How Can You Invest in Electric Vehicles?

How Can You Invest in Electric Vehicles?

How can you invest in electric vehicles? Today we discuss:

  • the two ways you can do this
  • the difference between the two
  • and a valuable lesson we can learn from one of the best-performing stocks over the last quarter-century, Amazon.

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How Can You Invest in Electric Vehicles

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How Can You Invest in Electric Vehicles?

This is a hot topic right now. More people are wanting to know how they can take part in this new and emerging technology.

Individual Stocks

The first way to invest in electric vehicles is to buy individual stocks. The most popular is Tesla. They have been making electric vehicles for a few years. The other major auto manufacturers are also getting involved in this. Both GM and Ford are committing billions of dollars to this technology. GM is also challenging Tesla on the battery front.

There are other companies in this industry. Nikola is developing battery-powered semi-trucks. And there are companies working on charging and battery components. Examples of those include Blink Charging and Plug Power.

There are also companies that manufacture the technology for the cars. Intel and Nvidia will also have a role in this emerging industry.

You can also look for investments in companies who focus on lithium. Batteries are a major component.

Mutual Funds or Exchange Traded Funds

The other way to invest in this industry is to use an exchange-traded fund or a mutual fund. The financial industry has been very innovative over the years. When industries like this emerge, they create a fund to focus on these companies. You can buy the fund instead of trying to pick individual stocks.

The Difference Between Using Stocks and Funds

The big difference between the two is the potential risk and reward.  Both ways of investing offer the opportunity to benefit from the growth of the industry. Both also experience a lot of volatility.

An individual company offers the potential for more reward, if you choose a good one. But when you pick the wrong one, you could lose more.

Using a fund reduces the potential gains. When you buy funds, you make smaller bets on a larger list of companies. Not all of them will be the big winner. You own shares of Tesla, GM, and Ford. You also may own shares of Nvidia and Intel.

The Lesson From Amazon

Amazon went public in May of 1997 in the middle of the dot-com boom. Since its offering, it has been one of the best-performing stocks over the last quarter-century. But early on, there was a lot of volatility.

In its first five years of existence, Amazon suffered significant price drops.

  • It fell more than 20% twice.
  • There were two 40% price drops.
  • One price drop exceeded 60%
  • And one time the price declined 90%!

Withstanding that much volatility takes a strong stomach and nerves of steel. Emerging technologies are not for the faint of heart.

Talk to a Certified Financial Planner™ Professional

If you would like to consider an investment in electric vehicles, talk to a financial planner. They can help you understand how it fits within your plans and your goals.

 


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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Required Minimum Distributions

Required Minimum Distributions

Today we discuss required minimum distributions and cover:

  • when you have to start taking them
  • why it’s important to take them
  • the basics of how they’re computed
  • when during the year is the best time to take your distribution
  • and, what you can do with the money if you don’t need the income

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Required minimum distributions may not be an interesting topic, but our clients ask a lot of questions about them. If you’re heading towards your retirement, it’s something that should be on your radar.

When do you have to start taking your required minimum distributions?

In 2019, the government passed the SECURE Act. This legislation increased the age at which you have to start your required minimum distributions. It used to be the year you reached age 70½.  Now, you must start the year you reach age 72.

Why do you want to take your required minimum distributions?

If you don’t take your RMD, the penalty is severe. The penalty is 50% of the shortfall. If your required amount is $10,000 and you fail to take that, the IRS penalty is $5,000.

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How much do you take the first year?

Your first RMD is roughly 4%. The IRS uses the Uniform Lifetime Table. It is a life expectancy table which uses a 10-year difference in age between spouses. If your spouse is more than 10 years younger than you, you can do things differently.

You look up your age on the table find the divisor. The first year the divisor is 25.6. (25 equates to 4%.) The next year, the divisor goes down a little bit, which means the percentage increases.

Required minimum Distributions

Here is an example. The balance of your IRA at year’s end is $256,000. Divide that by 25.6. The amount you have to withdraw is $10,000. Next year, you divide the year-end balance by 24.7. The following year, you divide the year-end balance by 23.8. You always take the balance at the end of each year and divide it by the number for your age.

Eventually, you will take more from the account than you can earn. At age 88, the amount is about 8%. At age 92, the required amount is roughly 10%.

Required minimum Distributions

When is the right time to take your distribution?

Some clients take their RMD early in the year. Others wait until later in the year. Many people worry about what is happening in the investment markets. If the stock market is near all-time highs, a lot of people will want to take it at that point.

We do not know what will happen later in the year. Values could be higher or lower than they are right now. The correct answer to this question is, “take the distribution when you need the money.”

Income Taxes

Most custodians will withhold taxes from your IRA distribution. Most will withhold both state and federal income taxes. If you pay quarterly estimates, you should adjust your estimated tax payment.

What if you don't need the money?

One of the better planning tools you can use is a qualified charitable distribution. You direct a distribution from your IRA directly to a charity of your choice. You do not report the distribution as income. You will save both the state and federal income taxes on the amount that you donate.

The other thing you can do is reinvest your distribution in a taxable account. Many custodians allow you to transfer shares of an investment to another account. This is an “in kind” transfer. You can also transfer cash.

You cannot convert your required minimum distribution to a Roth IRA.

Benefits of Using a Roth IRA

There are no required minimum distributions from Roth IRAs. It’s another great reason to use the Roth IRA to help you save for your retirement.

These specific rules only apply to the original account owner or their spouse. If you have an inherited IRA, different rules apply to you.

Talk to a Certified Financial Planner™ Professional

If you have specific questions about your situation, a financial planner can help. Talk to one today.  Click below to schedule a call

 


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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Short Squeeze? What the Heck Is That?

Short Squeeze? What the Heck is That?

What the heck is a “short squeeze”? With the recent activity in GameStop, clients have been asking about this.

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Buy Low-Sell High

To understand this, we have to start with the most basic premise of investing, buy low, sell high.” When investing, most people buy the investment first and hope it appreciates in value. Then you can sell it for a profit.

Short sellers have the same objective, but they do transactions in reverse. They sell at a high price with the hope of buying the stock at a lower price in the future. In a short sale, you normally don’t sell a stock you already own. Instead, you borrow the shares from somebody and sell them. 

Margin Loans

In the investment industry, these are margin loans. A margin loan requires capital up front to start the transaction. In some cases, that might be 50%. If you’re going to sell $10,000 worth of stock short, you have to have $5,000 cash in the account.

There is also a maintenance requirement. This is the amount of capital you must keep based on what happens with the share price of the stock that you sold. For some firms, the maintenance requirement is 30%.

Here is what happens if the stock price goes up suddenly like GameStop did. Our $100 stock goes to $200. Now you owe $20,000. Your maintenance requirement is 30%, but you only have $5,000 in the account—or 25%. This triggers a margin call, which means you must meet the maintenance requirement.

Why Borrow?

Borrowing creates leverage which can enhance your returns. It can also enhance your losses. Here is an example. You short sell 100 shares of a stock trading at $100 for $10,000. The stock price falls to $80 and you buy the shares.  You made $2,000 on this transaction.  Because you used leverage, your rate of return on this transaction is 40% ($2,000 profit divided by $5,000 capital).

What Happens When You Receive a Margin Call? The Short Squeeze

The short sellers can add cash to their trading accounts. But many companies do not have extra cash to add to their accounts. Many individuals will not have a lot of extra cash either. This forces short sellers to either buy the stock at a higher price or sell other positions to cover the margin call. This is the short squeeze.

Talk to a Certified Financial Planner™ Professional

 


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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

Our Most Recent Videos And Posts