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Bijan Golkar
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Bijan Golkar, CFP® Vice President / Senior Advisor Principal Mr. Golkar joined FPC Investment Advisory, Inc. in 2007. Before he began his career as an investment advisor, he obtained his real estate license as a mortgage broker. Mr. Golkar graduated Magna Cum Laude with a Bachelors of Arts... More
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FPC Investment Advisory, Inc.
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FPC Finance and Tax Knowledge Center
  • Your Money & The Markets In July

    Economic data from the past month revealed some positive trends, with upbeat employment numbers for June being the biggest headline. In addition, weekly shopping center data have now broken out to new highs; auto sales exceeded all expectations in June despite some strong headwinds, and pending home sales made one of their biggest jumps in the history of the now 5-year-old recovery.

    GDP: The last GDP revision was a huge bomb, now showing a massive and unexpected first-quarter decline of 2.9%, from a previously estimated rate of decline of just 1.0% and the original estimate of 0.1% growth. Two thirds of the revision was due to negative revision to the effects of the Affordable Care Act, and a third was due to an expected revision in net exports. Based on the nature and size of this revision, plus a poor consumption report for April and May, economic growth of 2% in 2014 is now starting to look aggressive even to the most optimistic. Because of the consumption data in April and May, it looks like the best-case scenario for the second quarter is now somewhere around 3% GDP growth.

    Employment: The June employment report was strong as the economy added 288,000 total jobs compared with the 12-month average of 208,000. Professional and business services, which tend to be higher-paying jobs, were the strongest sector with a gain of 67,000 versus a 12-month average of 53,000. Despite all the positive news, the longer-term private payroll growth rate, using an average of three months of data compared year over year, ticked up to 2.1%, which is right in line with the slow and steady pace we have experienced over the past two years.

    The unemployment rate decreased by 0.2%, to 6.1%. The labor force participation rate was unchanged at 62.8%, which is a positive because it means that the unemployment rate went down because of increased employment and not workers leaving the job force. Over the past year, the unemployment rate has dropped 1.4%.

    Housing: Both new homes and existing homes moved nicely higher in May than in April and were considerably above expectations. This may be a sign that interest in housing in general is improving. With the labor market growth continuing, weather improving, mortgage rates down again, and home price growth slowing, the picture looks good over the next several months, and housing may be a bright spot in the second-quarter GDP report after negative results in the fourth quarter of 2013 and the first quarter of 2014.

    Home price growth, however, continues to slow. Some of the more drastic slowing in growth rates has been on the West Coast where annually growth rates that may have soared as much as 30% at one point have now moderated to 20% or less, according to Case-Shiller. The rest of the nation in general has seen a slowing in price increases, but not nearly as dramatic. Remember, we are talking about slowing growth rates and not price declines. For the full year, economists are expecting 5%-6% increases in home prices, a much more palatable level for homebuyers.

    Consumption and Personal Income: The poor GDP report for the first quarter was followed by even more disappointing consumption data, which now showed consumption expenditures slumped 0.2% in April and 0.1% in May. (The May data had a lot of quirks including a large drop in food spending and a massive swing in utility bills.) However, the month-to-month data has proven to be exceptionally volatile, while year-over-year data averaged over three months has shown growth around 2.0%. The income report provided at least a small antidote to the GDP and consumption reports, notching its fourth consecutive month of growth. Income growth for May was 0.2% (or 2.4% annualized), which should have fueled more spending growth than it did.

    Jul 17 5:46 PM | Link | Comment!
  • Your Money & The Markets In June

    Recent economic news was mixed, with strong U.S. auto sales and decent employment growth, but also with negative first-quarter GDP growth. The European Central Bank made headlines by lowering its key interest rates and announcing measures designed to ensure price stability and to support lending.

    GDP: The U.S. economy contracted in the first quarter, after all. As many economists anticipated, first-quarter GDP growth was reduced from a 0.1% growth to a 1.0% decline. Although many categories shifted, it was inventories that really moved the needle. However, inventories are notoriously volatile, especially difficult to measure and to seasonally adjust. Wide swings in the data more likely represent measurement errors and timing issues and not necessarily things happening in the real economy. Given the solid growth rates in employment and consumption, the first quarter would have shown some modest growth if it weren't for the inventory subtraction.

    Employment: The economy added 217,000 total jobs in May compared with the 12-month average of 194,000 jobs. Private sector jobs grew about 2.05% year over year, and the nonfarm payrolls, which add government to the mix, grew 1.72%. Both of those numbers are consistent with GDP growth in the 2.0%-2.5% range.

    Total employment finally made a new all-time high and recaptured every job lost during the recession. It only took just under six and a half years, the longest recapture period in the post-World War II era. And that politely ignores the fact that the population is quite a bit greater than it was over six years ago. The performance has been very uneven, too, with many, many industries still operating below peak levels.

    European Central Bank: Sagging economic growth and falling inflation finally forced the ECB to take decisive action to head off a Japan-like bout of deflation. Myriad rates were cut, negative interest rates were implemented for bank reserves, and new low-cost lending programs were rolled out. By putting a negative rate on deposits, the central bank hopes to force banks to lend more cash, which might generate more economic activity. All of this should stimulate the European economy and depress the euro, which would aid European exports. Equity markets around the world reacted well to this news. In general, easy money policies tend to help emerging markets, and the potential for a stronger export market in Europe provided a double dose of good news.

    Housing Prices: Home price growth generally peaked last October and November, with the broader FHFA index down quite significantly and the CoreLogic data showing almost no change. Home affordability has slipped, mostly because of higher prices, but also because of higher mortgage rates. Less affordability means fewer transactions and less housing-related economic activity. The economy needs to work out a balance, with some level of price appreciation that keeps both investors and consumers in the market, but without so much price appreciation that no one can afford a home.

    Consumption and Personal Income: Consumption growth, adjusted for inflation, dropped 0.3% in April, which was below expectations and is quite disconcerting taken in isolation. Incomes continued their nice upward slope, which should provide fuel for consumer spending in the months ahead.

    Trade Deficit: The news on the trade front was not good, although monthly data can be highly volatile. The trade deficit for April was $47.2 billion, its highest level in the past two years and higher than the upwardly revised $44.2 billion for March. The widening deficit was a combination of a 0.2% decline in exports and a 1.1% surge in imports. Unfortunately, this data indicates further downward potential in the first-quarter GDP estimate and even more pressure on the second-quarter report.

    Jun 23 2:03 PM | Link | Comment!
  • Misconceptions About Backdoor Roth IRA Conversions

    In 2014, the income limit for Roth contributions is $129,000 for single filers and $191,000 for married couples filing jointly. For high-income earners who earn too much to contribute to a Roth IRA directly, the only method of getting new assets into a Roth IRA is to go in through the backdoor, opening traditional nondeductible IRAs, then converting those accounts to Roth IRAs. It's a way for higher-income folks to pay tax now in exchange for tax-free withdrawals of at least some of their assets during retirement. But the maneuver carries some important caveats, so it pays to stay attuned. Here are four of the biggest misconceptions about backdoor Roth IRAs.

    Backdoor Roth IRAs Are Always Tax-Free: When you convert the newly opened traditional IRA to a Roth, you'll owe taxes on any appreciation in your shares since you made the initial purchase if you have no other IRA assets. But if you do hold other IRA assets, you'll be affected by what's called the pro rata rule. Under this rule, the IRS looks at your total IRA holdings to determine your tax bill when you do the conversion; the tax you pay depends on your ratio of assets that have already been taxed to those that have not. Let's say you have $45,000 in a rollover IRA and $5,000 in your new nondeductible IRA. That means your ratio of taxable/tax-free assets in your total IRA is 9/1. Upon conversion of that new $5,000 traditional IRA, you'd owe taxes on $4,500 of income, because 90% of your total IRA pool consists of money that has not been taxed. You'll run into the same issue if you try to execute a backdoor IRA and you also have traditional IRA assets on which you've taken a tax deduction; ditto if you have made nondeductible contributions but a big share of your IRA balance consists of appreciation. In both cases, the pro rata rule would affect the taxes due when you convert.

    A Backdoor IRA Should Always Be Off-Limits if You Have Traditional IRA Assets: The preceding example illustrates the tax treatment if you undertake a backdoor IRA and have a lot of money in a traditional or rollover IRA that has never been taxed. If you have a rollover IRA and participate in a company retirement plan that permits it, you can roll that money into the 401(k) before executing the backdoor Roth IRA. In doing so, those dollars wouldn't be part of the calculation of taxes due under the pro rata rule.
    Once You Go Backdoor, You Can Readily Make Additional Roth Contributions: One other common misconception about backdoor IRAs is that once you do one, you can make additional Roth contributions. Unfortunately, this is true only if your income falls below the Roth IRA eligibility thresholds in future years, or if you no longer participate in a company retirement plan. If that's the case, you can make a Roth contribution outright. All others, however, will have to go through the same motions to make additional Roth contributions, first contributing to a traditional IRA and then converting to a Roth.

    All Roth IRAs Give You Easy Access to Your Cash: Flexibility is one of the key benefits to having a Roth IRA. If you make direct contributions (that is, your entry point into a Roth isn't through converting), you can withdraw your contributions (but not your earnings) at any time without owing tax or a penalty. But if you get into a Roth IRA via conversion, you're governed by a different set of rules. To avoid the 10% penalty on early withdrawals of the amounts you've converted, you need to hold those assets in your Roth IRA for five years, you need to be age 59 1/2, or you need to meet other exceptions.

    Funds in a traditional IRA grow tax-deferred and are taxed at ordinary income tax rates when withdrawn. Contributions to a Roth IRA are not tax-deductible, but funds grow tax-free, and can be withdrawn tax free if assets are held for five years. A 10% federal tax penalty may apply for withdrawals prior to age 59 1/2. Please consult with a financial or tax professional for advice specific to your situation.

    Jun 11 1:36 PM | Link | Comment!
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