Chinese Stock Scam, Outdated 401(k)s, S&P 500 Risk, Investment Income Tax, Political ETFs, Tariff Confusion, Second-Biggest Trade Gap, Todays Cars, Rising Card Fees & Silver vs Gold

Watch out for this Chinese stock scam!

 Yes, there’s another scam out there trying to part you from your hard-earned money. This has happened many times in recent years and it’s occurred in very small Chinese stocks that are vulnerable to manipulation. For some reason, some US investors see these and think they’ve hit it big. US regulators try their best, but typically cannot get access to information in China to go after these people. They’re so good they trick people who should know better, like businesspeople and even a university professor lost $80,000 in the scam.

Their advertisements show up on social media or in messages on WhatsApp, and they contain investment advice that looks very convincing with the alure of big, quick returns. They trick investors into thinking that this company is on the verge of something very big and they show that there are already short-term gains, which are engineered by the scammers through manipulative trading. The hucksters come from Malaysia, Taiwan and other places around the world. Some have been so bold that for some investors who lost money, they come back with a second better offer to make up losses on the first investment.

Obviously, these people have no shame, and the only thing I can recommend is to stay away from small Chinese stocks, especially if you see them advertised on social media. Remember the old saying if it sounds too good to be true, it probably is.

Is the current 401K system out of date?

The current 401(k) system was first established 42 years ago in 1978 when the use of normal pension plans was in place and when people still worked for a single employer for most of their career. This change in 1978 was beneficial to both the employees and employers, because it gave employees control over their retirement plan and reduced the long-term financial risk for many companies with underfunded pension plans that caused multiple problems form companies during the 2008 financial crisis.

Today, times have changed and employees might experience over their 40 years plus work career different jobs that may include side gigs, the launch of a business or two, and potentially a change in their job that could take place as much as 12 times over their career. The benefit for employees of the 401(k) is it gives people the ability to control their retirement. If they do leave an employer, they can take their retirement with them and invest it as they see best.

The problem of today with changing jobs so many times is unfortunately these employees decide to take and use the money, even though the penalties and taxes due are sometimes as high as 50%. In my opinion, there is not one good reason why you should be taking your retirement money early as you’ll pay for it many times over if you reach retirement with little or no retirement funds.

Believe me, it is hard being older, but it is devastating to be older with no retirement funds. It has been estimated that frequent job changes over a career can cost as much as $300,000 in retirement savings. I like the new system that has made auto enrollment the default for employees starting a new job, but there is talk that they also want to require when a worker leaves an employer that their 401(k) automatically follows them to the new job and it should contain the same contribution rates as well.

I think this is a terrible idea as it could get employees that are changing jobs locked into a terrible new 401(k). It could perhaps be additional administrative work for the new employer who already has enough to take care of when you include all the regulations, they have along with health insurance and current retirement plan administration. Being an employer myself one would not believe how much employers have to do already. 

The unknown risk of the S&P 500

Many people love investing in the S&P 500 because the recent performance has been very strong. We have talked in the past about the over concentration of technology in the index, but I was shocked to learn that 71% or roughly 351 companies in the index report either non-GAAP income or non-GAAP earnings-per-share. This is dangerous for investors because you’re not comparing apples to apples and 89% of those 351 companies that made adjustments had results that appeared better.

Wall Street has forced companies to continue to report higher and higher earnings each year and sometimes each quarter or else the stock gets pulverized. Non GAAP numbers were supposed to be allowed to explain extenuating or extraordinary circumstances like a factory fire or a sale of a division, but companies have abused the rule and exclude items like stock based compensation, amortization of intangible assets and currency fluctuations. The one that bugs me the most is restructuring charges that occur every year.

For example, Oracle has had a restructuring charge for the past five years. Unfortunately, the SEC is absent on enforcing the rules and non-GAAP earnings have just about become the standard. The problem for investors is with no standard, you cannot compare true earnings of a company. If you have been investing as long as I have, you’ll remember the last time the abuse of non-GAAP earnings was during the tech boom and bust. Some people say we are too conservative with our investing and we are missing out on some big gains, but I do believe fundamental investing and understanding the true numbers of a company is far safer and it should produce better returns in the long run.

Financial Planning: What is the Net Investment Income Tax?

The Net Investment Income Tax (NIIT) is a 3.8% federal surtax that began in 2013 under the Affordable Care Act, targeting high-income individuals. It applies to any net investment income that exceeds a single taxpayer’s modified adjusted gross income (MAGI) of $200,000 or $250,000 for married couples filing jointly. Crucially, these thresholds are not indexed for inflation, so while they may have seemed high in 2013, today they would equal roughly $270,000 and $337,500 in 2025 had they been indexed for inflation, meaning more taxpayers are caught by the tax over time.

Net investment income includes interest, dividends, capital gains, rental income, passive business income, and the earnings portion of non-qualified annuity distributions. While non-investment income sources such as wages, IRA withdrawals or conversions, and active business profits aren't directly subject to NIIT, realizing large amounts of those sources can push your MAGI above the threshold, thereby exposing your investment income to this additional tax. Also keep in mind, most investment income is still taxed as ordinary income as well. Only long-term capital gains and qualified dividends receive the lower capital gain tax treatment, but all investment income may trigger the NIIT if income exceeds the thresholds. 

Republican or democrat there’s an ETF for you

If you’re a strong Republican or Democrat and you want to back your political beliefs by investing in companies that do best under each political party, it is now possible to do that. If you’re a Republican, you want to look at Point Bridge America First ETF with the symbol MAGA. This ETF has been around for about eight years. It only has about $30 million of assets and it has an expense ratio of 0.72%. In this ETF, you will find companies in oil and chemicals along with home builders.

If you’re a Democrat, there is the Democratic Large Cap Core ETF with the symbol DEMZ. This one has only been around for five years and has slightly more assets at $43 million and a lower expense ratio of 0.45%. In this ETF, you will find stocks in technology, entertainment, and high fashion companies. I’m sure you’re wondering which one has the better performance going back five years since that’s as long as the Democratic Large Cap Core ETF has been out. The DEMZ ETF had a return of 78%, while the MAGA ETF had a return of 99%.

No matter what your political affiliation, I’m sure you’re happy to know that there’s an ETF that you can invest in to match your political beliefs. With that said, I do believe playing politics with your investments can be a dangerous game and I would not recommend doing it. 

Consumers are confused on what the tariffs are costing them

Consumers are very confused on how much the tariffs are actually costing them as they consume many different products. It is difficult to even say when the tariffs really began. In reality, you’d have to go back seven years to 2018 when the first tariffs were imposed on Chinese goods. The most recent tariffs began to come into play on February 1, 2025 when President Trump signed an executive order.

Consumers don’t know if the tariffs are being passed onto them or are if companies are just increasing their profit margins and padding their bottom line. In a recent survey when consumers were asked why have prices gone up lately? 75% said it was caused by the tariffs, but also 75% of people when asked about inflation said inflation was the problem. My guess is the consumer is confused. It was interesting to note in the same survey that 29% of the shoppers said it was brand or retailer greed.

Consumers are asking for transparency, which they probably will not receive on how much the tariffs are increasing the price of the products they are buying. I say they probably will not receive that because companies that tried that were immediately scolded by the President not to add the cost of tariffs to the products they were selling. When will this all be over? I believe we have at least another few months even though July 9th, which is the end of the 90 days pause on reciprocal tariffs is just around the corner. Also, August 14th is the end of the US China tariff de-escalation. I believe we’ll see a lot of volatility in the markets, but don’t sell your investments based on the volatility. I think you’ll regret that within a very short timeframe. 

Do you know who has the second largest trade imbalance with the US?

Let me give you a hint, they only have 5.4 million people and the country is only 33,000 square miles compared to United States at over 3.8 million square miles. if you were thinking Ireland, you are correct. In the first four months of the year, the trade deficit was $71 billion and it was mostly attributed to shipments of drugs for weight loss and cancer. Years ago, corporations moved to Ireland to take advantage of their favorable tax policies.

For corporations, the tax rate in Ireland can be as low as 12.5%. In the US, it is now 21% but it was much higher years ago at 35% before the Tax Cut and Jobs Act of 2017. Some of the best-selling drugs that come from Ireland are Botox, Keytruda, which is Merck’s cancer treatment, and peptide and protein-based hormones for the GLP – 1 weight loss drugs. Much of this imbalance was inventory stocking prior to the tariffs, but there is no slowdown in the growth of these drugs with the weight loss drugs expected to double next year to $30 billion.

It’s also interesting to know that many drugs can fly in the cargo section of passenger planes and primarily all the drugs are flown by air rather than transported by ship. Eli Lilly, a drug giant in the weight loss and diabetes space, will be hurt most by the cost of tariffs, which I believe they will pass along to their consumer. Drug company Merck has already broken ground on a $1 billion plant, but because of construction and regulations it probably will not be completed until 2028 at the earliest or perhaps 2030 at the latest.

Are cars of today too good?

As the cars of today become safer, more fuel efficient, and more automated, the cost per vehicle along with repairs has gone up dramatically. The depreciation rate on new cars has also increased. Here in the United States, 80% of households depend on an automobile with a typical driver spending about one hour per day in the car. The cost of operating an automobile over the last 10 years has increased by 30% with the average annual cost at nearly $12,300 in 2024. Contributing to that factor is the cost of auto insurance now averaging $2680. It has increased 27% since the end of 2022.

Nearly 25 years ago car manufacturers in an effort to save cost and make cars lighter for fuel efficiency increased the amount of injectable molded thermal plastic components. At last count, the average American car has over 400 pounds of plastic somewhere in the vehicle. As good as plastic can be, it still can degrade in the daily extreme heat cycling under the hood. I also learned that now instead of timing chains belts they have what they call wet timing belts. This is where the belt that synchronizes an engine cam timing with a crankshaft gets partially submerged in hot engine oil. At first glance that sounds pretty good until you realize that these belts can erode and put contamination in the oil system, which can block the oil pick up and kill an engine.

Repair costs since 2019 have increased by 43% according to the Bureau of Labor Statistics and this has caused an increase of cars to be salvaged rather than repaired. A small fender bender that looks easy to repair can cost as much as 75% of the cars value. The saying what you don’t see is what can hurt you applies here. Even though the bumper may not look that bad from the outside, behind the bumper you’ll find automatic lane control sensors, dynamic cruise control, along with emergency braking that has camera sensors and transceivers all built in. This now essentially means with new cars, there is no such thing as a minor fender bender.

Online internet and information car retailer Edmunds.com discovered that a Tesla cyber truck that was parked was struck in the rear by a small sedan and the total cost of repair was $58,000. They ended up selling it to a salvage yard for $8000. Doesn’t look like they had it insured. And there’s no such thing as just replacing your headlight any longer, you now have to replace the entire unit and if you love BMW or Porsche be prepared to spend around $7000 to $8000. Even if you own a simpler vehicle like a Ford F150, you’re still going to pay almost $1700. The average car on the road is over 14 years old and while the excitement of getting a new car is still there, you should understand that you are buying a very expensive piece of equipment not just a car.

Fees on premier credit cards are increasing, is it worth it?

I’ve never been a fan of the premium credit cards because of the annual fees they charge. Maybe some people are paying for the status, but I think for many people if you do the math, you can see you’re not making your money back on the high annual fees. This year if you hold the popular Sapphire Reserve credit card from JP Morgan Chase, the fee is rising 45% from $550 a year to $795 a year! Don’t think you’re safe if you have the American Express Platinum card, it is expected they will raise their $695 annual fee above what Sapphire Reserve’s annual fee is.

If you hold these cards, you really have to do the math to see if it makes any sense. If you only travel two or three times a year, you’re probably wasting your money. It’s also important to know that several merchants are now charging merchant fees, sometimes as high as 3 1/2%. This too can wipe out the benefits of a reward card. It is amazing the number of people that have rewards that have not used them. The most recent data from 2022 by the Financial Protection Bureau showed that card holders earned over $40 billion in rewards that year, but consumers have only redeemed $7 billion of those rewards.

You may also find that they’re making it more difficult to claim your rewards and, in some cases, they’re changing how you redeem your rewards. I’ve always been a big fan of cash rewards and I do have a premium card with US bank, which was paying me 2% cash back. It worked out well for a couple years, but now all of a sudden, they charge an extra fee for redeeming the 2% cash back unless you have a checking account at the bank that they can deposit the cash into.

I will be closing my credit card account with US Bank in the near future. As always, read the fine print and understand that these fees for the premium cards that you are paying could be costing you more than you’re saving. Maybe it’s nice to throw on the counter a platinum card to show status, but personally I would rather save hundreds of dollars a year in fees and put that money in my pocket. What are your thoughts?

Silver is up this year almost as much as gold, should you sell? 

Gold has captured the headlines, but maybe you were thinking about investing in silver, which is another precious metal. If you did that in January, you’re up around 30%, depending on the day/time you bought it. Gold is really just used as a store of value, but people may not realize that 80% of the demand for silver comes from manufacturers. Silver consumption is used in electronics, cutlery, jewelry and solar panels.

What is so surprising about the rise in silver is with the president trying to unwind renewable energy incentives, the demand for solar panels has continued to grow. One concern is it’s possible this demand was pulled forward ahead of the trade restrictions and it could taper off as we move forward, especially if the incentives change dramatically. If you are investing in silver, you may want to consider that the second half of 2025 could see a complete reversal for the commodity.

If you look at a 45-year chart for silver prices, you will see a few major spikes and the high prices generally did not last long. One that stands out even today is the record for the price of silver at $48.70 when the Hunt brothers tried to corner the market in 1980. If your account for inflation that $48.70 today would be over $200. People have been flooding jewelry stores, pawnshops, and wherever else they can unload their silver holdings from coins to jewelry to cash in on the high price.

If you do happen to find some old quarters made before 1965, you could get as much as 6 to 7 dollars per coin. Will the price of silver continue to rise? No one knows for sure, but I do believe it is a speculative bubble and if demand does fall as expected in the second half of the year, you may be wishing that you unloaded the silver that you are holding in your safe.