Category: Estate

A Little Paranoia Can Be OK

From the 2022 Archives of TGIF 2 Minutes with a few updates…

Record-breaking, big outlier events tend to move the needle to extremes in the economy and stock market. Note the word, “outlier”. Outlier events typically are surprises and are often unlikely. In his beyond excellent book The Psychology of Money* author Morgan Housel lists five events that were outliers over history in the US with world-changing consequences:

  • The Great Depression
  • World War II
  • The dot-com bubble
  • September 11th**
  • The housing crash of the mid-2000’s.

A conclusion could be drawn from the book’s chapter titled, “Surprise!” that surprises are perhaps the most reliable thing going. But the irony of the reliability of surprises is we do not know what the surprise is until after it has unfolded.

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Difficult Spending Realities

*Please see footnote below for a CORRECTION to last week’s edition, TGIF 2 Minutes – Tax & 401k Infor for ALL Ages. Thank you to my astute readers!

On to this week’s edition:
So far, 2023 has been a decent year, even slightly better than decent, for the stock market and the short-term end of the bond market (total return).

When times are mostly good it becomes easier to feel comfortable spending more money or making major purchases. BUT –

  • as we are still in a fairly dire inflationary environment,
  • with longer-term consumer price effects still to be seen (up or down, but most likely UP)
  • and following over 12 months of Federal Reserve interest rate increases,

currently it makes sense to thoroughly think through – and take more time (perhaps a couple of years) – making major spending decisions.

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Part 2 – Tax & 401k Info for ALL Ages

Part 2 of “under the radar” tax law changes. These changes lead to a needed discussion of current, related tax topics applying to ALL ages of savers with 401k accounts – and possibly IRA accounts too. There is still a decent amount of time remaining in 2023 to make a difference in 401k saving.

Remember that Roth 401k plans have slightly different income requirements than Roth IRA accounts:

  • Roth 401k accounts (which run alongside regular 401k accounts) have NO income limits.
  • Roth IRA accounts DO have income limits.
Roth 401k monies have NO RMDs under current tax law. Traditional, pre-tax 401k monies have RMDs and create taxable income in the future.

Continue reading “Part 2 – Tax & 401k Info for ALL Ages”

Under the Radar Tax Law Changes

Consider this edition of TGIF 2 Minutes an “automatic Part 1” in a 2-part series on changes to the taxation of 401k contributions.

Calling these tax changes “under the radar” may be underestimating the level of attention paid by the average TGIF 2 Minutes reader to tax news. But fear not! Missing these tax changes is common and mostly due to

  1. the IRS typically making substantial tax law changes overnight in the last two weeks of December (see: 2015, 2017, 2020, 2021, 2022 and prior) thus easily missed by the most attentive of savers amidst year-end and holiday activity,
  2. the complicated language used in the changes, confusing both savers and employers and their HR departments.

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2023 So Far So Good…

Superstition is not a strategy, although elite, professional athletes subscribe to superstitions all the time*. The reason for bringing up the topic is that talking about the stock market’s positive performance year-to-date in 2023 could warrant dialing back the optimism – for superstitious reasons! Hence, the “…” in the title “So Far So Good…”.

This said, the US stock market just finished a strong 2-month set of returns, in addition to an excellent January and stable returns in between. This positive performance has no guarantee of continuing but is evidence that staying in the stock market for the long-term – with a plan – can have positive long-term consequences.

  • The S&P 500 is up 16.4% year-to-date.
  • The Nasdaq over the same period is up over 31%.
  • The Russell 2000 Index of small companies is up 9.2%.
  • The Dow Jones is up 6.1%.

Continue reading “2023 So Far So Good…”

The Million Dollar House Down the Street

What happens when the house down the street suddenly sells for over $1 million dollars?! (And all the other very nice homes on the street were purchased for $550,000 or less within the past 10 years or so, maybe $700k for a couple of more recent sales?)

A couple of possible answers with explanation:

Real estate in desirable areas is still white hot. And while areas in the US northeast, California, and Florida (among other high-priced areas for homes) commonly see homes priced in the $3 million to $5 million+ range, homes nationally sell for an average of much less. Depending on which source or what inputs (new or existing, list price, sales price, or market price, etc.) the average home sale price in the US is between $391,000 and $507,000*. Therefore, in most neighborhoods when a home suddenly sells for $1.1 million (or $2.1 million) dollars it is consequential for the local market, especially the neighbors!

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Review: What Could Happen in 2023

Since it is approaching mid-year, it makes sense to look at a few data points from the start of 2023. Back in January, TGIF 2 Minutes took a look at two charts:

  1. How much more expensive growth stocks were (and are) versus value stocks (top chart)
  2. Average US stock returns following big downturns in markets (bottom chart)

Read on for the review from earlier in the year, followed by a June 2023 update. Continue reading “Review: What Could Happen in 2023”

Why Save & Invest?

 

The question, “Why save and invest?” is one not emphasized nearly enough. Often, savers and investors – whether having accumulated millions of dollars or those just getting started – focus almost exclusively on the various investments themselves, without first and often taking a step back to establish the “WHY” of investing.

The WHY can vary greatly, which is the reason the question is so meaningful.

Just this week I heard about the show currently on Netflix called “How to Get Rich” (haha, I may have just lost a few readers who will jump to find out more about the show). But it is not the show that is the focus of this week’s edition of TGIF 2 Minutes but rather one of the ideas behind the show. The idea comes from the author and successful entrepreneur, Ramit Sethi. One of the key ideas Sethi emphasizes is the “rich life” we all may wish to attain.

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I-Bond Update

For a bond that must be held for a minimum of five (5) years for full interest to be received and can only be bought in amounts of $10,000 per year, I get a lot of questions.

To put the situation in perspective, for clients and friends with high levels of income, in the hundreds of thousands and much more, and high tax rates – marginal rates of over 32% – the interest at stake with an I-Bond is currently $600 to $800 per year and that is before taxes! That level of net interest may pay a portion of one car lease payment per year or weekend gas for a boat (in 5 years). BUT nevertheless, I get questions.

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Save, Spend, Review… Repeat

More and more lately, perhaps as a result of the post-pandemic world, I am being asked for basic financial advice – from both young people AND those in the over-55 crowd. By the way, the over-55 crowd who ask this question are typically wealthy with comfortable lifestyles. The basic financial advice they seek includes the question, “Are we OK financially?”

A handful of smart people ask for further definition of “OK” and then ask the same question, “Well then, are we OK financially?” The answer comes down to super-basic elements, and thus today’s short edition of TGIF 2 Minutes.

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