Investments | Certified Financial Planner in Ramona and San Diego | Fiduciary Advice | Retirement Planning and Investment Management

With Tax Law Changes Coming, A Mega “Backdoor” Roth IRA Contribution Could Come in Handy. Here’s How it Works.

February 12, 2021/in Financial Planning, Investments, IRA, Tax Management /by admin

Reaching retirement is exciting, but having enough to maximize your quality of life during retirement is key. You’ve likely heard of a backdoor Roth IRA, but for some looking to maximize their withdrawals in retirement, a mega backdoor Roth IRA may be the way to go.

What is a mega backdoor Roth IRA? Below we’re breaking down what you need to know about this retirement savings strategy.

Gamestop, memes, and market volatility

January 29, 2021/in Behavioral Finance, Investments, Stock Market /by admin

Did you hear #GameStop went viral?

It’s been a long (and strange) week so I figured I’d provide a quick guide to the market frenzy you’re seeing in the headlines.

Long update ahead. (Buckle up, it’s a little complicated.)

What is GameStop and why does everyone care?

GameStop is a brick-and-mortar video game chain that hit hard times in the pandemic. Like many distressed companies, it was targeted by short sellers betting that the stock’s price would go down.1

Basically, short sellers do the opposite of most investors. They try to make money when a stock’s price falls. They borrow shares from their brokerage for a fee, immediately sell them, and plan to buy them back later at a lower price when the price falls. Shorting is a strategy used by certain types of hedge funds.

What’s a short squeeze?

Shorting stocks is risky since any positive news or interest in a company can drive the stock’s price up. When short sellers bet wrong and a stock’s price rises, they can be forced to buy shares at higher prices to cover their losses (or pony up more collateral).

A squeeze happens when short sellers scramble to buy shares to cover their positions when the stock price is rising. The more investors who buy and hold those shares, the harder it is for short sellers to find shares to buy (exposing them to potentially huge losses).

With me so far?

Where does Reddit come in?

After it became clear that short sellers were betting on GameStop’s demise, the popular company became the focus of amateur traders on the popular WallStreetBets forum on Reddit, a popular community of chatrooms and forums.

By banding together and coordinating buying activity, these small-time traders boosted the stock’s price far above what the company’s financial fundamentals support, putting pressure on the hedge funds betting the other way.2

The stock went viral.

Why?

Social media chatter + free trading apps like Robinhood + bull market + new investors with time on their hands = FRENZY

Is it illegal? That’s a stretch. These armchair traders are egging each other into speculative bets, but I don’t think it rises to the level of illegal market manipulation. However, regulators might feel differently.

Is it bad for markets? The battle between gleeful amateurs pushing prices up and hedge funds scrambling to force prices down has led to some of the highest volume trading days on record and cost short sellers billions.3

Is this David vs. Goliath?

I don’t think the GameStop bubble is just about greed or boredom or euphoria. I see a powerful narrative at play.

I think a lot of these small traders are angry at the perception that All-Powerful Wall Street is pulling strings and using their connections to hurt mom-and-pop investors. They see this as an opportunity to stick it to the big-money pros by using their own strategies against them.

It’s new school vs. old school. Rebels vs. the Empire. Bueller vs. Principal Rooney. Reddit vs. CNBC.

So, should I be investing in GameStop?

No. GameStop’s stock is massively inflated and trading has been halted multiple times because of its meteoric rise.4 At this point, it looks like folks are piling in just to say they were there.

When the bubble bursts, it’ll be a rush to sell and many GameStop holders will end up losing most of their investment.

(It might already be happening by the time you read this.)

We’ve seen frenzies like this many times before. Tulip mania in the 1630s, the Nifty Fifty in the 1970s, the dot-coms in the 1990s, Bitcoin’s multiple bubbles over the last decade, etc. We’ll see more in the future.

Why are people angry at Robinhood?

Amidst the buying frenzy, Robinhood and other popular brokerage platforms suddenly restricted trading on several red-hot stocks, including GameStop.5

Protests erupted from investors, many market pros (not the short sellers, obviously), lawmakers and more.

Did Robinhood halt trading to appease big investors at the expense of small investors? Did they do it to protect markets from manipulation and liquidity problems?

I dislike the idea that a broker can just shut down trading in a security. I think it opens the door to situations where platforms prioritize one investor over another and that’s a massive conflict of interest.

I’m frustrated on behalf of everyone else affected by brokerage outages and difficulty trading.

But frankly, it’s pretty wild that a bunch of regular folks with small trading accounts can bring massive institutional investors to their knees.

What are the implications of this frenzy?

There’s no predicting the future, obviously, but I think a few things are likely. Most bubbles end naturally when the euphoria turns to panic, folks start selling, and the price crashes.

However, it’s also possible that regulators will step in if they think there’s risk to markets (or they see too many investors getting hurt).

I think this ride’s going to end in tears for many folks caught up in it. But I’m not sure who will be crying hardest.

I think markets could see some wild swings and pull back from their frothy highs, but I don’t see major risk yet.

I also think we’ll be left with some pressing questions once the dust settles.

Will social media traders continue to drive big market moves?

Do platforms have the right to arbitrarily decide customers can’t trade?

Are coordinated moves by small investors a danger to markets?

Should regulators be watching hedge funds more closely?

This is an evolving situation so I’m keeping a close eye on markets to see what might happen next.

1https://www.morningstar.com/articles/1019249/what-the-heck-is-going-on-with-gamestop

2https://www.marketwatch.com/story/gamestop-stock-has-another-volatile-trading-day-with-more-price-spikes-and-trading-halts-11611686411

3https://www.ft.com/content/56658052-76fe-4910-8cb7-810039753f7c

https://www.reuters.com/article/us-retail-trading-shortbets-idUSKBN29X1SW?taid=6012f37e9ac87d000147d4e3&utm_source=reddit.com

4https://www.cnbc.com/2021/01/28/robinhood-customer-sues-trading-app-over-gamestop-restrictions.html

Understanding Your Risk Tolerance

November 23, 2020/in Behavioral Finance, Financial Planning, Investments /by admin

One of the very first things we discuss with our clients is risk tolerance.

How do you handle risk?

How do you feel towards money? And, so on.

This is an incredibly important part of the financial planning process and it helps us do a better job of providing #fiduciary advice.

Here are 5 things you can do to better determine your own unique tolerance for risk when it comes to your investments. Want an investment Personality Test?

Just reach out, and we’ll be happy to send one your way.

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Why are fee-only advisors different? Three key things…

November 17, 2020/in Financial Planning, Investments, Retirement Planning /by admin

Hi, I’m Jamie with Woodson Wealth Management, and I’m going to help you sidestep some major headaches, save you time, and put more money in your pocket.

First – some quick background about the changing financial services industry:

Over the last 15 years, our industry has gone through some dramatic shifts. At the outset of my career, folks had to look to the Wall Street Journal or call their stock broker for information on a particular stock or what’s going on in the markets. Now, you can get your news and updated stock quotes in just seconds.

Cryptocurrency, COVID and Economic Uncertainty: Here’s Where Things Stand in Fall 2020

October 18, 2020/in Currency, Economy, Investments /by admin

Bitcoin made its debut in 2009 and has grown exponentially since. As of mid-September, Bitcoin was valued at a little over $10,800 per coin.¹ Cryptocurrency and the blockchain technology has continued to gain popularity over the past decade, and investors are still turning to this alternative market in 2020. As we continue experiencing a year of financial uncertainty, here’s where the world stands when it comes to cryptocurrency.

How to avoid three of the worst behavioral mistakes investors can make

October 13, 2020/in Behavioral Finance, Economy, Election, Financial Planning, Investments, Recession /by admin

Hi, I’m Jamie Lima with Woodson Wealth Management, and I’m going to teach you how to avoid three of the worst behavioral mistakes investors can make.

Will the election tank the market? Here’s what you need to know!

October 6, 2020/in Economy, Election, Investments, Stock Market /by admin

Hi, I’m Jamie Lima with Woodson Wealth Management, and I’m here to help you stay level-headed — even in times of chaos.

The 2020 election is coming up fast, and I’ve had worried folks ask me: Will it tank the market?

In this video, I’ll give you three things to keep in mind so you can plan for uncertainty. 2020 has been wild, to say the least. And the upcoming election could be one of the most divisive races we’ve ever seen.