The withdrawal of quantitative easing may lead to rising volatility, but the U.S. economy looks strong for the time being. Read more...
The withdrawal of quantitative easing will likely mean a flow of money away from financial assets, which will have profound implications not only on equity and bond returns, but also on volatility and correlations.
While a return of modest inflation may be good for some markets, there is a risk that the return of tariffs could lead to much higher price rises, which would not be positive.
Some emerging markets (EM) and currencies are very attractively valued at present, although if China’s economy falters or the U.S. dollar strengthens, it will be difficult for EM to perform.
Although the U.S. economy is in relatively good shape and could continue to deliver solid returns for the next few years, the gap between the U.S. growth and that of other countries is narrowing and political uncertainty could provide a headwind for the U.S. economy.
Shifting supply/demand dynamics and an increasing positive correlation with equities may undermine U.S. Treasuries’ “flight to quality” status in the future. Read more...
U.S. Treasuries have traditionally been regarded as the ultimate “flight to quality” asset, but it is unclear whether they will continue to be so in future.
One of the reasons for this is that Treasury issuance is threatening to outstrip demand—the fewer buyers there are, the riskier an asset becomes.
Another reason to question U.S. Treasuries’ flight-to-quality status is that, in recent years, Treasuries have become positively correlated with equities during times of market stress—undermining their ability to function as a defensive anchor during difficult periods.
There are no clear candidates to replace Treasuries if they cease to be the flight-to-quality asset of choice for investors. It is therefore possible that instead of relying on one asset to provide a “risk-free” element of their portfolio, investors will be forced to choose from a number of potential options or combine several different assets together to create a “lower risk” anchor.
Insight into the innovative capabilities of smaller companies is crucial. Innovation can be a key long-term driver of returns. Read more...
Understanding the unique attributes of smaller companies is also essential to finding those with the potential and business acumen to make their ideas work commercially over the long term.
We seek to uncover those companies that we believe can grow significantly in a durable fashion over the long term.
However, smaller-company research demands an extra layer of insight and consideration.
Investing in early-stage businesses also demands having a perspective that looks beyond the valuation data. True innovation has an investment horizon beyond just one year, or even three years; it’s a long-term proposition.
After recently underperforming Treasuries, agency mortgage-backed securities (MBS) now appear to offer more attractive valuations, supported by resilient demand, solid fundamentals, and reduced prepayment risk. Read more...
Although agency MBS have faced headwinds since the Federal Reserve began reducing its balance sheet reinvestment in October 2017, we now see some relative value in the sector amid resilient demand.
Expectations for increased MBS issuance in 2018 also contributed to investor worries about weakening technical conditions, but issuance has been lower than expected so far, and other buyers have stepped in as the Fed has reduced its role.
Yield spreads between agency MBS and credit sectors have widened from record lows in 2018 but still have not returned to longer-term historical averages, indicating that agency MBS could provide value relative to risk assets.
Within the agency MBS sector, we believe shorter-duration MBS with higher coupons could offer the best relative value.
While the potential for inflation accelerating further is limited, modest upside risks remain, which could translate into opportunities... Read more...
U.S. inflation has normalized, with the consumer price index rising and breakevens at multiyear high levels as the Federal Reserve continues down the path of gradual tightening of policy rates.
The Fed has noted inflation's rise and become more confident about its path of tightening policy rates, which may counter a further increase in TIPS breakevens; the central bank could be more likely to react if inflation rises with additional tightening measures.
Some upside risk remains in TIPS breakevens, particularly if oil prices remain elevated, but it is important to remember that the secular forces of technology and demographics remain in place—keeping the prospect for runaway inflation at bay.
With oil prices rising steadily since last June, inflation-linked debt in Europe has reacted in a similar fashion to U.S. TIPS.
While taking RMDs from tax-deferred retirement accounts is mandatory at age 70½, you may not need to spend this money. You have options of reinvesting it in a taxable account or donating it to charity. Read more...
At age 70½, you will need to start taking an RMD from your tax-deferred retirement accounts.
The money can be invested in a taxable, nonretirement account.
You can contribute to a 529 college savings plan.
You can transfer your RMD to a charity using a qualified charitable distribution (QCD).
You may be able to contribute to a Roth IRA if you have earned income and meet the income limits.
For most parents, it makes sense to consider how much financial aid your family might receive when developing a savings strategy for a college education. Read more...
Trying to save for the full sticker price of your child’s four-year college education can be daunting.
The key is to be realistic. Rules of thumb around saving for college might be useful, but they could also be inappropriate for your situation. Remember that most schools don’t meet 100% of a family’s financial need and that loans are often part of the financial aid package.
Whatever you do, don’t let the quest for financial aid eligibility deter you from saving. You don’t often hear about people who are unhappy that they saved too much.
It may be reasonable for retirees to have enough cash available to cover one to two years of living expenses. Read more...
Having additional cash available in retirement, outside of what is used for daily expenses, can be used to help retirees weather periods of market downturns.
It may be reasonable to hold cash to cover one to two years of living expenses in an easily accessible account.
Besides a bank savings or money market account, retirees can consider short-term or ultrashort bond funds, tax-free short-term funds (if in a higher bracket), or short-term certificates of deposits (CDs).
Decisions about the amount of additional cash and which type of account(s) to use should be made with your overall withdrawal strategy in mind.
Estate planning can be less intimidating when you’re armed with practical strategies that can provide peace of mind when you think about the afterlife of your money.
In this podcast, Lynnette Khalfani-Cox, who’s also known as The Money Coach®, is joined by guests Jeffrey Condon, author of “Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (and Others),” and Roger Young, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price, to tackle the subject.
The panel will address questions, including: What are the various components of an estate plan? Is it expensive to develop an estate plan? What happens if you don’t have an estate plan?
In a segment called “This or That?,” the experts discuss the pros and cons of two choices: liquidation of assets versus distribution of items. Tune in to hear their advice.
When faced with conflicting financial priorities, how do you decide where to put your next dollar? Our experts share their perspectives on which savings and spending choices to consider. Read more...
In this podcast, Lynnette Khalfani-Cox, who’s also known as The Money Coach®, is joined by guests Kimberly Palmer, author of “Smart Mom, Rich Mom,” and Judith Ward, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price, to answer some tough questions on prioritization.
The panel will address questions, including: What are three things to consider when choosing where to put your next dollar? How does proximity to retirement play a role in where to put your next dollar? Are there any tricks or questions to ask yourself when deciding between two financial priorities?
In a segment called “This or That?,” the experts weigh the pros and cons of a common financial conflict: Should you save for emergencies or pay off a credit card? Tune in to hear their advice.
It's challenging to focus on something that seems so far away. With our experts’ help, you can develop a more comprehensive understanding of how to build a solid retirement plan. Read more...
In this podcast, Lynnette Khalfani-Cox, who’s also known as The Money Coach®, is joined by guests Christine Benz, director of personal finance and senior columnist for Morningstar.com, and Judith Ward, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price.
The panel will address questions, including: At what age should you begin to focus on your retirement plan? How do you know how much you will need to save for retirement? What are the different ways to save for retirement?
In a segment called “This or That?,” the panel discusses the pros and cons of saving for retirement versus paying down debt. Tune in to hear their advice.
If your retirement is right around the corner, new questions are likely surfacing. Our experts will help answer some of the ones most commonly asked. Read more...
In this podcast, Lynnette Khalfani-Cox, who’s also known as The Money Coach®, is joined by guests Kerry Hannon, AARP’s Jobs Expert and Great Jobs columnist, and Roger Young, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price.
The panel will address questions, including: How do you know if you have enough saved for retirement? If you haven’t saved enough for retirement, what are your options to catch up? When should you consolidate your retirement assets?
In a segment called “Keeping You Up at Night,” the experts address a common concern: Will I have enough money to live comfortably in retirement? Tune in to hear their advice.
When you start collecting Social Security, it can have a big impact on your retirement income. Our experts will discuss tips to help determine the right Social Security strategy for you. Read more...
In this podcast, Lynnette Khalfani-Cox, who’s also known as The Money Coach®, is joined by guests Philip Moeller, author of “Get What's Yours: The Secrets to Maxing Out Your Social Security,” and Judith Ward, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price.
The panel will address questions, including: When will you be eligible for Social Security? What is full retirement age? How much can you expect to receive from Social Security? Why is there a deficiency in Social Security?
In a segment called “This or That?,” the panel discusses the pros and cons of claiming at different ages. Should you claim at age 62, claim at full retirement age, or claim at age 70 for the maximum benefit? Tune in to hear their advice.
A personal finance podcast series that inspires long-term success through informed decisions on savings and investing. Read more...
The Confident Wallet™ by T. Rowe Price and The Washington Post BrandStudio is a personal finance podcast series designed to inspire long-term success by helping listeners make informed decisions on saving and investing.
Hosted by a different industry expert each season, this series provides listeners with actionable strategies on a range of topics like investing 101, understanding IRAs, financial tips for the self-employed, couples and money, and more. Roundtable guests answer tough questions about each topic with expertise and thoughtfulness.
Listeners can expect helpful insights, clear and concise definitions, and the resources and wisdom to be more confident in their financial decisions.
Meet the challenge of saving for college with less stress and more confidence. Our experts explore the ins and outs of college saving strategies.
In this podcast, Lynnette Khalfani-Cox, who’s also known as The Money Coach®, is joined by Robert Farrington, founder of The College Investor, and Roger Young, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price.
The panel will address questions, including: How do you estimate future college costs? What’s the difference between a 529 savings plan and Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts?
In a segment called “The Big Picture,” the panel takes a step back and discusses what listeners need to consider to make paying for college a reality. Tune in to hear their tips.
The U.S. Treasury yield curve—the spread between long- and short-term rates—has flattened this year, raising concerns about the investment implications. Read more...
The Treasury yield curve tends to flatten as economic expansions age, and it has become inverted before each of the last nine recessions dating back to 1955.
However, in the last five such instances, the S&P 500 has delivered positive returns three times over the 12 months following curve flattening.
As of the end of September of this year, the yield was not yet flat, but it could be by next March if the Fed maintains its tightening pace and the 10-year Treasury rate continues above the 3.0% level.
Fears that Italy’s new populist coalition could trigger a repeat of the 2011–2012 sovereign debt crisis are probably overstated. Read more...
The political situation in Italy, where the anti-establishment parties League and 5-Star Movement have formed a ruling coalition, has revived painful memories of the European sovereign debt crisis of 2011–2012.
Both coalition partners have pledged to increase the fiscal deficit to fund new spending programs, and the size of Italy’s government debt means that if it ran into trouble, the EU would not be able to bail it out in the way it did for Greece.
However, despite these issues, we do not believe that the situation in Italy is likely to trigger a major debt crisis soon. The government is running a current account surplus and the central bank owns a large chunk of the outstanding debt, meaning it can effectively be ruled out.
We also believe the coalition will adopt a more pragmatic approach to the economy than many people expect.
U.S. high yield has performed well this year, but we are cautious on the asset class as spreads have tightened. Read more...
U.S. high yield has performed well this year, delivering positive returns at a time when other fixed income sectors, such as Treasuries and investment-grade credit, have declined.
The good performance, which has occurred even while money has been flowing out of the asset class, has been due to a combination of strong technical factors and the rising oil price.
However, while the sector continues to be supported by strong fundamentals, we are cautious about U.S. high yield. Spreads have tightened considerably since early 2016 as investors returned to the asset class, and we do not anticipate any further tightening from here—on the contrary, the widening of investment-grade and emerging market spreads makes high yield appear vulnerable from a relative value perspective.
European high yield looks like a better value at this stage in the cycle.
Volatility should bring dispersion back to emerging markets, creating new opportunities to invest in assets at attractive valuations. Read more...
Markets across the world have entered a new era of volatility, with emerging markets (EM) likely to be particularly affected.
This is bringing dispersion back to EM equity and debt markets, creating new opportunities to invest in assets at attractive valuations—for investors with the insight and resources to identify them.
For investors in both EM equity and debt, there are many idiosyncratic local risks to consider in addition to broader, market-wide ones. While we agree with the consensus view that Turkey is a major risk at present, we think that concerns about Mexico, Brazil, and Russia may be overdone.
The period ahead will be challenging—the ability to be highly selective, and be agile, may prove to be a very useful attribute.
David Eiswert discusses the challenges for markets and why he is more positive. Read more...
Markets are worried about inflation, trade wars and the end of monetary stimulus. We are skeptical, however, about the “return of inflation” and believe markets can cope with a rising rate environment.
We remain focused on being on the right side of change, investing in companies that can grow in what we believe will be a lower-growth world.
However, we are taking a more balanced approach and are being specific about the stocks we own.
Some injection of uncertainty feels normal. For fundamental stock pickers like ourselves, it gives us an opportunity to demonstrate our skills and abilities.
July 10, 2018
David J. Eiswert, Portfolio Manager, Global Focused Growth Equity Strategy
The global economy is weakening on the back of the rising oil price, trade fears, reduced capex, and Chinese deleveraging. Read more...
Recent economic data point to a weakening global economy. The reasons for this include the rising oil price (which is a tax on consumers) and growing fears over the possibility of a trade war led by U.S. President Donald Trump.
The prospect of a trade war is particularly concerning, not so much because of the direct impact of tariffs, but rather the much bigger impact it could have on business confidence and therefore capital expenditure.
In addition, Chinese authorities’ recent efforts to manage their slowing economy have been slow and reactive, and we therefore expect China’s slowdown to continue.
Our forecast for global growth in the period ahead is below consensus as our proprietary lead indictors point to continued deceleration—a signal that is reinforced by the worrying outlook for global trade policy.
Japanese society is changing. A large part of what we do involves identifying these secular trends early and investing in those areas that we anticipate being the key long-term beneficiaries. Read more...
One of the biggest changes that we are seeing is in relation to Japanese workers, who are increasingly changing jobs throughout their career. This is a modern phenomenon and a major shift away from historical expectations of lifetime employment.
Similarly, consumer spending patterns are also changing, and the trend toward online retail is another key theme that is growing rapidly in Japan.
The services sector is another rich area of opportunity, in our view, specifically for nurses and care workers for the elderly. The over 60 years demographic makes up more than 33% of Japan’s total population, the largest of any country in the world.1
A large part of what we do involves identifying these secular trends early and investing in those areas that we anticipate being the key long-term beneficiaries of the changes taking place in Japanese society.
Looking back at the creation of the Ultra Short-Term Bond Fund as it celebrates its five-year anniversary. Read more...
The T. Rowe Price Ultra Short-Term Bond Fund was created five years ago to address investor demand for high-quality, short-dated investment alternatives that sought to provide flexibility and stability while generating income.
Our approach takes advantage of T. Rowe Price’s robust credit research capabilities to utilize our more flexible opportunity set in an effort to increase income.
Managing risk remains an important goal for investors seeking yield in a rising rate environment.
September 25, 2018
Joseph K. Lynagh, Portfolio Manager in the Fixed Income Division at T. Rowe Price
Borrowing from your workplace retirement plan is a decision that shouldn’t be taken lightly. With these steps you can keep your retirement savings on track. Read more...
Borrowing from your employer plan affords you the flexibility to access a large amount of your own money that you pay back to yourself with interest.
Understanding the benefits and drawbacks can help you make a better informed decision. Continuing to contribute to your plan while paying back the loan is the best action you can take to keep your retirement savings on track.
If you use 401(k) loans perpetually or for everyday expenses, see if your employer offers financial wellness programs that can help you manage your daily finances while planning for a secure retirement.
Deciding whether to convert assets to Roth involves consideration around the amount of taxes you will pay on the conversion amount and whether the money will ultimately be passed on to your heirs. Read more...
Converting assets to Roth enables potentially tax-free distributions later, as well as more flexibility and a hedge against higher tax rates.
Because you will pay ordinary income tax right away on the amount you convert, the strategy isn’t for everyone.
It may make sense to do a Roth conversion in a low-income year for someone with irregular income.
Converting assets to Roth early in retirement before facing required minimum distributions may benefit affluent households, particularly if you plan to leave an estate.
Tighter monetary policies and populist trade policies could lead to a global economic slowdown over the next few years. Read more...
The U.S. economy looks in reasonably good shape at the moment, but the end of QE, combined with rate hikes, will likely result in a slowdown—possibly even recession—at some point.
However, it is very difficult to predict when this will occur. Growth in Europe is stable and the ECB is only just on the verge of tightening, so the European economy should remain healthy for the time being.
One of the side effects of QE has been an increase in the gap between rich and poor, which in turn has led to short-term policymaking and populism.
U.S. President Donald Trump—and the leaders of some other countries—seems to regard trade as a zero-sum game in which there must be both winners and losers, but we believe this populist view is wrong and can lead to economic inefficiencies.
Widespread economic and market reforms have improved the investment landscape in Japan. With company profits outpacing other major markets, Japan offers good opportunities for active investors. Read more...
Having been off the radar of global investors for much of the past 20 years, Japanese equities are attracting interest, and investment flows, once more.
With corporate profits outpacing all other major markets, Japan offers a rich opportunity set for quality-focused, active investors.
Japan’s demographics and competition from low-cost countries are ongoing headwinds, which is why an active, research-driven approach to stock picking is key.
Japan’s recent resurgence is no “false dawn,” in our view, but rather reflects a market that is undergoing positive, sustainable change.
Emerging market Portfolio Managers Ernest Yeung and Verena Wachnitz discuss their perspectives on emerging markets. Read more...
Despite recent headwinds, the fundamentals for emerging markets remain robust. The current cycle remains young, and we are encouraged by various policy and financial measures by governments and companies alike.
While trade wars and monetary tightening are concerns, a range of other factors provide support.
Near-term volatility due to macro and political concerns creates an opportunity to find companies with attractive valuations.
Conventional wisdom contends that U.S. monetary policy is currently "loose to neutral," but some data imply that it is much tighter than commonly perceived. Read more...
However, the real swap rate, which gives a more accurate picture of companies’ borrowing costs, is close to its historical norm, implying that current policy may be tighter than commonly thought.
Moreover, while housing affordability indices suggest that there is no affordability problem by historical standards, rising mortgage costs over the past few years are beginning to take their toll on the housing market.
If current policy is much tighter than widely thought, the Fed may pause its hiking cycle much earlier than it originally planned. Forward cash rates imply that the Fed will stop hiking from the middle of next year, but if the central bank becomes concerned about the ability of companies to fund themselves, it could happen even earlier.
Once investors turn age 70½, they will need to take required minimum distributions (RMDs) from their retirement accounts, whether they need the money or not. Read more...
For IRAs, you must take your first RMD by April 1 of the year after the year you turn age 70½—regardless of whether or not you are retired. For each following year, you must take an RMD by December 31.
If you have multiple IRAs, you must calculate the appropriate RMD for each one. The total distribution amount can be taken from one or more IRAs to satisfy the withdrawal—as long as the total RMD amount is withdrawn.
If you have multiple prior employer retirement accounts (401(k)s, etc.) you will have to contact your prior employer to calculate the RMD and send you a distribution.
Once the RMD is distributed, you don’t have to spend it, but it cannot remain in the tax-deferred account.
Our experts share money management tips geared specifically towards the self-employed. Read more...
On this episode of The Confident Wallet™, a personal finance podcast series from T. Rowe Price and The Washington Post BrandStudio, host Kevin McCormally is joined by a panel of experts who share money management tips for self-employed workers.
McCormally, the former chief content officer at Kiplinger’s Personal Finance Magazine, calls on guests Roger Young, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price, and Kathy Kristof, editor of SideHustl.com, to answer questions for this growing population.
Panelists answer questions like “How should someone who isn’t having taxes removed from their paycheck prepare to save their money each month to pay taxes later?” and “When does or doesn’t it make sense to set up a separate bank account and credit card for your business?”
From rolling over 401(k)s and consolidating IRAs to investing in target-date funds, learn about a few ways you can simplify your accounts. Read more...
On this episode of The Confident Wallet™, a personal finance podcast series from T. Rowe Price and The Washington Post BrandStudio, host Kevin McCormally is joined by a panel of experts to discuss how to make retirement savings less complicated.
McCormally, the former chief content officer at Kiplinger’s Personal Finance Magazine, calls on guests Stuart Ritter, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price, and Diane Harris, editorial director at Considerable.com, to tackle this topic for listeners.
The panel discusses ways to help you simplify your investment accounts–from rolling over 401(k)s and consolidating IRAs to utilizing target-date funds–so you can focus on what’s really important. They’ll answer questions like “What types of accounts can't be consolidated?” and “What are target-date funds and what are the pros and cons to investing in them?”
Investing 101: Learn how to build and manage your portfolio and reach your investment goals. Read more...
On this episode of The Confident Wallet™, a personal finance podcast series from T. Rowe Price and The Washington Post BrandStudio, host Kevin McCormally is joined by a panel of experts to discuss how beginners can get started with investing.
McCormally, the former chief content officer at Kiplinger’s Personal Finance Magazine, calls on guests Stuart Ritter, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price, and Arielle O’Shea, a personal finance writer at NerdWallet, to walk would be investors through the elements of saving.
The panel discusses the difference between bonds and stocks and addresses how to set up and build a portfolio and how to respond to market fluctuations. They’ll answer questions like “What are some typical investing goals?” and “How might a person’s strategy change with age?”
In a segment called “If you remember one thing...” McCormally asks his guests to sum up one big takeaway from the episode. Here, O’Shea explains why it’s never too early or too late to get started, while Ritter emphasizes that investors shouldn’t worry about being “perfect.” Tune in to hear their advice.
There are several types of IRAs—so how do you choose which one may be right for you? This episode describes and compares IRAs to help you decide. Read more...
On this episode of The Confident Wallet™, a personal finance podcast series from T. Rowe Price and The Washington Post BrandStudio, host Kevin McCormally is joined by a panel of experts to discuss the differences between types of Individual Retirement Accounts also known as IRAs.
McCormally, the former chief content officer at Kiplinger’s Personal Finance Magazine, calls on guests Roger Young, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price, and Emily Brandon, senior editor for retirement at U.S. News & World Report, to walk listeners through IRA options.
Each IRA has different requirements and consequences, depending on your personal circumstances and retirement goals. This episode will cover the basics of IRAs, how to open one, and a comparison of benefits so you can determine which type may be right for you. They’ll answer questions like “Do IRAs invest automatically, or do we need to be actively engaged?” and “Are there benefits to rolling over a 401(k) to an IRA?”
This episode examines matters women should consider when planning for their financial future. Read more...
On this episode of The Confident Wallet™, a personal finance podcast series from T. Rowe Price and The Washington Post BrandStudio, host Kevin McCormally is joined by a panel of experts to discuss unique financial challenges that women face.
McCormally, the former chief content officer at Kiplinger’s Personal Finance Magazine, calls on guests Judith Ward, a CERTIFIED FINANCIAL PLANNER™ at T. Rowe Price, and Laura Adams, author of "Money Girl’s Smart Moves to Grow Rich", to dive into this topic.
From fewer years in the workplace and lower earnings to a longer life expectancy, this episode examines these, and other matters women should consider when planning for their financial future. Panelists answer questions like “Do women approach managing money differently than men do?” and “What is the difference between a pay gap and a wealth gap?”
In sickness and in health—and in joint bank accounts. This episode provides tips for couples about to say I do prepare for their financial future together. Read more...
On this episode of The Confident Wallet™, a personal finance podcast series from T. Rowe Price and The Washington Post BrandStudio, host Kevin McCormally is joined by a panel of experts to discuss how couples entering into marriage could prepare for their financial future together.
McCormally, the former chief content officer at Kiplinger’s Personal Finance Magazine, calls on guests Judith Ward, a CERTIFIED FINANCIAL PLANNER™ with T. Rowe Price, and Janet Bodnar, editor-at-large of Kiplinger’s Personal Finance Magazine, to help couples through an exciting but sometimes tricky time.
The panelists cover topics, including taxes, merging assets, debt, and savings. They’ll answer questions like “What topics should you discuss before you get married to make sure you are on the same page as your soon-to-be spouse?” and “How can couples divide financial responsibilities but keep each other in the loop on the full picture?”
Learn more about capital gains from mutual funds and potential tax consquences. Read more...
Mutual funds must distribute any dividends and net realized capital gains earned on their holdings over the prior 12 months, and these distributions are taxable income even if the money is reinvested in shares in the fund.
Investors concerned about tax exposure might want to consider investing in tax-efficient equity funds. Such funds typically are managed with an eye toward limiting capital gain distributions, when possible, by keeping holdings turnover low and harvesting losses to offset realized gains.
While tax considerations may play an important role in investment decisions, T. Rowe Price financial planners strongly encourage investors to focus primarily on their long-term financial goals. Making investment decisions based solely on tax considerations could result in expensive mistakes that reduce overall returns.
The trade war between the U.S. and China is likely to persist, which will create challenges for key Chinese industries. However, it may create opportunities to invest in countries that attract supply chains relocated from China. Read more...
Property prices, which were slowing anyway, could be hit further by weakened buyer sentiment if the trade dispute continues, as could auto sales.
Chinese manufacturers may struggle to procure suitable technology if investment restrictions prevent them from purchasing from U.S. vendors.
A recession may not be as imminent as many believe. Read more...
Credit spreads have widened recently as fears over a U.S. recession have spooked investors. But while a recession in the short term cannot be completely ruled out, the evidence available from the yield curve, credit spreads, and T. Rowe Price’s own recession probability models suggests that one is not imminent—and, as such, credit is probably a safer investment than many people believe.
Based on this, we increased our credit exposure in global multi-sector and diversified income strategies—primarily through liquid and shorter-dated instruments—in the back half of December 2018. Our credit risk exposure is now the longest it has been in over 12 months and approximately at the midpoint of our historical exposure range.
We do not want to be too long credit as the market is not cheap and risks remain. We will continue to evaluate the data as it emerges.
This strategy could reduce your taxes over the long term. Read more...
A Roth conversion—moving assets from a Traditional IRA to a Roth IRA—is most compelling when you pay tax on the converted amount at a relatively low rate.
Converting assets early in retirement before you face required minimum distributions (RMDs) can reduce those RMDs (and the risk that they will increase your tax rate).
Since a Roth conversion increases taxable income in the conversion year, drawbacks can include: a higher tax bracket, more taxes on Social Security benefits, higher Medicare premiums, and lower college financial aid.
Social Security is not a simple benefit system. It is worth learning about the rules of the program and understanding how benefits are calculated so you can make informed decisions on your claiming strategy.
Because Social Security is a significant, inflation-adjusted source of steady income, it should be an important part of your holistic income strategy in retirement.
Social Security claiming is not one size fits all. There are specific considerations for you to think through if you are single, married, divorced, or widowed.
When planning to leave money to heirs, it’s important to weigh the tax burden of the account holder and the recipients. Read more...
If you're considering passing along taxable assets to your heirs, take into account the investments’ cost basis, your tax rate on capital gains, your life expectancy, and the growth potential of your different investments.
If your heirs will have a lower future tax rate, it may make sense to leave them tax-deferred assets.
Leaving taxable assets to heirs allows them to benefit from the step-up in cost basis, making the gains during the original owner’s lifetime tax-free for the heirs.
Cybersecurity is becoming more important every day because cybercriminals are becoming increasingly innovative.
Instead of reacting to internet crimes, it is important to look for ways to prevent them from happening in the first place.
The key steps to avoid cyberthreats discussed in the webcast are: protect key personal information, manage email and internet activities safely, interact with financial institutions securely, and take action if something is amiss.
Separating estimates for annual premiums and out-of-pocket costs makes planning easier. Read more...
Given that health care costs are incurred over time, it makes more sense to view them as an ongoing regular budget item instead of a lump sum needed at the start of retirement.
Health insurance premiums account for nearly 75% of retirees’ annual health care expenses and, for the most part, are predictable and can be paid from monthly income. However, out-of-pocket expenses can vary and should be paid from savings.
Traditional financial planning principles and basic budgeting can help address many of the financial unknowns about health care costs in retirement.
February 26, 2019
Sudipto Banerjee, Ph.D., Senior Manager, Thought Leadership
Separating premiums and out-of-pocket costs makes it easier to plan for expenses. Read more...
We believe viewing retirement health care costs as an annual expense, instead of as a lump sum, makes it easier for retirees to plan for and pay for them.
Health insurance premiums are usually fixed and can be budgeted for and funded from monthly income. On the other hand, out-of-pocket expenses can vary from month to month and could be paid from savings or a fund earmarked for those purposes.
Retirement health care costs can vary widely, depending on the type of insurance a retiree chooses, and no type of coverage is “typical.” So we believe it is useful to provide these estimates based on the type of insurance coverage.
March 12, 2019
Sudipto Banerjee, Ph.D., Senior Manager, Thought Leadership
Credit research and trading strategies can impact performance. Read more...
With over 50,000 bonds in the municipal bond index, true passive investing is an inexact science at best in the municipal market.
While still a small part of the municipal market, passively managed muni portfolios—including exchange‑traded funds—that have attempted to replicate the characteristics of the municipal benchmark grew rapidly in 2018.
We believe investors are better served with actively managed portfolios that take full advantage of credit research and efficient trading across the broader market.
Our strategic investing process added value for most of the T. Rowe Price actively managed non-U.S. equity funds we studied. Read more...
A T. Rowe Price study of 16 of our actively managed non-U.S. equity funds compared with competing passive vehicles found that our strategic investing process added value for a majority of the funds.
Over the rolling three-year periods studied, 94% of the T. Rowe Price funds (15 of 16) posted positive active success rates after fees and costs. The average excess return was 1.38%.
We attribute our success to our practice of going beyond the numbers, by traveling to meet companies we invest in and debating and sharing insights to understand the complex dynamics of investment opportunities.
In the current investing environment, discover how our Asset Allocation Committee is positioning their portfolios. Read more...
We moderated our position in small-cap stocks in the U.S. given recent strength and favorable liquidity in the face of moderating domestic growth.
We continued to reduce our exposure to developed market value stocks outside the U.S. in favor of growth as value-oriented sectors within those regions, such as financials, may be challenged by moderating economic growth.
We added to hedged international bonds as they offer an attractive hedged yield for U.S. dollar investors.
Scott Berg shares why he thinks the technology sector is going from strength to strength. Read more...
The secular forces powering the technology sector are robust and here to stay. The pace of innovation remains breathless, as we found out during our annual trip to Silicon Valley.
As large-scale investors, we were able to meet many of the leading figures within the industry. The expansion of media platforms, the rise of artificial intelligence (AI) and the potential of the cloud remain powerful forces at many different levels.
Investors should approach technology less as a standalone sector, but in a more diverse way. Technological change is impacting business models across every sector of the global market.
May 24, 2019
R. Scott Berg, Portfolio Manager, Global Growth Equity Strategy