Bob’s Journal for 10/28

Bitcoin ETF is Off to a Strong Start

The Securities and Exchange Commission (SEC) finally approved a Bitcoin-focused exchange-traded fund (ETF), and investors quickly took a liking to it.

ProShares Bitcoin Strategy (BITO) debuted on Oct. 18 and gained nearly 5% by the end of the trading day. It rose again on its second day of trading, before declining a bit over each of the next few days.

Trading volume was heavy, giving BITO the second-highest debut-day trading volume ever for an ETF. The most highly traded ETF ever on its debut day was Blackrock U.S. Carbon Transition Readiness (LCTU), which debuted in April 2021. Its daily trading volume since has been a fraction of the level during its first week of trading.

Other major ETF firms say they expect to have Bitcoin-focused ETFs available soon.

Investors should know that BITO doesn’t own any bitcoins. Instead, the fund buys futures contracts on Bitcoin. Futures contracts don’t always mirror the returns of the underlying asset.

The SEC won’t approve the trading of ETFs that hold Bitcoin itself, because the SEC believes Bitcoin trading isn’t transparent enough to protect investors from fraud and manipulation.

Bitcoin recently increased to a record price and rose 48% in September alone. Most analysts attribute much of the recent price appreciation to investors buying Bitcoin before the ETF launch because they anticipated the ETF would increase the demand for bitcoins.

The anticipation also caused an increase in the already-high number of scams involving Bitcoin, according to the Federal Trade Commission (FTC). The FTC said consumers reported losing almost $82 million to digital currency-related scams in the last quarter of 2020 and the first quarter of 2021. The number is more than 10 times higher than during the same period a year earlier.

I continue to study and monitor the digital currency markets, and I am not recommending investing in them at this time. The best investments involving digital currencies and the underlying blockchain technology aren’t available to public investors.

Also, Bitcoin and most of the other digital currencies don’t have fundamentals that can be used to determine a reasonable value for them or what might cause prices to change in the future.

Many Retirees Let the IRS Determine Their Distributions

Most people don’t search for an optimum retirement account distribution strategy. Instead, they follow the required minimum distribution (RMD) rules from the IRS.

The tax code requires owners of traditional IRAs and 401(k)s to take distributions after age 72 in most cases. A recent survey by J.P. Morgan Asset Management found that 80% of retirement account owners don’t take distributions until they’re required. And about 84% of account owners who are required to take distributions take only the minimum mandated by IRS regulations.

I’ve said many times that the biggest gap in most retirement plans is the lack of a spending and distribution plan.

It often is a mistake to let the RMD rules determine distributions from traditional IRAs and 401(k)s. Most people spend more in the early years of retirement. Spending slows as we age. But the RMD rules increase distributions as we age. They’re the opposite of the way that most people spend.

Also, deferring distributions is likely to increase lifetime taxes. The distributions will be taxed as ordinary income and increase over time. Distributions are likely to be taxed at higher tax rates in the future than today.

In addition, higher retirement plan distributions often increase stealth taxes, such as the tax on Social Security benefits and the Medicare premium surtax.

Many people would be better off taking money out of traditional retirement accounts before they must. They could control how much is taxed each year instead of waiting to let the IRS rules determine their taxable incomes.

Many people also might benefit by repositioning their traditional IRAs, such as by converting them to Roth IRAs or using the distributions to buy permanent life insurance or fund charitable trusts. An IRA also can be used to purchase an annuity, guaranteeing lifetime income.

Most retirees shouldn’t let the IRS determine their distribution and spending plans. I’ve discussed these points and strategies in detail in past issues of Retirement Watch, and those discussions are in the Archive on the members’ section of the website.

Know Your 401(k) Plan’s Fees

All 401(k) plans have fees and expenses, but few plan participants know as much as they should about them.

About 41% of plan participants didn’t know they paid fees on their accounts. And about 45% were unable to use the information provided by the plan to calculate the fees they were paying.

Those are findings of the Government Accountability Office (GAO) in a report based on a survey of a sample of participants at 10 large 401(k) plans.

The GAO report said that the fee disclosures mandated by the Department of Labor were difficult for most participants to use. The GAO also found that fee disclosures in several other countries were clearer and easier for participants to understand.

Fees and expenses are important parts of your 401(k) plan. You need to review the plan documents to obtain a good idea of the amount of money being deducted for fees and expenses.

While many employers try to keep 401(k) fees and expenses low, not all do. Fees and expenses are one factor to use in deciding whether to roll over a 401(k) to an IRA when leaving an employer. And sometimes expenses are so high that it makes sense to forego the tax deferral of the 401(k) and invest after-tax money in a low-cost IRA.

The Data

The rapid acceleration in housing prices might be slowing.

Home prices nationally increased 1.4% in August, and July’s increase was revised a little higher to 1.6%, according to the S&P Corelogic Case-Shiller Home Price Index.

But the increase over 12 months was 19.8% in August, the same as in July. That’s the first month the 12-month gain hasn’t increased from the previous month since early in 2020.

But the demand for homes still exceeds the supply. Prices were at all-time highs in August in all the cities tracked by the survey. While the rate of increases might be slowing, there’s no indication home prices will decline in the near future.

The FHFA House Price Index was similar. Prices increased 1.0% in August, following a 1.4% rise in August. Over 12 months, prices increased 18.5%, a decline from the 12-month increase of 19.2% reported in July.

Existing home sales increased in September by 7.0% from August’s level. But sales were 2.3% lower than 12 months earlier.

Sales were limited by the small inventory of existing homes available for sale. Also, recent price increases and higher mortgage interest rates caused some potential buyers to leave the market.

New home sales increased 14.0% in September from August’s level but were 17.6% lower than 12 months earlier. Also, the new home sales initially reported for each of the three previous months were revised to lower levels.

The Philadelphia Fed Manufacturing Index was 23.8 in October, down seven points from September. The result indicates manufacturing still was growing in the region but at a slower rate than in September.

Both the prices paid and prices received components of the index remained elevated and increased in October from September’s levels.

The Dallas Fed Manufacturing Survey told a similar story of continued growth but at a slower rate in October.

The Production Index compiled from the survey declined to 18.3 from 24.3 in September. The Dallas Fed said the October level indicates “solid output growth.”

The General Business Activity Index compiled from the survey increased to 14.6 from 4.6. But the uncertainty index compiled from the survey increased to 29.0, its highest level since August 2020.

The Richmond Fed Manufacturing Index improved to five in October from negative three in September. The Richmond Index has differed from most of the other regional Fed manufacturing indexes during the pandemic.

Durable Goods Orders declined by 0.4% in September, but that was due largely to volatile aircraft orders. Excluding transportation, orders increased 0.4% in September.

And core capital goods orders, a good measure of business investment, increased 0.8% in September.

Consumer Confidence in October, as measured by The Conference Board, increased. The Consumer Confidence Index increased to 113.8 from 109.8 in September.

The index had declined each of the three previous months. Short-term inflation concerns were at a 13-year high, but that didn’t reduce confidence. Both the present situation and expectations components of the index increased.

The Leading Economic Indicators Index from The Conference Board increased 0.2% in September, which follows a 0.8% jump in August.

Based on the index, The Conference Board is projecting 5.7% economic growth for 2021 and 3.8% in 2022.

Economic growth increased in October, according to the PMI Composite Index. The index was 57.3 in October, a jump from 55.0 in September and a three-month high.

The services component of the index increased to 58.2 from 54.9 in September. This is a three-month high. But the manufacturing component decreased to 59.2 in October from 60.7 in September. That’s a seven-month low, though it still indicates strong growth.

New unemployment claims reached a new pandemic low in the latest week. They declined by 6,000 to 290,000.

Continuing claims declined by 122,000 to 2.48 million, another new low for the pandemic period.

The Markets

The S&P 500 rose 1.18% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 0.86%. The Russell 2000 increased 0.87%. The All-Country World Index, excluding U.S. stocks, added 0.09%. Emerging market equities are 0.88% lower.

Long-term Treasuries rose 0.97% for the week. Investment-grade bonds increased 0.42%. Treasury Inflation-Protected Securities (TIPS) added 1.20%. High-yield bonds lost 0.26%.

In the currency arena, the U.S. dollar rose 0.24%.

Energy-based commodities increased by 1.29%. Broader-based commodities rose 1.82%. Gold added 1.34%.

Bob’s News & Updates

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It tells you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

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I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.