Talking taxes on a Friday is a lot easier than talking taxes on a Monday! Believe it or not, at this time of year it is smart to be talking taxes no matter what. Preparation and planning are the name of the game.*
The issue of higher FUTURE taxes is critical to clients of all income levels – especially those in higher tax brackets – and all ages. You will hear me repeatedly hammering home this “tax trap” issue – with the research and collaboration from my sources to back it up.
Here is some “good” news when it comes to taxes and tax strategies: the Roth IRA, Roth IRA conversion and Roth 401k are alive and well for now. The “good” part is that for nearly ALL reading this, you ARE eligible for both the Roth IRA conversion and the Roth 401k (if your company offers a Roth 401k) even if you are in the higher/highest income brackets or own a business! And these strategies can be employed NOW for 2020 and 2021.
By now, most investors know that in late February of this year through mid-March the stock markets kind of crashed. It was a matter of 31 days from February 20th to March 23rd….not that I had to look that up or anything.
It was swift and ugly. And then, the stock markets both suddenly and slowly recovered, hitting it big in April and then gradually reaching new all-time records by September. Hmmmm… how does that work? Is it “free markets”? More buyers than sellers? Individuals throwing money at stocks?
From an edition of TGIF 2 Minutes in early March 2020….
As we continue to watch both from the sidelines and the interior of the Coronavirus tragedy, there exist lessons learned and lessons yet to be learned. Mistakes made past and present. In looking at history and researching the aftermath of past global tragedies there is evidence of subsequent innovations along with lucky breaks that surpass the imagination.
“Do I go to all cash at least until after the election?”
More than a few people have asked me this question over the past several months. Even more people have probably asked themselves this question. The answer, if historical data of the S&P 500 index is a guide, is a firm NO.
The chart above illustrates the impact of missing just the 25 best days in the market, the 15 best, 5 best and 1 best day. The days are NOT CONSECUTIVE, they are random best days. If missed, the majority of stock market gains are missed.
Stocks are now officially virtually “the only game in town.” As of Thursday’s announcement by the US Federal Reserve, their benchmark interest rate will remain at near-zero for the foreseeable future. The “foreseeable future” has been indicated as at least 2022 and perhaps beyond. The “benchmark interest rate” set by the Fed dictates interest rates on most money markets, bonds, and CDs – and most mortgages. This discussion is focused on bonds, CDs, and money markets versus stocks.
“Elephant in the room,” “ticking time bomb”…whatever you wish to call it, there is an issue currently present but not talked about nearly enough. The issue hits a nerve with nearly everyone – investor/saver or not. The issue is taxes – more specifically future taxes on retirement savings. Unfortunately, the issue has become so politicized that its true impact has almost been forgotten.
Back in 2016, I discussed part of this topic in TGIF 2 Minutes. (Click Death & Taxes to read.) At that time, the focus was soaring healthcare costs.
From the TGIF 2 Minutes Archives earlier this year PRE-coronavirus…
Earlier this year in February things were GOOD! The economy was cranking, unemployment was low, wages were up, and it was a somewhat perfect time of the year to set goals. Think: it was pre-tax filing time and after the holidays.
Fast forward to today… the world has changed. Our savings have been tapped in the pandemic — and new savings and other goals need to be reset! While the kids may now be going back to school (followed by maybe not??) using this precious time to set just a handful of goals can pay off toward achieving those goals.
Gold is a fascinating asset and concept. From Egyptian Pharaohs to Sir Isaac Newton to the “Nixon Shock” in the 1970’s, gold has been part of the story. Oh, and by the way, its price has risen over 35% so far in 2020.
Over the years there have been reasons (and not) for an investor to buy gold. One of the “catches” is that gold can be an extremely volatile asset, depending on the global economic cycle, level of interest rates and expectations for inflation. Another catch is that there are multiple ways for an investor to buy gold. Among these ways is to purchase gold in its physical form and insure and store it (expensive) or to purchase gold jewelry or gold wristwatches (also expensive but much simpler). OR, gold can be purchased in a non-physical form through gold futures contracts or via an exchange traded fund, or ETF, like the super-widely held SPDR Gold Trust whose trade symbol is GLD. The GLD trades like a stock and may be the closest way to own gold without having actual possession of the gold bars or coins.
As we persevere through the coronavirus pandemic, consider the following message from the 2019 Archives of TGIF 2 Minutes….
What is your reason for saving money? Is it retirement? Or are there “mini-goals” that would feel really great to achieve today?
Of course, retirement is often a primary long-term savings goal, but not always. “Retirement” encompasses more than simply stopping work and being on a “permanent vacation.” In fact, research published in the Journal of Financial Planning* reports that quitting work cold turkey often is not reality – for a number of reasons.
After talking with a number of clients and friends in the past couple of weeks it became apparent that a breakdown of YTD stock market performance would be informative. There are major pronounced differences currently in the various stock categories. An explanation of these differences could illuminate why certain portfolios have gone up (or down) more than others.
Please note that this discussion is not meant to minimize the importance of performance. Performance is critical; however, the time frame of performance evaluation and the concept of progress toward achieving goals are even more critical to successful investing.