March 30, 2024 | EV Sales, History of Hype Investing, PCE, Roth IRA 5-Year Rules

Electric Vehicle Sales

Electric vehicle sales have really not kept up with expectations and I’m concerned for the smaller companies such as Lucid, Fisker and Rivian, which besides Tesla may be the only other exclusive electric vehicle company that may survive. Digging deeper into the numbers for Lucid, since 2021 they’ve only built 10,495 cars and the most recent quarterly loss per vehicle was $145,824. When the company first went public back in 2021, they had $4.8 billion in cash, but as of the end of 2023 the company is down to cash of $1.4 billion. In 2023 the company burned through $3.4 billion in cash. The only thing that could save this company would be another billion-dollar investment from the Saudi Arabia Public Investment Fund as they did back in 2018 when they invested $1 billion. I really like the look of the Lucid Air, but do not see how this company will survive. I would speculate that by 2025 this company will be in bankruptcy. The sad part is for people buying the cars today because of the great deals they may be receiving, think ahead a few years about who will be around to service these cars and they may be stuck in your garage with no way to get them serviced. I would encourage people if you’re going to buy an electric vehicle, buy it from a well-known brand like Ford or General Motors who will be around for years to come to service that vehicle.

History of Hype Investing

Are people so smart that they really don’t need to look at what happened in history? We have said many times we stay away from the hype investments like Nvidia and cryptocurrencies and back this up with reality. Let’s go back and learn from the late 90s about a company called CMGI, which helped fund internet startups. It was claimed to be one of the hottest investments in history and the CEO, David Wetherell, was deemed to be a hero and a genius. Keep in mind this was 24 years ago and when the company hit a $34 billion market cap, it was larger than Alcoa or Texaco. All the financial talk shows could not talk enough about CMGI and why the stock would continue to go up and what a great investment it was. Anyone on the other side who warned about this was considered a fool, or an idiot. They were told they didn’t understand enough about the company. In 1999, the stock rose 940% and everybody wanted a piece of it. Starting to sound familiar yet? However, the next year when the curtain came down, the stock fell 96%. That was the end of the story for many investors!  

PCE

No real exciting news from the personal consumption expenditures price index (PCE) as it was right in line with expectations. The headline number showed an annual increase of 2.5%, which matched the forecast. This was however above the January reading of 2.4%. This increase was likely a result of energy prices as they climbed 2.3% in the month. Core PCE, which excludes food and energy also matched expectations with a 2.8% rise compared to last year. This was slightly lower than last month’s reading of 2.9% and marked the smallest gain since March 2021. 

Roth IRA 5-Year Rules

There is often confusion around the nuances of the 5-year Roth IRA rules. There are two separate 5-year rules that apply depending on whether a contribution or a conversion is made. In a nutshell, the rule for contributions dictates how long you must wait to access the earnings without taxes or penalties, while the rule for conversions dictates how long you must wait to access the conversion principal. When making a contribution to a Roth IRA, you can always withdraw the contribution principal no matter your age. This is because contributions are made with after-tax funds. To access the earnings, the account must have been funded at least 5 tax years ago, and you must be at least age 59.5. Being age 59.5 alone is not enough to access those earnings. A contribution of any size will start this 5-year clock and after those 5 years it will no longer be relevant. After making a Roth Conversion, there is a separate 5-year rule which states that 5 tax years must pass for each individual conversion or the account holder must reach age 59.5 in order to access the conversion principal. Upon reaching age 59.5 this rule no longer applies. Therefore, if a conversion is made by someone who is 60, they can immediately access the conversion principal, or if someone who is 58 makes a conversion, they can access conversion principal upon reaching age 59.5 without waiting the 5 years. In these cases, the accounts must still be funded for at least 5 years to access any earnings. Since the conversion rule is triggered by the sooner of reaching age 59.5 or 5 years, a 30-year-old could make a conversion and withdraw that conversion principal after 5 years without tax or penalty even though they are not age 59.5. It is common for people to question making a contribution or conversion in fear that money will be locked up for 5 years, but if done correctly there can be ways to access funds without waiting.