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Understanding IRA's

Comparison of Traditional
IRA’s and Roth IRA’s

Written by Spiral Design on . Posted in Investor Education, Retirement Resource.

Comparison of Traditional
IRA’s and Roth IRA’s

Traditional IRA Roth IRA
Maximum yearly contribution
(2023)		 Lesser of $6,500 or 100% of
earned income ($7,500 if age 50
or older)		 Lesser of $6,500 or 100% of
earned income ($7,500 if age 50
or older)
Income limitation for
contributions		 No Yes
Tax-deductible contributions Yes. Fully deductible if neither you
nor your spouse is covered by a
retirement plan. Otherwise, your
deduction depends on your
income and filing status.		 No. Contributions to a Roth IRA
are never tax deductible.
Age restriction on
contributions		 No. No.
Tax-deferred growth Yes. Yes; tax free if you meet the
requirements for a qualified
distribution.
Required minimum
distributions during lifetime		 Yes. Distributions must begin by
April 1 following the year you
reach age 72.		 No. Distributions are not required
during your lifetime.
Federal income tax on
distributions		 Yes, to the extent that a
distribution represents deductible
contributions and investment
earnings.		 No, for qualified distributions. For
nonqualified distributions, only the
earnings portion is taxable.
10% penalty on early
distributions		 Yes, the penalty applies to taxable
distributions if you are under age
59 1/2 and do not qualify for an
exception.		 No, for qualified distributions. For
nonqualified distributions, the
penalty may apply to the earnings
portion. (Special rules apply to
amounts converted from a
traditional IRA to a Roth IRA.)
Includable in taxable estate of
IRA owner at death		 Yes. Yes.
Beneficiaries pay income tax
on distributions after IRA
owner’s death		 Yes, to the extent that a
distribution represents deductible
contributions and investment
earnings.		 Generally no, as long as the
account has been in existence for
at least five years.
IMPORTANT FENIMORE ASSET MANAGEMENT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax
professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

The views and opinions expressed in this article are those of Broadridge Investor Communication Solutions, Inc. and do not necessarily reflect the views of Fenimore Asset Management or its officers. Fenimore Asset Management or its officers have no editorial control over the content of the article or subject matter, and is independent of Broadridge Investor Communication Solutions, Inc.

The information herein is subject to change and is not intended to be complete or to constitute all of the information necessary to evaluate adequately the consequences of investing in any securities or other financial instruments or strategies described herein. These materials also include information obtained from other sources believed to be reliable, but Fenimore does not warrant its completeness or accuracy. In no event shall Fenimore be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction.

In part, the purpose of this presentation may be to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. This summary does not purport to be complete and no obligation to update or otherwise revise such information is being assumed. These materials are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any security or other financial instrument. This summary is not advice, a recommendation or an offer to enter into any transaction with Fenimore or any of their affiliated funds.

We undertake no duty or obligation to publicly update or revise the information contained in this presentation. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of Fenimore funds, or information about the market, as indicative of future results.

All projections, forecasts and estimates of returns and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions and does not reflect actual investment results and is not a guarantee of future results. Actual results will vary with each use and over time, and the variations may be material. Nothing herein should be construed as an investment recommendation or as legal, tax, investment or accounting advice.

Clients or prospective clients should consider the investment objectives, risks, and charges and expenses carefully before investing. You may obtain a copy of the most recent mutual fund prospectus by calling 800-932-3271 and/or visiting www.fenimoreasset.com.

There is no guarantee that any of the estimates, targets or projections illustrated in this summary will be achieved. Any references herein to any of Fenimore’s past or present investments, portfolio characteristics, or performance, have been provided for illustrative purposes only. It should not be assumed that these investments were or will be profitable or that any future investments will be profitable or will equal the performance of these investments. There can be no guarantee that the investment objectives of Fenimore will be achieved. Any investment entails a risk of loss. An investor could lose all or substantially all of his or her investment. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice.

Fenimore Asset Management Inc. is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.

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Simplified Employee Pension Plans (SEPs)

Simplified Employee Pension Plans (SEPs)

Written by Spiral Design on . Posted in Investor Education, Retirement Resource.

Simplified Employee Pension Plans (SEPs)

  • Insert Text here

    A simplified employee pension (SEP) is a written plan that allows small-business owners to make retirement contributions to traditional IRAs (SEP-IRAs) set up for themselves and for each eligible employee. These contributions may be deducted from your business’s income and excluded from your employees’ income. A SEP may not only provide you a tax-advantaged way to save for your own retirement, but may also help you attract and retain qualified employees by providing for their retirements. And it may help your business avoid some of the complexities posed by certain other employer-sponsored retirement plans.

    Who can establish a SEP?

    You can establish a SEP if you’re an employer or you have self-employment income. “Employer” includes a sole proprietor, a partnership, a C corporation, an S corporation, a limited liability company, and a limited liability partnership. You don’t need employees to set up a SEP, but if you do have them, all eligible employees must be included as SEP participants.

  • Simplified Employee Pension Plans (SEPs)

    Insert Image here

    A SEP may not only provide you with a tax-advantaged way to save for your own retirement, but may also help you attract and retain qualified employees by providing for their retirements. And it may help your business avoid some of the complexities posed by certain other employer-sponsored retirement plans.

How do I set up a SEP plan?

Setting up a SEP plan is fairly easy. You may be able to establish a SEP by (1) simply signing IRS Form 5305-SEP, Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement; (2) adopting a prepackaged prototype SEP from a bank, insurance company, financial institution, or other company; or (3) creating a custom-designed SEP. The easiest way is to use Form 5305-SEP. You can use this Form if you don’t maintain any other retirement plans, don’t use leased employees, and meet certain other IRS requirements.

You have until the due date of your business’s federal income tax return (including extensions) to set up a SEP and make contributions. By contrast, an ordinary IRA contribution can’t be made later than the due date of your federal income tax return, with no extensions (generally April 15). So if you’re self-employed and file for an extension you could have until October 15 to make a SEP contribution to your SEP-IRA.

Which employees must I include in the plan?

In general, you must include all employees who have (1) reached age 21, (2) worked for you at least three of the last five years, and (3) received a minimum amount of pay (at least $750 for 2023) from you for the year the contribution was made. An employee who meets the criteria above in any year must be covered under the SEP for that year even if he or she is not employed by you at the end of the year.

How do I contribute to my plan?

In order to avoid discrimination rules, most employers determine a contribution percentage for a year, and apply that same rate to all employees. However, contribution formulas can be more sophisticated and can even be integrated with Social Security (you’ll likely need professional assistance if you adopt a nonstandard contribution formula). Your contributions to the SEP are pre-tax dollars. This means that your employees can exclude your contributions from their gross income. In addition, the funds can grow tax deferred. Employer contributions and earnings are taxed when distributed from the SEP-IRA.

How much can I contribute to a SEP?

You can contribute up to 25% of compensation or $66,000, whichever is less, to an employee’s SEP-IRA in 2023 (up from $61,000 in 2022). Generally, when calculating the amount you can contribute in 2023, you can consider only the employee’s first $330,000 of compensation (up from $305,000 in 2022). If you’re self-employed, contributions to your own SEP-IRA are calculated differently. While the above limits also apply to you, your compensation is considered to be your net earnings from self-employment. Basically, your net earnings from self-employment represent the net income you earned in the business that established the SEP, less the deduction for contributions to your SEP and the deduction allowed to you for one-half of the self-employment tax. This effectively reduces your maximum contribution rate to 20% of compensation or $66,000 (in 2023), whichever is less.

Can my employees contribute?

SEPs are not like 401(k) plans — your employees cannot elect to contribute pre-tax dollars to a SEP-IRA from their pay.* However, your employees can make normal annual IRA contributions to their SEP-IRAs, just as they can to any other traditional IRA. Beginning in 2023, SEP-IRAs may accept Roth contributions as well.

What are some advantages of a SEP?

SEPs offer several advantages:

  • You don’t have to make contributions to the SEP every year. You choose whether or not to make a contribution and, if so, how much to contribute. However, if you do make a contribution, it must be allocated among all participating employees according to a written allocation formula and must not discriminate in favor of highly compensated employees.
  • Reporting requirements are minimal. Reporting requirements are fairly easy to satisfy. In fact, if you use Form 5305-SEP, you don’t even file the form with the IRS.
  • Contribution/deduction limits are high. The contribution limits are much higher than those applicable to traditional IRAs and SIMPLE IRA plans, and are similar to those applicable to qualified retirement plans.
  • A SEP does not preclude you or your employees from establishing or contributing to a separate IRA. In addition to any contribution made by the sponsoring business to your SEP-IRA, you and your employees can contribute up to the $6,500 annual maximum for 2023 (up from $6,000 in 2022) plus an additional $1,000 for those age 50 and older — or 100% of compensation, whichever is less — to either the SEP-IRA or separate IRA accounts. However, bear in mind that in any year for which SEP contributions are made, you and any of your employees participating in the SEP are considered to be covered by an employer-sponsored retirement plan. That means the deductibility of traditional IRA contributions will be subject to the IRA phase-out rules.
  • Generally, you don’t have fiduciary responsibilities for your employees’ investment decisions. After you adopt a SEP plan, your employees typically set up individual SEP-IRAs (traditional IRAs) to accept contributions. Once your employee sets up a SEP-IRA account, he or she makes the investment decisions and bears all the risk of loss.

What are some disadvantages?

  • You must include all eligible employees in the SEP. The rules for including employees in a SEP plan are generally more inclusive than the corresponding requirements for other employer-sponsored retirement plans. For example, in some cases, more part-time workers must be included in a SEP. As noted earlier, you may even have to include and make contributions for terminated employees. However, you don’t have to include an employee in your SEP plan until he or she has worked three years for you.
  • Your employer contributions vest immediately. Unlike a qualified retirement plan such as a profit sharing plan, which generally allows vesting over time, your employees are immediately vested in SEP plan contributions. Once you make a contribution, it belongs to the employees. Consequently, a SEP might not be the best choice if your goal is to encourage employees to remain with your company long term by having vesting occur more gradually. Immediate vesting can also be costly if you have high employee turnover.
  • All eligible employees must set up a SEP-IRA or modify an existing IRA to accept SEP contributions. The failure of even one qualifying employee to set up his or her own SEP-IRA or to modify a traditional IRA into a SEP-IRA may defeat the entire SEP. You can set up an IRA for an employee, but doing so may rob a SEP of its fundamental simplicity. It also means that you may incur certain fiduciary obligations.
What are some advantages of a SEP?

*Prior to 1997, SEPs could include salary reduction arrangements (SARSEPs), under which employees could elect to have you contribute part of their pay to their SEP-IRAs. New SARSEPs, however, can no longer be established (although those established before 1997 can continue to operate provided there are no more than 25 eligible employees at any time during the prior taxable year).

IMPORTANT FENIMORE ASSET MANAGEMENT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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Understanding IRA’s

Written by Spiral Design on . Posted in Investor Education, Retirement Resource.

Understanding IRA’s

  • Insert Text here

    An individual retirement arrangement (IRA) is a personal retirement savings plan that offers specific tax benefits. In fact, IRAs are one of the most powerful retirement savings tools available to you. Even if you’re contributing to a 401(k) or other plan at work, you might also consider investing in an IRA.

    What types of IRA’s are available?

    There are two major types of IRAs: traditional IRAs and Roth IRAs. Both allow you to make annual combined contributions of up to $6,500 in 2023 (up from $6,000 in 2022). Generally, you must have at least as much taxable compensation as the amount of your IRA contribution. But if you are married filing jointly, your spouse can also contribute to an IRA, even if he or she does not have taxable compensation. The law also allows taxpayers age 50 and older to make additional “catch-up” contributions. These folks can put up to an additional $1,000 in their IRAs in 2023.

  • Understanding IRA's

    Insert Image here

Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both typically offer a wide range of investment choices. However, there are important differences between these two types of IRAs. You must understand these differences before you can choose the type of IRA that may be appropriate for your needs.

Traditional IRA’s

Practically anyone can open and contribute to a traditional IRA. The only requirement is that you must have taxable compensation. You can contribute the maximum allowed each year as long as your taxable compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum contribution allowed, you can contribute only up to the amount you earned.

Your contributions to a traditional IRA may be tax deductible on your federal income tax return. This is important because tax-deductible (pre-tax) contributions lower your taxable income for the year, saving you money in taxes. If neither you nor your spouse is covered by a 401(k) or other employer-sponsored plan, you can generally deduct the full amount of your annual IRA contribution. If one of you is covered by such a plan, your ability to deduct your contributions depends on your annual income (modified adjusted gross income, or MAGI) and your income tax filing status. You may qualify for a full deduction, a partial deduction, or no deduction at all.

  • Insert Text here

    Traditional IRA’s — Tax Year 2023

    Individuals Covered by an Employer Plan
    type Single/Head of Household Married Joint* Married Separate
    Deduction is limited if
    MAGI is between:    		 $73,000 – $83,000 $116,000 – $136,000 $0 – $10,000
    No deduction if
    MAGI is over:    		 $83,000 $136,000 $10,000
    * If you’re not covered by an employer plan but your spouse is, your deduction is limited if your MAGI is between $218,000 and $228,000, and eliminated if your MAGI is $228,000 or more.

  • Insert Text here


    What happens when you start taking money from your traditional IRA? Any portion of a distribution that represents deductible contributions is subject to income tax because those contributions were not taxed when you made them. Any portion that represents investment earnings is also subject to income tax because those earnings were not previously taxed either. Only the portion that represents nondeductible, after-tax contributions (if any) is not subject to income tax. In addition to income tax, you may have to pay a 10% early-withdrawal penalty if you’re under age 59½, unless you meet one of the exceptions. For details on these exceptions, please visit the IRS website.

If you wish to defer taxes, you can leave your funds in the traditional IRA, but only until April 1 of the year following the year you reach age 73 (for those who reach age 72 after December 31, 2022). That’s when you have to take your first required minimum distribution (RMD) from the IRA. After that, you must take a distribution by the end of every calendar year until your funds are exhausted or you die. The annual distribution amounts are based on a standard life expectancy table. You can always withdraw more than you’re required to in any year. However, if you withdraw less, you’ll be hit with a 25% penalty on the difference between the required minimum and the amount you actually withdrew. (The penalty may be further reduced to 10% if you self-correct the error by withdrawing the shortfall amount and filing a return within a specific correction window.)

Roth IRAs

Not everyone can set up a Roth IRA. Even if you can, you may not qualify to take full advantage of it. The first requirement is that you must have taxable compensation. If your taxable compensation is at least $6,500 in 2023, you may be able to contribute the full amount. But it gets more complicated. Your ability to contribute to a Roth IRA in any year depends on your MAGI and your income tax filing status. Your allowable contribution may be less than the maximum possible, or nothing at all.

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    Roth IRA’s — Tax Year 2023

    type Single/Head of Household Married Joint Married Separate
    Contribution is limited if MAGI is between: $138,000 – $153,000 $218,000 – $228,000 $0 – $10,000
    No contribution if MAGI is over: $153,000 $228,000 $10,000

  • Insert Text here

    Your contributions to a Roth IRA are not tax deductible. You can invest only after-tax dollars in a Roth IRA. The good news is that if you meet certain conditions, your withdrawals from a Roth IRA will be completely free of federal income tax, including both contributions and investment earnings. To be eligible for these qualifying distributions, you must meet a five-year holding period requirement. In addition, one of the following must apply:

    • You have reached age 59½ by the time of the withdrawal
    • The withdrawal is made because of disability
    • The withdrawal is made to pay first-time homebuyer expenses ($10,000 lifetime limit from all IRAs)
    • The withdrawal is made by your beneficiary or estate after your death

Qualified distributions will also avoid the 10% early withdrawal penalty. This ability to withdraw your funds with no taxes or penalty is a key strength of the Roth IRA. And remember, even nonqualified distributions will be taxed (and possibly penalized) only on the investment earnings portion of the distribution, and then only to the extent that your distribution exceeds the total amount of all contributions that you have made.

Another advantage of the Roth IRA is that there are no required distributions during your life. You can put off taking distributions until you really need the income. Or, you can leave the entire balance to your beneficiary without ever taking a single distribution.

Making the choice

Assuming you qualify to use both, which type of IRA might be appropriate for your needs? The Roth IRA might be a more effective tool if you don’t qualify for tax-deductible contributions to a traditional IRA or if you want to help reduce taxes during retirement and preserve assets for your beneficiaries. But a traditional deductible IRA may be a better tool if you want to lower your yearly tax bill while you’re still working and possibly in a higher tax bracket than you’ll be in during retirement.

Note: You can have both a traditional IRA and a Roth IRA, but your total annual contribution to all of the IRAs that you own cannot exceed the annual contribution limit.

IMPORTANT FENIMORE ASSET MANAGEMENT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

The views and opinions expressed in this article are those of Broadridge Investor Communication Solutions, Inc. and do not necessarily reflect the views of Fenimore Asset Management or its officers. Fenimore Asset Management or its officers have no editorial control over the content of the article or subject matter, and is independent of Broadridge Investor Communication Solutions, Inc.

The information herein is subject to change and is not intended to be complete or to constitute all of the information necessary to evaluate adequately the consequences of investing in any securities or other financial instruments or strategies described herein. These materials also include information obtained from other sources believed to be reliable, but Fenimore does not warrant its completeness or accuracy. In no event shall Fenimore be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction.

In part, the purpose of this presentation may be to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. This summary does not purport to be complete and no obligation to update or otherwise revise such information is being assumed. These materials are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any security or other financial instrument. This summary is not advice, a recommendation or an offer to enter into any transaction with Fenimore or any of their affiliated funds.

We undertake no duty or obligation to publicly update or revise the information contained in this presentation. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of Fenimore funds, or information about the market, as indicative of future results.

All projections, forecasts and estimates of returns and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions and does not reflect actual investment results and is not a guarantee of future results. Actual results will vary with each use and over time, and the variations may be material. Nothing herein should be construed as an investment recommendation or as legal, tax, investment or accounting advice.

Clients or prospective clients should consider the investment objectives, risks, and charges and expenses carefully before investing. You may obtain a copy of the most recent mutual fund prospectus by calling 800-932-3271 and/or visiting www.fenimoreasset.com.

There is no guarantee that any of the estimates, targets or projections illustrated in this summary will be achieved. Any references herein to any of Fenimore’s past or present investments, portfolio characteristics, or performance, have been provided for illustrative purposes only. It should not be assumed that these investments were or will be profitable or that any future investments will be profitable or will equal the performance of these investments. There can be no guarantee that the investment objectives of Fenimore will be achieved. Any investment entails a risk of loss. An investor could lose all or substantially all of his or her investment. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice.

Fenimore Asset Management Inc. is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.

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FAM Dividend Focus Fund: 6 Key Lessons Learned

Written by Spiral Design on . Posted in Featured News & Insights, Insights, Investment Insights.

FAM DIVIDEND FOCUS FUND:
6 KEY LESSONS LEARNED

FAM DIVIDEND FOCUS FUND
25 YEARS OF INVESTING IN DIVIDENDS

As we celebrate 25 years of service to our shareholders, we’re pleased to provide an insight into 6 Key Lessons Learned along the way that have helped contribute to the Fund’s long-term success.

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6 key Lessons Learned

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Image of Albany Skyline

25 Years of Distinctive Dividend Investing

Written by Spiral Design on . Posted in Insights, Investment Insights.

25 Years of Distinctive
Dividend Investing

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    Dividend investing has been around for over 100 years, but for the last 25 years Fenimore Asset Management has been implementing its own style of dividend investing through the FAM Dividend Focus Fund by investing in the growth potential of the dividend over the long term versus its current yield.

    Much has changed since 1996, when the 10-year Treasury was at 7%1 and money market funds would pay investors 5%.

    Finding Growth in Dividends

    And even the Fund’s name has changed in that time, but what has not changed is the return potential from investing in dividend-paying mid-cap companies that are on a growth trajectory.  The FAM Dividend Focus Fund Co-Managers evaluate every business in order to determine if it is best in class and can grow for years to come. Together they analyze whether the management team is strong and ethical, and why clients want to do business with the company to build the case for growth.

  • Image of Albany Skyline

    Insert Image here

“We kiss a lot of frogs to find the right businesses,” noted William Preston, Co-Manager. “We are looking for that company to be the best holding over the next five to 10-plus years. It’s truly an unrelenting focus on quality and it is one of the things we don’t compromise on.”

The Intrinsic Value of Dividends

But what value do dividends really add? Going back all the way to 1926, dividend income has constituted more than 30% of the monthly total return of the S&P 5002, according to analysts. At Fenimore, the dividend growth focus allows the team to determine not only whether a company is growing, but also creates guard rails around managements’ capital allocation. This trusted Fenimore strategy is dividend focused with a growth filter.

Since inception the FAM Dividend Focus Fund has produced 9.62% annualized. To see the full track record, click here. To learn more about how the FAM Dividend Focus Fund could add value to your portfolios contact us.

1Factset. 10 year was as high as 7%.
2S&P Dow Jones Indices, “DIVIDEND INVESTING AND A LOOK INSIDE THE S&P DOW JONES DIVIDEND INDICES” September 2013

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Andrew Boord, Portfolio Manager - Fenimore Small Cap Strategy

Key Reasons Why Fenimore Avoids Short Squeezes

Written by Spiral Design on . Posted in Investment Insights.

KEY REASONS WHY FENIMORE
AVOIDS SHORT SQUEEZES

  • Text

    February 1, 2021

    By Andrew Boord, Portfolio Manager – Fenimore Small Cap Strategy

    There is much discussion lately about highly shorted stocks getting squeezed higher, like GME (GameStop Corp.) — not a Fenimore holding.

    • Short-Selling Basics: A short seller expects a stock price to decline. First, they borrow someone else’s shares and sell them at the market price. Later, they must return those shares to the rightful owner by going into the market to buy the same number of shares back (known as “covering”). If the stock price falls between the sale and the cover, then they earn a profit.

    • Short Squeeze: A short squeeze can occur when a security has a relatively high, short interest. If other market participants buy shares pushing the price higher, the losses for short sellers can become extremely painful and cause the shorts in turn to buy more shares to cover their short positions. A squeeze is wave after wave of short sellers forced to buy shares to cover their shorts at higher and higher prices.
  • Andrew Boord

    Image

  • Short Interest & GME: Short interest is usually measured by “days to cover,” which can be defined as the number of shares shorted divided by the average volume. GME was particularly vulnerable because the short interest was massive versus average volume. As a result, once the squeeze begins, the short interest struggles to buy enough shares to cover.

  • Recurring Trend: While GME is an amazing episode that the marketplace is watching carefully, short squeezes are a recurring trend in market history.

  • Key Reasons Why Fenimore Avoids Short Squeezes:
    – Short squeezes almost always end with the stocks returning to their approximate starting levels.
    – Even as investment professionals with decades of experience, we never know exactly what catalyst drives a stock price over the short term. That is why we believe that investing with extensive research and knowledge, and a long-term perspective, is mission critical to managing risk and growing capital.
    – Fenimore does not speculate with our investors’ hard-earned assets. We are dedicated to protecting our investors’ capital and see these market anomalies as interesting to watch, but critical to avoid.
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Roth IRA's

Is a Roth IRA Conversion Right for You?

Written by Spiral Design on . Posted in Investor Education, Resources, Retirement Resource.

IS A ROTH IRA CONVERSION
RIGHT FOR YOU?

Concerned about future tax rates? You may want to consider converting your Traditional IRA to a Roth IRA. A Roth conversion is a permissible transaction that allows you to pay income taxes on some or all your retirement assets when you convert and benefit from taxfree withdrawals in the future.

Some benefits:

  • A Roth IRA allows for an after-tax contribution, tax-deferred growth, and taxfree distributions at retirement age.
  • You may pay lower taxes if your current tax rate is lower than your expected tax rate in retirement.
  • Inheritance or long-term wealth accumulation goals — Roth IRAs do not require investors to take required minimum distributions at age 72. Also, inherited Roth accounts offer taxfree distributions to any beneficiaries.
  • Tax diversification — What are your other sources of retirement income? Having both tax-free and taxable distributions gives you greater control. When is a conversion appropriate?
  • If your income is too high to contribute directly to a Roth IRA or if you have existing funds invested in a Traditional IRA, you may want to consider a Roth conversion.
  • If you feel your tax bracket is lower now than it will be in the future when you take a Roth IRA distribution, this could be an appropriate strategy. There are other considerations, so we encourage you to speak with us to learn more. We always recommend including your accountant or tax preparer in the final decision.
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DID YOU KNOW?

YOU CAN CONVERT A TRADITIONAL IRA FROM ANOTHER COMPANY INTO A FAM FUNDS ROTH IRA

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Common Cents Planning

Written by Spiral Design on . Posted in Investor Education, Planning Tips, Resources.

COMMON CENTS
PLANNING

  • SAFETY NET

    In an ideal world, investors should have at least six months, and as much as two years, of living expenses set aside before they invest in stocks. Although you may not be there yet, it is a worthwhile goal. Having a sufficient cash reserve – in good times and bad – should provide flexibility and allow you to make rational, unforced financial decisions. The first step is to create a budget so that you can make saving a habit. The amount of this emergency fund should be based on your circumstances.

    YEAR-END GIFTING

    For 2023, you can make a tax-free gift of up to $17,000 ($34,000 if you and your spouse elect to split gifts on your federal tax return) to an unlimited number of individuals. A gift of an appreciated security is also a great way to transfer wealth while possibly reducing your future tax liability.

  • Senior man with grandaughter gardening in the backyard garden.


HSA: A TRIPLE-TAX ADVANTAGE

A Health Savings Account (HSA) is only offered in conjunction with a High-Deductible Health Plan (HDHP) – the plan type, if available, you elect during your employer’s health insurance open enrollment period. An HSA can offer much more than just an interest-bearing account to help cover out-of-pocket medical costs. It should be considered as a potential long-term vehicle to cover future medical expenses. Automatic payroll deductions present an excellent way of forced savings into an HSA and the HSA offers a triple-tax advantage: 1. Tax deduction 2. Tax-deferred growth 3. Tax-free withdrawal if used for medical expenses There are more advantages to consider. Additionally, it is good to check with the HSA’s trustee to review your investment options.

ESTATE PLANNING REVIEW

It is a sound practice to review your estate planning documents and account beneficiaries regularly to ensure that they reflect the desired distribution of your affairs. These documents include health care proxies, powers of attorney, last will and testament, and trusts. If you have not had these documents prepared or reviewed by an estate planning attorney, we encourage you to do so to ensure that your objectives will be fulfilled.

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Account Options

Written by Spiral Design on . Posted in Investing Basics, Investor Education, Resources.

Account Options

Retirement Accounts

Whether you are just getting started, changing jobs, doing a 401(k) rollover, or in retirement, our team can guide you. Accounts include:

  • Traditional IRA
  • Roth IRA
  • SEP Account
  • SIMPLE IRA
  • 403(b)(7)


Education Savings Accounts

Are you ready to pay for your child’s college education? If not, we can help.

  • Coverdell Education Savings Account (ESA)

Other Types of Accounts

  • Separately Managed Accounts
  • Uniform Transfers to Minors Act Account (UTMA)
  • Trust Accounts
  • Business Accounts
  • Taxable Accounts
  • Small Business Retirement Accounts

Open an Account

FIXED INCOME & BALANCED PORTFOLIOS

Are you aware that Fenimore provides fixed income offerings?

  • Our fixed income strategy’s primary objective is capital preservation with income generation. We construct bond portfolios to provide stability with current income.
  • We design balanced portfolios for those who seek both long-term capital appreciation and current income by investing in stocks, bonds, and cash.
  • The minimum Fenimore Asset Management relationship for a fixed income account is $500,000.

Schedule A Meeting

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Remove the Emotion from Investing

Written by Spiral Design on . Posted in Investing Basics, Investor Education, Resources.

REMOVE THE EMOTION
FROM INVESTING

The numerous news headlines processed every day can cause an investor to be fearful and make misguided decisions with their assets. The good news is that there is a calm and sensible investment approach called dollar-cost averaging (DCA) that can help mitigate the angst.

  • DCA is a long-term strategy that involves investing a fixed-dollar amount into a mutual fund account (for example) at regular intervals. It takes advantage of the cyclical nature of the stock market and allows you to focus on long-term growth and ignore short-term market conditions.

  • Since you always invest the same amount, you purchase more shares when the price is low and fewer shares when the price is high. DCA’s premise is that your average cost per share may be less than your average price per share, thus reducing your investment risk over time.

  • DCA also allows for small investments that, when done consistently over time, can grow into big savings.

Automatic investing from your bank account is an easy way to make saving a habit while bringing some peace to your life.

Dollar-cost averaging is a plan of continuous investment in securities regardless of their inconsistent prices. Of course, you must consider your financial ability to continually purchase shares. As with all investment methods, there is no performance guarantee.

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TAKE ADVANTAGE OF
FAM FUNDS’ LOW
MONTHLY MINIMUM — $50
Call 800-932-3271 to Learn More

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