Vol. 30, Issue 1 January 2019 Retirement WatchBOB …Bob Carlson’s Retirement Watch™ (ISSN 1077-3924) is edited by Robert C. Carlson and published monthly by Eagle Products, L.L.C.,

Retirement WatchBOB CARLSON’S Strategies for a Secure Future

Vol. 30, Issue 1 January 2019

Dear Reader:Would you rather spend $3 a day for

something or $1,095 a year?Which makes you more likely to pay

for something by a certain date: a 20% discount for early payment or a 20% penalty for paying later?

The answer to both these questions is supposed to be that it doesn’t matter. You’ll pay the same amount either way. But studies using these and other choic-es show that people’s responses often vary with the phrasing of the options.

This is known as framing. It is one of the many mental errors that are

hardwired into people.Framing is widely used in advertising

to increase sales and profits. It also is used in other ways to influence deci-sions.

The results are more dramatic when framing is combined with one or more biases most people have, such as being more likely to choose a loss-limiting decision than a gain-maximizing one.

Framing and other decision-making errors persist primarily because most people don’t like to do the hard work of thinking and research. They pre-fer mental shortcuts, rules of thumb,

intuition and “gut reactions.”Realize that people are trying to per-

suade you by using framing and other mental errors against you.

You need to take the time to carefully analyze the choices. Ignore how an issue is framed or presented. Or reframe it other ways. Use a calculator to compare the options. Talk the decision over with other people. The most important way to avoid errors caused by framing and other mental mistakes is to slow down and take your time before making a decision.

This is the Best Time of Year for Giving The start of

the year is the best time for estate plan-mo-tivated gifts. Even if you

made gifts late in 2018, consider making your 2019 gifts soon.

Estate tax reduction used to be the major incentive for annual giving to family members. Now, only the very wealthy need to make gifts to reduce estate and gift taxes.

Gifts still should be part of your

estate plan. There are sound reasons other than estate and gift taxes for those outside the top 1% in wealth to make annual lifetime gifts.

One advantage is that you see how your loved ones use the gifts. That can give you satisfaction. It also helps you see how they handle wealth. The experience might change how you give in the future and the amount you give. Lifetime giving also pro-vides loved ones opportunities to learn how to handle wealth.

With lifetime gifts, you improve

the lives of your loved ones now, and the extra resources might mean a lot to them. They could be struggling to buy a home, pay for their children’s education, or reach other financial goals. Giving now might help them more than knowing they’ll probably receive a more significant, but uncer-tain, sum at some unknown date in the future.

Shrewd gift giving also can reduce family income taxes, increasing the family’s after-tax wealth, which we’ll

(Continued on page 2)

Estate, Gift, Income Tax Amounts Increased for 2019 . .3

How To Avoid The Traps In Self-Directed IRAs . . . . . . .4

Can You Spend More in Retirement

Than You’ve Been Told? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Widely Misunderstood Tax Rules for Home Sales . . . . . .8

Beat the Latest Scams To Steal Your Identity . . . . . . . . . .9

Where Will the Fed Drive the Economy Next? . . . . . . . .10

How to Navigate the ‘Post-Peak’ Market . . . . . . . . . . . . .11

The Scope of Retirement Success . . . . . . . . . . . . . . . . . . . .16

In This Issue

Actions to Create the Retirement You DesireJanuary 2019 2

discuss shortly.You probably can think of addi-

tional reasons why it might be better to make your estate planning gifts sooner rather than later.

Most people wait until near the end of the year to make gifts. That’s partly because it is the traditional gift-giving season and partly because people procrastinate. Yet, there are tax, financial and personal reasons to give early in the year.

Scheduling your gifts early in the year ensures that your giving plan is executed. If you wait, events could intervene that prevent the gifts from being made this year.

When you plan to give investment property that produces income, giving early in the year removes the income from your tax return. Ear-ly giving ensures that other family members pay the income taxes and they might be in lower tax brackets than you. That increases the family’s after-tax wealth.

You can better exploit the annual gift tax exclusion by making gifts early in the year.

Under the exclusion, you can make gifts up to a certain amount to a person each year without it count-ing against your lifetime estate and gift tax exclusion. The 2018 limit was $15,000, and the limit for 2019 remains $15,000. You can make gifts up to $15,000 each to as many people as you want each year.

If you have three children, you can give each up to $15,000 of money or property each year. Your spouse also can give $15,000 to each child, or the two of you can give jointly up to $30,000 to each child.

The property’s value on the date of the gift is used to determine if you reached the exclusion limit. When you give property that’s likely to appreciate, it’s usually better to give early in the year. Suppose you plan to give mutual fund shares that have a net asset value of $10 at the start of the year. If you wait until the end of the year to give and they are worth $11 at that time, you can give more than 136 fewer shares under the exclusion. Giving early in the year, when values are rising, would enable you to give more shares tax free, be-cause you gave the shares before they appreciated.

For similar reasons, you might want to give more than the annual gift tax exclusion amount.

Gifts that exceed the annual exclu-sion reduce your lifetime estate and gift tax exemption. Each person has a lifetime exemption. It’s indexed for inflation and, in 2019, the exclu-sion is $11.4 million. That means a married couple effectively has a joint $22.8 million lifetime exemption. (See the next article in this issue.)

If you can afford to give more than the annual exclusion, consider doing so. The property and its future

appreciation are removed from your estate at today’s value. All the fu-ture appreciation won’t absorb any of your lifetime exclusion. If you continue to own the property and it appreciates, you take the risk your estate will exceed the lifetime ex-emption. That’s especially true if the estate tax exemption is reduced in the future.

Once you’ve decided to harvest the benefits of giving early in the year and giving more than the annual exclusion, consider some other strat-egies that will increase the after-tax value of your gifts.

You can maximize tax-free giving each year by making gifts for educa-tion and medical care. Under certain conditions, these gifts are tax free in unlimited amounts each year.

Unlimited education gifts are tax free when they pay for direct tui-tion costs and not for items such as books, supplies, board, lodging, or other fees. To qualify, the gifts must be made directly to an educational institution. The gifts can be made on behalf of any individual, regardless of his or her relationship to you, and for any level of education.

Medical gifts are allowed in un-limited amounts when payments are made directly to a medical care provider and are for items that would qualify as deductible itemized med-ical expenses on Schedule A of the income tax return.

Bob Carlson’s Retirement Watch™ (ISSN 1077-3924) is edited by Robert C. Carlson and published monthly by Eagle Products, L.L.C., 300 New Jersey Ave, NW, Suite 500, Washington, D.C. 20001, Customer service: 800-552-1152. E-mail: [email protected]. Website: www.RetirementWatch.com. Subscription cost is $99 annually. Copyright 2018 by Eagle Products, L.L.C. POSTMASTER: Please send address changes to Bob Carlson’s Retirement Watch, Subscriber Services Department, P..O. Box 1901, Williamsport, PA 17701. Postage paid at periodical rates at Centreville, VA and additional mailing offices. The information in this newsletter is from sources believed reliable, but no guarantee or warranty is made as to its accuracy. The editor, owners, and publisher, as well as their clients, employees, associates and/or family may have positions in securities and instruments recommended or reviewed in this newsletter. The editor and publisher assume no liability for the reader’s use of the information contained herein. Letters and e-mail from readers are encouraged. Editor: Robert C. Carlson; Editorial Director: Paul Dykewicz; Group Publisher: Roger Michalski.

www.RetirementWatch.com January 2019 3

When these conditions are met, unlimited tax-free gifts are allowed.

Remember that these two types of tax-free gifts are in addition to the annual gift tax exclusion amount and don’t count toward your lifetime exemption.

While most people give cash, it’s often better to give investment property. Some studies have shown that family members who are given investments often save more of their own money and accumulate more personal wealth than those who received cash gifts.

A good long-term strategy is to make gifts of property that are likely to appreciate over time. Transfer the property at today’s value to your chil-dren or grandchildren and let them reap the benefits of the appreciation. The appreciation will avoid estate and gift taxes.

But you might not want to give property that’s already appreciated a lot if you could give other items.

When property is inherited through your estate, the heirs increase the tax basis to its current fair market value. They can sell the property immedi-ately and owe no capital gains taxes. The appreciation that occurred during your lifetime isn’t subject to capital gains taxes.

When you make a lifetime gift of property that’s already appreciated, however, the beneficiary takes the same tax basis you had. When the property eventually is sold, he or she will owe capital gains taxes on the appreciation that occurred while you held the property. That might not be a bad thing if the recipient is in a lower tax bracket than you and you were planning to sell the property anyway. But if property with a lot of appreciation is going to be held long term, it’s better that you hold the property and let it be inherited through your estate. That avoids capital gains taxes on all the appreci-ation. That’s a good result, especially

since for most people estate taxes are likely to be zero; there’s no tax penalty for holding the property in your estate.

Don’t give investment property in which you have a paper loss.

The tax basis for the recipient is the lower of your basis and the current fair market value. That means the recipient will have a tax basis of its current fair market value. When the property is sold, no one will receive a deduction for the loss that was incurred while you held it. It is better for you to sell the property, take the loss deduction and give away the sale proceeds.

Planned gift giving is an important part of financial and estate planning. Of course, don’t give away wealth that you might need during your lifetime. Once your lifetime needs are secure, however, planned giving can increase your family’s after-tax wealth and you’ll see how your gifts improve loved ones’ lives.

Estate, Gift, Income Tax Amounts Increased for 2019The IRS

announced the annual inflation increases for various tax provisions as of

January 1, 2019.The lifetime estate and gift tax ex-

emption has been increased to $11.4 million (from $11.18 million). A cou-ple can jointly exclude $22.8 million. The annual gift tax exclusion remains $15,000 for 2019.

The standard deduction for married

couples filing jointly is $24,400 (up from $24,000). For single taxpayers, it is $12,200 (up from $12,000). Remem-ber, the personal exemption amount was eliminated for years after 2017.

The top tax rate of 37% begins for married couples filing jointly with taxable incomes exceeding $612,350 ($510,300 for singles). The 24% bracket begins with taxable income of $168,400 for married couples ($84,200 for singles). The 22% tax rate begins with taxable income of $78,950 for couples ($39.475 for singles).

The annual tax-deferred contri-bution to 401(k) and similar plans is increased to $19,000 from $18,500. The catch-up contribution for those ages 50 and older remains at $6,000. Total contributions to 401(k) plans are limited to $56,000 ($55,000 in 2018).

The IRA contribution limit increases to $6,000 from $5,500. The contribu-tion limit is the same for traditional and Roth IRAs. If you contribute to both types of IRAs, the aggregate con-tributions can’t exceed $6,000.


How To Avoid The Traps In Self-Directed IRAs

Your IRA investment universe is great-ly expanded when you set up a true self-di-

rected IRA, as we discussed last month. But to reap the benefits, you need to avoid some key pitfalls and traps in the tax law.

Also known as the Checkbook IRA, LLC IRA, Super IRA and other names, the true self-directed IRA can invest in assets other than mutual funds and publicly traded stocks and bonds. While this type of IRA has greatly expanded investment options, the tax code doesn’t allow unlimited invest-ment choices. This month we discuss the prohibited investments and trans-actions for IRAs.

It is your job to be sure you don’t cross any of the lines as the IRA custo-dian isn’t required to monitor your ac-tivities and keep you from violating the tax rules. The custodian also doesn’t give tax or investment advice. That’s why you should know the rules and consider working with a tax advisor who is familiar with true self-directed IRAs.

The prohibited investment and transaction rules apply to LLC IRAs, because an LLC or other entity that’s owned by an IRA must follow the rules imposed on IRAs.

The list of prohibited IRA invest-ments is short: life insurance and collectibles. These aren’t allowed in IRAs at all.

The tax code defines collectibles as art, antiques, rugs, stamps, coins, metals, gems and alcoholic beverages (such as fine wine). Although the IRS can add “certain other tangible prop-erty” to the list through regulations or rulings, it hasn’t.

An exception allows IRAs to own certain types of coins and metals. The allowed coins must be legal tender gold and silver coins that are minted by the U.S. Treasury. These generally are the American Eagle coins. Rare and numismatic coins aren’t allowed. Some platinum coins also are allowed.

An IRA also can own gold, silver, platinum, and palladium bars that meet certain minimum fineness re-quirements in the tax code.

You cannot control and store any coins or bullion owned by the IRA. The IRS requires that the assets stay in the possession of the custodian or trustee. Some people argue that the LLC in an LLC IRA can buy the coins or bullion and you can store them in your home or a safe deposit box. An IRS official told The Wall Street Journal that is incorrect. An approved IRA custodian must have possession of the physical assets.

When an IRA buys a prohibited investment, the investment is treated as a distribution to the IRA owner. The owner must include in gross income the amount of the investment as of the day of the investment. There’s no provision in the tax code to reverse or correct the transaction. If you’re under age 59½, a 10% early distribution pen-alty also might be imposed.

Prohibited transactions are a much broader category than prohibited investments.

Prohibited transactions also have a more severe penalty. The IRA loses its exempt status. That means the entire balance of the IRA is treated as hav-ing been distributed to the owner on the first day of the year the prohibited transaction was made. Even if only a portion of the IRA was used to engage in the transaction, the entire IRA is disqualified. There also is no provision for reversing the transaction or other-wise correcting the error. Other IRAs you own aren’t affected by a prohibited transaction in one IRA.

Here’s my plain English summary of the prohibited transaction rules: A prohibited transaction is any invest-ment or transaction between a related, or disqualified, person and the IRA. Another way to phrase it is: No trans-actions are allowed involving the IRA and its owner or a person related to the IRA or its owner. Persons include entities, such as trusts, corporations, LLCs and others.

It doesn’t matter if the transaction was at fair market value.

While this type of IRA has greatly expanded

investment options, the tax code doesn’t allow unlimited investment

choices.


Let’s look at some details of the rules. The tax code lists four specific pro-

hibited transactions: • A sale, exchange, or lease of

property• A loan of money• Furnishing goods, services, or

facilities• A transfer or the use of the

income or assets of the IRAThe code also lists two general prohi-

bitions. One of them is an act in which the related party deals with the IRA income or assets as his or her own. The other general prohibition is the receipt of any benefit for the related party’s personal account in connection with a transaction involving the IRA’s income or assets.

A key to the prohibited transaction rules is the definition of a related person.

A related person is the IRA's owner; anyone who makes decisions for the IRA; anyone providing services to the IRA; an ancestor, spouse, or descen-dant of the IRA's owner, of the owner’s spouse, of a decision maker for the IRA, or of anyone providing services to the IRA.

Related persons also include enti-ties, such as a corporation, a trust, a partnership, or an estate that is 50% or more owned by any of the above persons. A partner of any entity that is on that list is a related person, as is any officer, director, highly-compensated employee, or 10% or greater owner of any of those entities.

The list of related persons is broad, but there are some exceptions that can provide useful planning opportunities.

Not included as related persons are brothers, sisters, step relatives, and nieces and nephews of the IRA own-er. Also not included are friends and neighbors of the owner. A “significant other” to whom the IRA owner is not married also is not a related person.

You need to review the prohibit-ed transaction rules carefully before taking any actions with an IRA. They are very broad, and I recommend that you not try to get too close to the line between prohibited and allowed transactions.

Here’s an example of how the rules can trap someone with a true self-di-rected IRA.

Suppose an IRA buys or invests in a private business. The IRA owner has a job with the business. A prohibited transaction occurs when the IRA own-er draws a salary from the business or even provides services to the business without payment.

The prohibition of debt also fre-quently catches people. The true self-directed IRA can own real estate. But it’s difficult to structure a real estate transaction with a mortgage that doesn’t run afoul of the prohibition against debt. Any real estate purchase should be with cash that’s in the IRA.

A Roth IRA is subject to the same

rules as traditional IRAs and other qualified retirement plans unless specifically exempted. There isn’t an exemption to the prohibited invest-ment and transaction rules for Roth IRAs. In addition, the IRS has gone a step further by issuing a notice stating that any transaction between a Roth IRA and a “related party” would be considered a tax shelter or an abusive transaction that is required to be regis-tered with the IRS. For this notice, the IRS considers brothers and sisters as related parties. (IRS Notice 2004-8)

When you want to engage in a trans-action, one option is to ask the IRS for a private letter ruling allowing the transaction. But this can be expensive, and it can take months or longer to receive a response.

The Department of Labor is allowed to grant exemptions to the prohib-ited transaction rules. It grants both exemptions to specific taxpayers for specific transactions and broad “class exemptions” that apply to anyone who matches the facts in a published exemption. Under these exemptions, IRAs and owners have been allowed to engage in transactions involving real estate, stock, loans and more.

To find details on the exemptions, go to the Department of Labor website at www. dol.gov. Look for the “Employ-ee Benefits Security Administration” (EBSA) among the department’s agen-cies. On the home page for EBSA, look for “Technical Guidance” or “Guid-ance.” The website frequently is revised, so I can’t be more specific. You’ll be able to review both the class exemptions and individual exemptions.

When an IRA buys a prohibited investment,

the investment is treated as a distribution

to the IRA owner.


I recommend that unless you’re engaging in a plain vanilla transaction, to work with a consultant or tax advisor who has expertise in the prohibited transaction and investment rules. The rules can be technical, and it’s important

that all the details of a transaction are correct.

I discuss prohibited investments and transactions and other IRA investment pitfalls in my report, “IRA Investment Guide: A Road Map for Avoiding the

Traps and Penalties for IRA Invest-ments.” It’s available through “Bob’s Library” under the “About Bob Carlson” tab on the web site at www.Retirement-Watch.com.

Can You Spend More in Retirement Than You’ve Been Told?

Longtime readers know I believe the spending plan is the biggest gap in most retirement

plans.The spending plan ensures you won’t

run out of money in retirement. It an-swers the question: What’s the maximum amount I can spend each year and not risk running out of money?

The longtime consensus among finan-cial planners is known as the 4% Rule or the Safe Spending Amount. Under the rule, you can spend about 4.2% of your nest egg in the first year. The second year you can spend that dollar amount, plus an increase for whatever inflation was the previous year. You continue to increase spending by the inflation rate each subse-quent year.

Research indicates that under most in-vestment scenarios, a nest egg would last at least 30 years under the 4% Rule.

I’ve had criticisms of the 4% Rule for many years. You can read the detailed ar-guments in the Archive on the members’ website or in the revised edition of The New Rules of Retirement.

One of my main concerns is that almost no one spends in the pattern envisioned under the 4% Rule. Spending varies during retirement. Most people spend

more money early in retirement, and then spending declines. It might increase later in retirement to pay for medical and long-term care expenses, or it might continue to decline even after adjusting for inflation.

Another concern is the 4% Rule doesn’t adjust spending for changes in the mar-kets. If you retire early in a long bull mar-ket and follow the 4% Rule, you’d spend far less money over your lifetime than you could have. But if you retire early in a long bear market, following the 4% Rule could cause you to run out of money fairly early in retirement. The 1960s and early 1970s are a good example of that.

The alternative spending plan I’ve long proposed is a modification of the policy used by the Yale University Endowment to determine how much it will distribute to the university each year.

Under this formula, the first year you spend a percentage of the portfolio you

select. In the past, I’ve used 4% as the ini-tial spending percentage. Each year after that, 70% of the amount you can spend is that same percentage of the portfolio’s value at the start of the year. The other 30% of the spending is the dollar amount you spent in the previous year, plus the previous year’s inflation.

I’ve discussed this spending policy in detail in past issues, which you also can find in the Archives on the mem-bers’ section of the website, and in the revised edition of The New Rules of Retirement.

In the July 2015 issue, I used actual returns of two mutual funds to show how the formula would have worked under real market conditions (that were fairly adverse) using different investment strategies. I used 10 years of returns from the mutual funds Vanguard Balanced Index and Van-guard Wellesley Income beginning in 2006. Then, I repeated the returns so that there would be at least 20 years of returns and the returns would reflect two very bad bear markets. You can find the discussion and charts in the Archive on the members’ section of the website.

In my latest research, I modified the policy to better reflect how people really spend in retirement.

Instead of using the fixed 4% rate

Most retirees spend more in the early years of retirement because

they still are active and healthy and have a list of activities they want to accomplish in

retirement.


as the base spending percentage throughout retirement, the percentage changes over time. In the first six years of retirement, 7% is used as the bench-mark for spending. It then shifts down to 5% beginning in year seven. Finally, the percentage is reduced to 4% in the 15th year of retirement.

I used the same returns from the two Vanguard funds. You can see the results in the charts later on. One chart shows the maximum spending amount each year; the other chart shows the nest egg balance at the end of each year.

Of course, under this formula you spend more in the early years than un-der the original plan. With a beginning $500,000 portfolio, you spend $35,000 the first year compared to $20,000 in the original plan.

The maximum spending amount declines after the second year, because of the market decline. The spending never returns to the peak level of the second year because of a combination of the market decline and the reduc-tion in the base spending percentage beginning the seventh year. That’s true for both portfolios.

Spending is higher under the revised formula than under the original each of the first 11 years. After that, spend-ing under the revised formula declines in a stair-step pattern, partly because of the second bear market and partly because of the second reduction in the spending percentage.

As in the previous research, the Wellesley Income portfolio generates higher returns and has a higher ending balance because it holds up much

better in the bear markets. In the worst years, Wellesley Income lost 9.84% compared to over 22% for the Bal-anced Index.

Not surprisingly, the values of the nest egg are not as high under the revised formula compared to the orig-inal. That’s because you’re spending more money in the early years.

As you can see in the chart, the Balanced Index nest egg only returns to its starting value after year 22. The Wellesley Income nest egg exceeds the original value at the end of year 18 and stays above it.

The revised Yale Endowment spending policy shows that you can develop a spend-ing policy that lets you spend more than 4% in the early years when you’re more active. It also will adjust spending based on inflation, mar-ket returns and changes in your life cycle.

Most retirees spend more in the early years of retirement be-cause they still are active and healthy and have a list of activities they want to accomplish in retirement.

After the first years of

retirement, many one-time expen-ditures have occurred and more of a routine is established. Also, most people slow down after five years or so of retirement, depending on health and age.

There are a few lessons to take from this research.

One lesson is that spending in retirement should be flexible, and you should have a policy that varies spending with your age, the markets and inflation.

Another lesson is that a nest egg can be sustainable with higher spending in the early years of retirement if you


spend less in the later years.To ensure your lifetime financial

security with this higher spending in the early years, you should have insur-ance or other plans to cover any large medical expenses and long-term care in the later years.

Under the revised spending policy, there is about $200,000 less wealth after year 22 than under the original policy.

You also need to decide to what extent you want to leave a legacy for children or others. Under the revised

spending policy, the nest egg doesn’t grow nearly as much as it does under the original spending policy. So, if you want to leave a significant legacy or simply want your financial security to increase over time, it’s better to stay with something closer to the original spending policy from the July 15 issue.

A final lesson is that it’s difficult for investment returns and reduced spending in the later years to make up for high spending in the early years of retirement. So, while the numbers show that you probably can spend

more in the first years of retirement than is allowed under the 4% Rule, there is a limit. You should be careful not to overspend early in retirement unless you expect a long bull market to bail you out.

A spending plan determines the maximum amount you should spend each year in retirement. The policy also helps you adjust when surprises are delivered by the investment markets or other forces.

The Widely Misunderstood Tax Rules for Home Sales

The tax rules for selling a personal resi-dence seem to generate more widespread

misunderstanding than most other parts of the tax code.

The rules themselves are fairly simple as tax code provisions go. One problem seems to be that many people looking to sell homes don’t realize that the rules were overhauled in 1997. Another problem is that an early version of the Tax Cuts and Jobs Act (TCJA) in 2017 would have overhauled the rules again and received a lot of publicity. But the final version of the TCJA left the home sale rules unchanged.

The 1997 law greatly simplified the tax rules for home sales. The amount of gain you exclude from income has no relation to the amount you rollover into another home purchase. In fact, there’s no requirement that you use the proceeds to buy another home in order to exclude the gain.

Also, your age is not a factor in the amount of gain you exclude. Under the old law, taxpayers ages 55 and over could exclude gains that other taxpayers couldn’t.

Under the current rules, when a taxpayer sells a primary residence, he or she can exclude the first $250,000 of gain from gross income. Married couples fil-ing jointly can exclude the first $500,000 of gain. Any gain that exceeds the exclu-sion amount is taxable as a capital gain. (Losses aren’t deductible, because it is a personal use asset, not an investment or business asset.)

There’s no limit on the number of home sales or the amount of gain that can be excluded from income during your lifetime.

There are a couple of rules designed to prevent speculators from earning tax

free gains from home flipping.You must have both owned and used

the home as a primary residence for at least two of the five years immediate-ly preceding the sale. The ownership and residence periods don’t have to be concurrent and don’t have to be the two years immediately preceding the sale. That gives some flexibility to people who need to move out of a home but don’t sell it for a few years.

The exclusion also can be used only every two years. When a home is sold for a gain before two years have passed since the last home sale at a gain, the amount of gain you can exclude is pro rated based on how much time has passed since the exclusion was last used.

For married couples, the $500,000 exclusion amount is available even if only one spouse was the home’s owner. But both spouses must have lived in the home as a primary residence for at least two of the five years or the exemption is only $250,000.

The exclusion applies only to your

The 1997 law greatly simplified the tax rules

for home sales.


primary residence. It doesn’t apply to sales of second homes, vacation homes, or rental properties. Sales of secondary resi-dences are subject to capital gains taxes.

Here’s a strategy that works for owners of two or more homes who wish to sell both and maximize the excluded gain.

First, sell your primary residence and exclude the gain from income. Then, move into the second home and estab-lish that as your primary residence for at least two years. At that point, you can sell the second home and exclude that

gain up to the limit. Remember that there’s no requirement

to roll over the proceeds to another home. The gain from a sale is tax free re-gardless of what you do with the money. That allows a home seller to downsize or move to an area with lower housing pric-es and invest part of the sale proceeds.

When a spouse dies, the surviving spouse has two years to sell the home and take the $500,000 exclusion, pro-vided they met the two-year ownership and residence requirements at the time

of the first spouse’s passing. If the house isn’t sold within two years of the first spouse’s passing, then the exclusion amount is reduced to $250,000.

Remember that the gain from the sale of a home is computed by deduct-ing your tax basis in the home from the amount realized from the sale. The basis includes the cost of improvements to the home, as well as the original cost. So, don’t forget to add the cost of any im-provements you made to the basis before computing the amount of your gain.

Beat the Latest Scams To Steal Your Identity

The world’s thieves constantly are changing their methods, and you have to keep up with

them to protect yourself.Not long ago, the major scam

involved IRS imposters demanding im-mediate payment over the phone using gift cards.

That scam largely is shut down. The IRS issued a number of alerts warning about the scam. Also, the main scammers were traced to India, and law enforce-ment in India arrested many of the perpetrators at call centers.

Con artists have developed new scams, using Social Security as the bait.

A caller impersonating a Social Securi-ty employee says that the Social Security number of the person being called has been suspended due to fraudulent ac-tivity involving the number. The person needs to take immediate action to have the number reinstated.

Sometimes the call is less threatening.

The caller says Social Security’s comput-ers are down and the government needs to confirm the person’s Social Security number to keep it from being suspended.

An alternative scam uses email to make the same claims. The recipient will be advised to click on a link in the email and follow the instructions on the web page it brings up.

The intent of these scams is to have you provide your Social Security number and other important information to the crooks. The Federal Trade Commission and Social Security Administration both have advised that Social Security wouldn’t call people under either of these circum-stances.

If Social Security identifies a problem with your number or account, it will send you a letter. It won’t call you and ask for your number of other important infor-mation.

Social Security does send emails reminding people to review their bene-fits statements to ensure their earnings history is correct. These emails are sent if you established a “my Social Security”

account on the Social Security website and provided an email address.

To be on the safe side, though, don’t click on any links in an email purport-ing to be from Social Security. You can’t be sure if the email is legitimate or a scam. If you want to check your earnings history or other information, open your internet browser and enter the address of the Social Security web-site (www.socialsecurity.gov). Or call Social Security.

It’s a good idea to open a “my Social Security” account at www.socialsecuri-ty.gov. The account lets you check your earnings history, estimated benefits and other information at any time. It also lets you use SSA’s calculator to receive customized benefit estimates under different scenarios instead of the standard scenarios in the basic benefits estimates. The account also lets you avoid theft. You can see if anyone ap-plied for benefits in your name or tried to change the financial account into which your benefits are deposited.

Investment Recommendations and PorfoliosJanuary 2019 10

Where Will the Fed Drive the Economy Next? The markets

now seem to realize what the Fed has been up to, but the markets proba-

bly still are behind the curve.Investors as a group made two of their

recurring mistakes during most of 2018. They projected that the recent past would continue indefinitely, and they focused on short-term news, or noise, instead of the factors that really matter to the markets.

Investors only began to realize their er-rors in the last few months. That increased volatility and caused prices to adjust.

The strongest driver of markets and the economy is monetary policy. The Federal Reserve has been tightening policy since 2015 and accelerated the tightening in 2017 and 2018. Because monetary policy’s effects occur with lags, investors ignored the likely effects and pushed stocks to record highs.

Emerging markets and economies are affected by Fed policy changes first, so emerging market investments and economies began tumbling in early 2018 while the U.S. economy and stocks chugged higher.

In another early effect, U.S. interest rates rose rapidly during 2018. Market rates rose higher than the short-term

rates the Fed controls.The interest-rate sensitive sectors of

the U.S. economy also began to show the effects of tighter money in early 2018. Housing peaked very early and contract-ed most of the year. Home construction stocks were down about 30% for 2018. Auto sales slowed.

There now are signs slower growth is spreading.

Rapid earnings growth has been a major support of U.S. stock prices, but earnings growth is facing a number of head-winds.

Higher interest rates, the strong dollar and tariffs all increase the cost of doing business.

Because of the strong labor market, many businesses com-plain their biggest problem is finding qualified employees for job openings. That’s causing wages to increase. While moderate by historic measures, wage growth is substantially higher than only a couple of years ago, and it could increase.

The 2017 tax cuts helped earnings growth, but the benefits of the tax cuts were

a one-time boost, and that boost is starting to fade.

Dividend increases and stock buy backs have been a major support of stock prices and earnings growth. These finan-cial engineering measures also are likely to fade as interest rates increase (discour-aging borrowing to fund buy backs) and the cash boost from the tax cuts fades.

Markets now are realizing the signif-icance of the Fed’s tighter policy. That’s

Investment Recommendations

0.0

2013

-12-04

2014

-12-04

2015

-12-04

2016

-12-04

2017

-12-04

1.00

1.50

2.00

2.50

0.50

3.00

2018

-12-04

3.50

Two-Year Treasury Yield

Industrial Production

-4.0

-2.0

2.0

4.0

6.0

2013

-10-01

2014

-08-01

2015

-06-01

2016

-09-01

2017

-12-01

0.0

8.0

2018

-10-01


why stock prices began falling in late Sep-tember. Interest rates also hit a short-term peak, indicating investors expect inflation to fall and growth to slow.

The effects of tighter money are only beginning to affect the economy. Even if the Fed stops tightening soon, the econo-my will continue to feel the effects of the tightening that’s already in the pipeline.

But the Fed is likely to continue to tighten policy. While it might increase

interest rates at a slower rate than it indi-cated a few months ago, the rate increases will continue as long as the economy, and especially the labor market, is fairly strong.

In addition to raising rates, the Fed is reducing its balance sheet by not replac-ing bonds that mature. That has been a major force behind rising interest rates and will continue to hurt the economy and stock markets.

Investment markets generally rose faster than the economy when the Fed was expanding the money supply. So, investments are likely to feel the pain of the tightening more than the economy.

None of my early warning indicators of recession is near indicating a problem. But rising interest rates, the headwinds to earnings growth and other factors indi-cate stocks and many other investments are likely to suffer for a while.

How to Navigate the ‘Post-Peak’ MarketThis is a time

when investors learn how much risk they’re really willing to take and how good

their risk management strategies are.For a long time, I’ve had two recom-

mendations to manage risk.One recommendation is to have

guaranteed lifetime income sufficient to pay your fixed, required living expenses. For most people, guaranteed income is available through Social Security and immediate annuities.

The other recommendation is to have a safety fund that’s invested in cash-like investments, such as money market funds, and holds enough money to pay three to five years of living expenses.

With either strategy, you know that your expenses are covered for at least a few years, so you’re less tempted to sell long-term investments when markets are volatile and tumbling.

You can choose either of these strate-gies, or both if you want to minimize risk.

Of course, these strategies are sup-plemented with our basic investment

principles. We seek investments with a margin of safety. And we try to

maintain balance and diversification in the portfolios, so we’re not dependent

PORTFOLIO Sector Portfolio Fund Allocation Ticker 4-Wk

ReturnAdd New

Cash?

DoubleLine Floating Rate 0.0% DBFRX -1.38% No

Vanguard Treasury Money Market 25.5% VUSXX 0.18% Yes

Cohen & Steers Realty Shares 13.0% CSRSX 2.34% Yes

Leuthold Core Investment 14.5% LCORX -3.28% Yes

WCM Focused International Growth 16.0% WCMRX -5.16% Yes

iShares Gold Trust 5.0% IAU 1.79% Yes

Hussman Strategic Growth 19.0% HSGFX 2.79% Yes

Cohen & Steers Infrastructure 7.0% UTF -3.79% Yes

Cohen & Steers REIT & Preferred Inc 0.0% RNP 0.34% No

*Returns are as of December 7, 2018

This month we're selling DBFRX and RNP. Put the proceeds from DBFRX in a money market fund. I'm using VUSXX in the portfolios. Put part of the proceeds from RNP into HSGFX and the rest in CSRSX.

Balanced PortfolioFund Allocation Ticker 4-Wk

ReturnAdd New

Cash?DoubleLine Floating Rate 0.0% DBFRX -1.38% No










Two sales are on the agenda this month. Sell DBFRX and RNP. Put the proceeds from DBFRX in a money market fund, such as VUSXX. Put part of the proceeds from RNP in HSGFX and the rest in CSRSX.


on one market scenario.Market volatility continued in the

last month, and most of that volatility has been to the downside.

Floating rate bonds, or leveraged loans, joined the negative trend. We own them through DoubleLine Floating Rate (DBFRX) and the fund has been a reliable diversifier for the portfolios the last few years.

In late November, floating rate loans began to decline. As I’ve pointed out in the past, companies that issue leveraged loans tend to have lower credit ratings. Investors apparently became concerned about overvaluation, cash flow and earn-ings growth. Also, some major banks had to postpone or change the terms of loans they planned to bring to market.

DBFRX seeks safety of principal first. During the downturn, it has been among the top-performing funds in the catego-ry, according to Morningstar. It’s down 1.98% for the last four weeks and still has a 1.90% return for the year to date.

It is time to sell DBFRX. I expect earn-ings and the economy will continue to face headwinds, and investors are likely to remain concerned about this sector.

I recommend that the proceeds from selling DBFRX in all portfolios be put in conservative near-cash investments. In my model portfolios, I’m going to use Vanguard Treasury Money Market (VUSXX). The current yield is 2.22%.

Other choices could net you higher yields while keeping the principal safe. Certificates of deposit are available di-rectly from banks. Most brokers also can buy higher-yielding certificates of deposit (CDs) for your account. You might be able to sell these CDs before maturity if

you need to, though there could be a gain or loss on the sale.

You also could buy treasury debt from the U.S. Treasury expense-free using the Treasury Direct program. (View my December Spotlight Series to learn why the two-year treasury bond might be the best investment available today.)

Of course, our stock market invest-ments have struggled recently, but they’re doing better in the downturn than the Vanguard 500 Index. That fund is down 6.18% for the last four weeks.

We own global growth stocks through WCM Focused International Growth (WCMRX). The fund is down 5.16% for the last four weeks and 6.00% for the year to date. The fund is ahead of its benchmark and most of the funds in its category for the year to date.

WCMRX invests only in a few select growth companies it believes are great long-term investments. Its holdings have low or no debt and high returns on capital. The fund closely examines a company’s business model and manage-ment for indicators that recent growth is sustainable.

The fund owns 33 stocks and has 26%

annual turnover. Recent top holdings were CSL, Accenture, Canadian Pacific Railway, LVMH Moet Hennessy Louis Vuitton and Keyence. About 37% of the fund is in its 10 largest positions.

WCMRX is one of the top funds in its category in good markets and bad. I recommend holding.

A cautious approach to the stock mar-ket is taken by Leuthold Core Invest-ment (LCORX). The fund is down 3.28% for the last four weeks and 3.68% for 2018.

LCORX is a tactical asset allocation fund that can change its allocation among stocks, bonds, commodities and cash. The fund also can hedge or sell short stocks.

The managers use a series of technical indicators and their own proprietary tools to allocate the portfolio. The default posi-tion is about 70% stocks and 30% bonds.

For most of 2018 the fund has been fairly negative on both stocks and bonds, so those allocations have been well below the default position.

Recently, about 52% of the fund was in U.S. equities and 4% in international equities. But about 18% of the fund was used to hedge or sell short stocks. The net stock allocation was only about 38%.

Income Growth Portfolio Fund Allocation Ticker 4-Wk

Return Add New Cash?

DoubleLine Floating Rate 0.0% DBFRX -1.38% No










We're selling DBFRX and putting the proceeds into a money market fund, such as VUSXX. Also, sell RNP. Put part of the sale proceeds in HSGFX and the remainder in CSRSX.


Bonds are only 20% of the fund.The fund will reduce its hedges and

increase its equity exposure when its indi-cators are more positive.

Infrastructure stocks also are part of our portfolios through the closed-end fund Cohen & Steers Infrastructure (UTF).

The fund can invest in securities of any type of infrastructure company: pipelines, airports, railroads, utilities, cell towers and more. The fund is global and doesn't try to follow an index.

Fund management assesses which infrastructure investments do better in different phases of the economic cycle and tries to match the fund’s investments to the cycle.

Top industries for the fund recently were midstream pipeline companies, electric utilities, cell towers, railroads and airports. Top holdings were Crown Castle, NextEra Energy, American Tower, Enbridge and Union Pacific.

The fund declined 3.79% in the last

four weeks and 4.46% for the year to date. But the fund’s portfolio has done better than its shares. The net asset value declined only 1.31% in the last four weeks and 1.07% for the year to date.

The fund uses almost 30% leverage. The recent distribution yield was 8.67%. The fund hasn’t made any return of capi-tal distributions this year or last year.

While most markets have been nega-tive, some of our funds recently earned positive returns.

Real estate investment trusts (REITs) have been a bright spot. Cohen & Steers Realty Shares (CSRSX) returned 2.34% in the last four weeks and 4.29% for the year to date.

We added REITs in late 2017 after they had a tough period. They looked under-valued and ready for a recovery.

CSRSX held only 44 REITs recently. The fund looks for companies with both quality management and quality prop-erties. It also develops an economic out-look and tries to focus on REIT sectors and geographic areas that will do well in that environment.

True Diversification PortfolioFund Ticker Alloc. 3 mos. 1-Yr. 3-Yr. 5-Yr. 10-Yr.Total Portfolio 100% -3.19 -0.42 5.14 3.42 6.76

Plus or minus S&P 500 1.21 -6.66 -7.06 -7.70 -7.74

Price Capital Appreciation PRWCX 11% -1.88 5.50 9.11 9.68 13.50

Price HY PRHYX 11% -1.89 -1.02 5.88 3.77 10.57

FPA Crescent FPACX 18% -4.60 -0.26 5.59 4.99 9.76

Berwyn Income BERIX 13% -2.18 0.66 3.80 2.63 7.86

Cohen & Steers Realty Sh CSRSX 5% -1.39 3.64 6.05 10.05 14.67

Oakmark** OAKMX 5% -7.86 -0.69 10.41 9.05 15.72

William Blair Macro Alloc*** WMCNX 12% 4.57 -0.82 0.86 0.59 n/a

Leuthold Core Investment**** LCORX 12% -4.20 -2.65 5.36 5.03 8.13

iShares Select Commodity COMT 8% -7.57 1.68 7.32 n/a n/a

WCM Focused International Growth WCMRX 5% -8.27 -1.80 7.72 6.23 n/a

Returns longer than one year are annualized. *Added to the portfolio in February 2012 issue. **Added in the December 2014 issue. ***Added in the September 2015 issue. ****Replaced MainStay Marketfield in the June 2016 issue. In the June 2018 issue we eliminated PAUDX and PRRDX. The PRRDX proceeds were put in COMT as were some of the proceeds from PAUDX. The remaining proceeds from PAUDX were put in LCORX, and WCMRX. Portfolio returns are as of November 30, 2018. Fund returns are as of November 30, 2018. N/A=Not Applicable.

Retirement Paycheck Portfolio

Fund Ticker Allocation12-mo. Yield

Add New Cash?

DoubleLine Floating Rate DBFRX 0.0% 4.60% No

Vanguard Treasury Money Market VUSXX 50.0% 2.22% Yes

Verizon VZ 5.0% 4.18% Yes

Reaves Utility Income UTG 10.0% 6.55% Yes

C&S Limited Duration Preferred LDP 0.0% 8.63% No

DoubleLine Emerging Markets FI DBLEX 15.0% 5.10% Yes

C&S Infrastructure UTF 7.0% 8.75% Yes

Cohen & Steers REIT & Preferred Inc RNP 13.0% 8.00% Yes


Sell DBFRX and switch the proceeds into a money market fund, such as VUSXX. Also sell LDP. Put this proceeds into DoubleLine Emerging Markets Fixed Income. Hold all other positions, including RNP.


Top sectors recently were apartments, data centers, health care, offices and shop-ping centers. The largest positions in the fund were Prologis, Essex Property Trust, UDR, Welltower and Digital Realty Trust.

Another REIT position we have is the closed-end fund Cohen & Steers REIT & Preferred Income (RNP). The fund is about evenly split between REITs and preferred securities.

RNP is up 0.34% for the last four weeks and down 6.01% for the year to date. This is another fund whose net asset value performed much better than its shares. The net asset value is down only 0.25% for the year to date.

I think the preferred securities in the fund are holding it back. Investors are

concerned about rising interest rates and about the credit quality of pre-ferred issuers.

I recommend selling RNP and split-ting the proceeds between CSRSX and HSGFX.

The downward market volatility has been good for Hussman Strategic Growth (HSGFX), which we added last month. It is up 2.79% in the last four weeks and 5.90% for the year to date. It also is up 6.75% over the last

One-Stop Recommended PortfoliosAlternative Funds

RW Recommended Fund NTF Funds* ETFs Fidelity Price VanguardVanguard Federal Money Market

Any MMF Any MMF Any MMF Any MMF Any MMF

Cohen & Steers Realty Shares

Cohen & Steers Realty Shares

iShares C&S REIT Real Estate Inv Real Estate REIT Index

Leuthold Core InvestmentLeuthold Core Investment

N/A N/A N/A N/A

WCM Focused Int'l GrowthWCM Focused International Growth

iShares MSCI ACWI Global Equity Europe Europe

Hussman Strategic Growth N/A N/A N/A N/A N/A

iShares Gold Trust N/A iShares Gold Trust N/A N/A N/A

VerizonRydex Telecomm Investors

iShares Telecomm (IYZ)Select Telecomm

Media & Telecom

N/A

Cohen & Steers Infrastructure

N/A N/A N/A N/A N/A

C&S REIT & Preferred Income

N/A N/A N/A N/A N/A

Reaves Utility Income N/A N/A N/A N/A N/A

DoubleLine Emerging Mkts FIDoubleLine Emerging Mkts FI

iShares EM Corp BondNew Markets Inc

E Mkts Corp Bond

Em Markets Bond

*Not all NTF funds listed are available from all the NTF programs. Some are more restrictive than others, and some funds do not want to be available on all the NTF programs.

Simplify your investment life and probably improve returns for concentrating your investments at one or two mutual fund firms or brokers. It will be easier to track and manage your portfolio. The One-Stop Portfolios let you follow our margin-of-safety investment approach at the major fund companies and No Transaction Fee (NTF) broker programs. There is not always a good alternative to one of my recommended funds. Those cases are indicated by "N/A" in the table. In those cases, consider paying a fee to invest in my recommended fund or opening an account directly in that fund.

Portfolio PerformanceSector Balanced Income

GrowthRetirement Paycheck IWW ETFs

One Month 0.39% 0.24% 0.44% 0.39% 0.18%Year to Date -5.14% -4.10% -2.65% -0.76% 3.68%Last 12 Months -4.17% -3.22% -1.68% -0.23% 8.84%3 Years* 7.11% 6.88% 4.12% 6.07% -1.45%5 Years* 4.44% 3.66% 2.86% 5.98% -6.53%10 Years* 5.13% 4.20% 4.49% N/A 1.44%Compound Return 368.97% 331.93% 61.60% 69.76% 64.52%

*Annualized. Returns are as of November 30, 2018. The Income Growth Portfolio was begun in July 2001. The Retirement Paycheck Portfolio began Dec. 2010. The IWW-ETF Portfolio began December 2005. Other portfolios began Jan. 1995.

The portfolios held their own in November as some funds were up and others were down. But December had another rocky beginning. Be sure to make the portfolio changes recommended in this month's issue.


three months.The fund is almost fully invested in a

portfolio of stocks. Fund manager John Hussman also uses futures and options to either hedge the stocks against a market decline or leverage them for a market rise.

The fund had a rough time from 2011 through 2017 because its strategy for the futures didn’t work in the face of the Fed’s quantitative easing. But the Fed changed its policy and Hussman refined his strategy. The major move was to de-emphasize the long-term value indi-cators and give more emphasis to market sentiment and similar indicators.

The fund has done well since switch-ing to the new policy about a year ago. It won’t catch every market move, but it will adjust its futures and options positions more frequently than in the past. While it generally was bullishly positioned at the start of the year, recently the fund has been hedged against a market downturn, and that’s been very profitable for inves-tors. We’ll hold the fund.

Gold moved upward recently and could be starting to stir. We added gold through iShares Gold Trust (IAU) as a hedge against both inflation and geopo-litical tensions. It has been in a trading range for a while. But it bounces when it reaches the bottom of that range. We’re also in the stage of the economic cycle when gold usually does well. I recom-mend holding the fund.

IAU rose 1.79% in the last four weeks and 4.36% in the last three months. It still is down 4.40% for the year to date.

RETIREMENT PAYCHECKWe’ve reached the phase of the eco-

nomic and investment cycle when

income investors need to throttle back their expectations.

We need to focus primarily on pre-serving capital. We’ll take the income the markets give and won’t stretch for higher yields. Interest rates are likely to continue rising. More importantly, slower growth will continue to raise concerns about the safety of many income sources investors flocked to in recent years.

Emphasizing safety now is easier, be-cause interest rates on safer investments are well above their levels of just a couple of years ago.

I already recommended that we sell DoubleLine Floating Rate and replace it with Vanguard Treasury Money Market. That advice applies to the Retirement Paycheck portfolio, as well as the Sector, Balanced and Income Growth portfolios.

It also is time to sell Cohen & Steers Limited Duration Preferred (LDP). Investors are concerned about corporate earnings and cash flow, and that makes them sell preferred securities. The fund is down 5.61% in the last four weeks and 10.90% for the year to date. The fund’s investments have done a bit better than the share price, but the net asset value still has declined 6.66% for the year to date.

Put the sale proceeds into one of our old favorites, DoubleLine Emerging Markets Fixed Income (DBLEX).

We sold our DBLEX position a few years ago after the Fed stopped quantita-tive easing. Since then, emerging market bonds and currencies have gone through a bear market. There are signs they are reaching a bottom and there are genuine bargains in these markets.

DBLEX has several advantages. It doesn’t take extra risks to maximize

income. Safety of principal is fundamen-tal. Also, most of the bonds it holds are denominated in U.S. dollars. There is very little currency risk in the fund right now.

The fund doesn’t try to mimic an index. It won’t own a bond or bonds from a country simply because that’s what’s in the index. The fund excludes entire coun-tries or regions when they don’t meet the fund’s standards.

The recent yield was 5.10%. In the last four weeks it has returned 0.99%. For the year to date, DBLEX is down 3.36%.

The fund has two share classes. To avoid the $100,000 minimum invest-ment of the DBLEX share class, buy the DLENX shares.

As I recommended for the Sector, Bal-anced and Income Growth portfolios, sell RNP and put the proceeds in CSRSX.

We’ll hold UTF, which we discussed earlier.

Verizon (VZ) continues to perform much better than the stock indexes. It returned 0.05% in the last four weeks and 13.46% for the year to date. It also is up 7.93% in the last three months. The yield is 4.18%.

Utility stocks continue to be a market favorite, and that’s benefited Reaves Utility Income (UTG). The closed-end fund returned 0.29% in the last four weeks and 7.46% for the year to date. The yield is 6.54%. The fund uses about 17% leverage.

The fund’s portfolio hasn’t done as well as its share price, so the discount to net asset value has declined to 2.88% from the 5.69% six-month average.

The fund has a history of fluctuating between selling at significant premiums and discounts to net asset value. We’ll


Robert C. Carlson wrote the book on retirement and retirement planning—twice: The New Rules of Retirement (Wiley, 2nd ed. 2016) and Personal Finance after 50 for Dummies (with Eric Tyson; 2nd ed. 2015). He also serves as Chairman of the Board of Trustees of the Fairfax County (Va.) Employees’ Retirement System (a more than $3.0 billion portfolio) and served on the Board of Trustees of the Virginia Retirement System (a $42 billion portfolio in 2005) from 2000-2005. He was educated at the University of Virginia School of Law and McIntire School of Commerce (M.S.) and Clemson University.

Challenges Investors Face: The TJT Solution to Portfolio Management Many investors need help with their portfolios. We saw that with the strong registration and turnout for the webinar featuring Bob Carlson and TJT Capital, “Challenges Investors Face: How TJT Capital Manages Portfolios to Participate in Bull Markets and Protect Capital in Bear Markets.” The webinar is available for replay at www.tjtcapital.com. If you like Bob Carlson’s margin of safety approach and methods of selecting mutual funds, log in or contact TJT Capital at 877-282-4609 or [email protected].

sell the fund if the discount to net asset value disappears.

INVEST WITH THE WINNERSLast month, we moved the Invest with

the Winners portfolio into cash.

In this strategy, I use several models to determine which exchange-traded fund (ETF) has strong recent perfor-mance and is likely to continue that strong performance.

We held Invesco QQQ (QQQ) for a

number of months in 2018 before selling it last month.

The models continue to say that condi-tions aren’t favorable for any of the ETFs we follow. So we’re going to spend at least one more month in cash.

The Scope of Retirement SuccessSome years

ago, I was a speaker at a conference in the Cayman Islands. Most of

the speakers dressed casually and enjoyed the local attractions when we weren’t making presentations. One afternoon, I ran into one of the other speakers in the hotel lobby. He was dressed in a suit and tie. While wiping away perspiration, he said, “I’ve got to get off this island. I’m a workaholic, and this is driving me crazy.”

He probably did well professionally and financially over the years, but he was a long way from a successful retirement. Financial security isn’t an end in itself, and a successful retirement means more than having enough money to last the rest of your life and maybe leave some-thing for others.

We seek financial security so that we’ll be able to do the things we want and find fulfilling. Research shows that people are happiest and most satisfied in retirement when retirement includes more than money. Social relationships are vital. So are activities that keep us mentally active and engaged. Fulfilling activities and experiences play an important role in retirement satisfaction. Many people also benefit from helping others both during retirement and by leaving a legacy.

We focus on our retirement finances in Retirement Watch. But we don't want to lose track of the real reasons we’re build-ing our financial independence.

That brings our first issue of 2019 to a close. It looks like this could be an interesting year in your finances. I’ll be monitoring all the developments and reporting back to you with my analyses and recommendations. In addition to checking each month’s issue, be sure to

check Bob’s Journal each week on the member’s section of the web site.

.

P.S. You should sign up for the Retire-ment Watch Spotlight Series, because my latest detailed semiannual invest-ment and economic review now is available. The Spotlight Series consists of online seminars in which I go into de-tail about key issues in your retirement finances. You can view these webinars whenever you want from wherever you can access the internet. To learn more about the Spotlight Series, go to the top of the RetirementWatch.com home page and select the Spotlight link.

Retirement WatchBOB CARLSON’S Strategies for a Secure Future

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Bob Carlson’s RETIREMENT WATCH

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Vol. 30, Issue 1 January 2019 Retirement WatchBOB …Bob Carlson’s Retirement Watch™ (ISSN 1077-3924) is edited by Robert C. Carlson and published monthly by Eagle Products, L.L.C.,