL MORTGAGES ARE NOT CREATED EQUAL

Don't make the mistake of choosing a mortgage based only on its stated annual percentage rate (APR), because there are a variety of other important variables to consider, such as:

The term of the mortgage -- This describes the amount of time it will take you to pay off the loan's principal and interest. Although short-term mortgages typically offer lower interest rates than long-term mortgages, they usually involve higher monthly payments. On the other hand, they can result in significantly reduced interest costs over time.

The variability of the interest rate -- There are two basic types of mortgages: those with "fixed" (i.e., unchanging) interest rates and those with variable rates, which can change after a predetermined amount of time has passed, such as one year or five years. While an adjustable-rate mortgage (ARM) usually offers a lower introductory rate than a fixed-rate mortgage with a comparable term, the ARM's rate could jump in the future if interest rates rise. If you plan to stay in your home for a long time, it may make sense to opt for the predictability and security of a fixed rate, whereas an ARM might make sense if you plan to sell before its rate is allowed to go up. Also keep in mind that interest rates have hovered near historical lows in recent years and are more likely to increase than decrease over time.

HOW MUCH WOULD YOU SAVE?

A homeowner with a 30-year, $200,000 mortgage charging 7.5% interest would pay $1,398 each month. The table below illustrates the potential monthly savings and the various break-even periods that would result from refinancing at different rates.

Rate After Refinancing

New Monthly Payment

Monthly Savings

Months to Break Even*

6.0%

$1,199

$199

10

5.5%

$1,136

$263

8

5.0%

$1,074

$325

6

4.5%

$1,013

$385

5

4.0%

$955

$444

5

3.5%

$898

$500

4

*Assumes $2,000 closing costs. Rounded up to the next highest month.


Points
 -- Points (also known as "origination fees" or "discount fees") are fees that you pay to a lender or broker when you close the deal. While a "no cost" or "zero points" mortgage does not carry this up-front cost, it could prove to be more expensive if the lender charges a higher interest rate instead. So you'll need to determine whether the savings from a lower rate justify the added costs of paying points. (One point is equal to one percent of the loan's value.)

A CLOSER LOOK AT MORTGAGE FEES*

Mortgage-related costs that may apply to your loan could include the following items. Source: The Federal Reserve Board, A Consumer's Guide to Mortgage Settlement Costs, August 2010. (Most recent available data.)
Application fee (median cost)

$365

Loan origination fee (assuming 5% down payment on $200,000 loan)

$2,734

Points

0-3% of loan amount

Appraisal fee

$263-$444

Home inspection fee

$300-$500

Prepaid interest

Will vary by loan amount and timing

Private mortgage insurance (PMI)

$50-$100/mo

Flood determination fee

$12-$16

Property survey costs

$84-$600

*Other settlement costs may also apply.

STICK WITH WHAT YOU KNOW

Finally, keep in mind that your current lender may make it easier and cheaper to refinance than another lender would. That's because your current lender is likely to have all of your important financial information on hand already, which reduces the time and resources necessary to process your application. But don't let that be your only consideration. To make a well-informed, confident decision you'll need to shop around, crunch the numbers, and ask plenty of questions.

POINTS TO REMEMBER

  1. The decision to refinance should only be made if the long-term savings outweigh the initial expenses. To calculate your break-even point, divide the cost of the refi by your monthly savings. The resulting figure represents the number of months you will need to stay in the home to make the strategy work.
  2. Don't select a new mortgage based only on its annual percentage rate.
  3. Also evaluate the term of the loan, whether the interest rate is fixed or variable, and the relative merits of paying up-front fees in exchange for a lower rate.
  4. Your current lender already knows you and has your financial information on file, so you may be able to get a better deal that way, instead of going to a new lender.
  5. To get the best possible refinancing deal, you'll need to shop around, crunch some numbers, and ask a lot of questions.

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor

© 2013 S&P Capital IQ Financial Communications. All rights reserved.

Tracking #1-204107

Disclaimer

Securities, fee-based, and advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/ SIPC, America's No. 1 independent broker / dealer.* Trust services offered through The Private Trust Company N.A., an affiliate of LPL Financial. *Based on total revenues, as reported by Financial Planning magazine, June 1996-2019.

Though our fixed insurance agents are licensed in all 50 states, our LPL Financial registered representatives associated with this Web site may only discuss and/or transact securities business with residents in the states in which they are licensed. Jon Dewar, the LPL Branch Manager is licensed in the following states: California, Florida, Indiana, Iowa, Massachusetts, Minnesota, Missouri, North Carolina, Ohio, South Carolina, Texas, and Virginia. RetirementGeeks & Legacy Life Group, Inc. are independent of LPL Financial.
©2007-2020 Legacy Life Group, Inc. dba RetirementGeeks.com

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