Question:
I’m always looking for a unique investment, so when my company was looking at buying a fleet of electric cars, I stumbled on Tesla Motors. I bought shares in early July as my broker said it was OK to buy. I know you’re not big on car manufactures, but I’d like your opinion of it.
Answer:
Tesla Motors Inc. (NASDAQ: TSLA) reported earnings earlier this week, and posted solid numbers. Additionally, they have a good product. Consumer Reports gave Tesla Motors a 99 out of 100—the first time an American automobile manufacturer scored that high.
Since July, you have likely made a lot of money on this investment. Since late June, the stock is up near 40%. However, we think the stock is a little ahead of itself. It trades at 200 times earnings, which is very pricy for a car company. Demand is not as high as it appears on the surface. The company has worked through its backlog. The time to delivery is about 10-12 days. Additionally, the government is very involved pushing the electric car agenda. This makes us shy away from the company a bit.
In our opinion, Tesla Motors has a good future if they can continue to ramp up their vehicle models. Still, we would rather see you buy the car, than the stock.
Question:
Can I convert my traditional IRA funds into a Roth IRA? Any reason why I should do so? I’ve been contributing to my IRA for about five years. My bank sent me some literature on converting to a ROTH IRA.
Answer:
The short answer is yes, you can convert. The answer to the question of should you convert is it depends. The Tax Increase Prevention and Reconciliation Act repealed the income limit and marital status restriction in 2010, so anyone regardless of filing status or how much you earn can convert a traditional IRA to a Roth IRA.
We ran projections for many of our clients, and as the numbers worked out, the closer you are to retirement, the less attractive a conversion became. You would need to have to have the cash flow outside your IRA to pay the taxes due on the conversion. With only a few years left before many would draw on the accounts, there was not enough time for market growth to make up for the tax hit.
Let’s say you’ve contributed $2,000 for the last five years and received a tax deduction for your contribution. Your contributions are $10,000, but with market growth, your IRA is worth $15,000. You are required to pay tax on the $15,000. You could take a distribution and pay the taxes due with assets from the IRA. If you use IRA assets to pay the taxes due on the conversion, you will also be required to pay a 10% penalty for the early distribution if you are under 59½ years old. Needless to say, this is not recommended. You may also convert your IRA gradually over a number of years. For example, if you convert $15,000 in equal chunks over three years, you’d report $5,000 each year and spread the tax over three years.
If you convert, but then the market falls and your $15,000 conversion is only worth $8,500 in December, you can recharacterize the conversion, as if nothing has happened. In this scenario, you avoid paying the tax on the lost value. However, you have to pay close attention as this must be completed before December 31 of the year you tried to convert.
Question:
So I saw the headline that AOL announced it is buying Adap.tv. I’m surprised AOL is still around. Is this their attempt at taking down Apple TV, or competing with services like Amazon Prime and Hulu?
Answer:
No. Actually, Adap.tv is a video advertising firm. When you click a link to watch a video on the internet and it loads an ad prior to your video, this is the form of advertising Adap.tv does. AOL, Inc. (NYSE: AOL) believes this is where the money is. Other than that, we too are surprised AOL is still around, after the disastrous merger and subsequent split with Time Warner. We do not recommend buying AOL at this time.
Question:
My lovely wife just ordered about a mortgage payment’s worth of pet medicine from 1-800 Pet Meds. Sure enough, they’re publically traded: PetMed Express Inc. I’ve heard you should invest in companies you know. What do you think of PetMed Express?
Answer:
PetMed Express Inc. (NASDAQ: PETS) is an online pharmacy for cat and dog medications. The stock is fairly cheap, but it is a speculation with a low barrier for entry. What is hurting PetMed Express right now is supply. Novartis AG ADR (NYSE: NVS) had some quality control issues and as a result, had to shut down a factory. That factory produced mostly animal science pharmaceuticals. The shortage of supply has hurt companies like PetMed Express. The company doesn’t manufacture anything. They are a distributor, which we do not recommend owning.
At Henssler Financial we believe you should Live Ready, which includes understanding the companies you invest in. If you have questions regarding your stock holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
