Agent of Wealth Episode 62 – The Year in Review and a Look Ahead

Should I time the market? Is Bitcoin the next big thing? Am I missing out if I don’t purchase Tesla? Will Biden’s administration impact my taxes? What does the future of the economy look like? In this episode of The Agent of Wealth Podcast, Marc Bautis does a 2020 recap and looks ahead to help prepare you for taxes, investments, and your financial plan. Marc touches on hot topics and also shares his best tips on how to handle your financial future.

In this episode, you will learn about:

The 2020 election and a market review.
2021 economic predictions and key risks.
Investing in popular trends such as Bitcoin, IPOs and Tesla.
Potential tax changes and their impact to your investments and financial plan.
Planning and investment ideas for 2021 and beyond based on the new Biden administration.
And more!

Resources:

Bautis Financial: (862) 205-5000

Disclosure: This webinar is for informational purposes only. Consult with your financial professional before making any financial decisions.

The 2020 Presidential Election

I’ll talk a little bit about the history of how markets have done under different presidential administrations. What we can expect going forward. I’ll also talk about my responses to the questions I received about trying to time their investments for when “things look better”.

We’ll start with talking about the election. Prior to November it was the number one question that I received. “With the uncertainty of the election, should I do this or should I wait to invest or reduce my risk?” A similar question came up in December, “It looks like everything worked out after the election with the market. But now we have this Georgia runoff, where these two Senate seats are up for grabs and should I then wait more and try and time it when things look better?”

If you look back at 2020, we basically shut down a country for a good portion of it. When you look at the performance numbers of the S&P, the Dow, the Russell 2000, it doesn’t make sense. Why would these indices be up when the economy was shut down and things were so bad for a period of time?”

We’ll also cover why the markets aren’t necessarily correlated to what’s going on in the economy. In episode 44 of the Agent of Wealth I talk about how the stock market is a leading indicator and not necessarily a representation of what’s going on in the economy right now.

If we look back at 2020, the market performed great. The S&P 500 was up 16%, which is a good return for any year, never mind one where there was an unprecedented virus. The winning sector was technology and some of the big, well-known technology companies crushed it.

A Shift to Value?

There’s no denying the strength of the technology sector over the past 10 years, but one thing we did see after the election was a shift into Value stocks.

Value vs Growth Stocks Explained

Lessons from 2020

The market was humming along as we entered into 2020. We were at record low unemployment. The coronavirus came and caused a bear market which is defined as a stock market drop of 20%. Usually bear markets last on average 22 months. This bear market lasted 33 days It was the sharpest, quickest time from start of bear market to out of bear market, which it’s crazy when you look at everything that happened

The unprecedented government financial stimulus was the major reason the bear market was as short as it was.

As I mentioned, we saw that shift from growth to value and cyclicals. Cyclicals are companies that usually thrive when the economy is in a recovery phase. An example of one would be like Nike. As the economy is in an upswing people have discretionary income. They have money to spend and they’ll buy sneakers or clothes from Nike. Whereas a growth company like Amazon whose revenues are increasing quickly and you’re buying the future growth of the company.

We saw a lot of volatility in the markets last year especially in February and March, which was not surprising. Unemployment was at the highest levels since the great depression. As some of the stimulus kicked in, we started seeing some of the companies rehire. There are still a lot of unemployed people now and I think one of the major themes for 2021 will be how do we get the jobs back.

One of the other things helping the markets was how quickly the vaccine was developed when you compare it to historically how vaccines have been developed. The market liked the news about the vaccine. It was developed faster than expected and also has a high percentage of being effective. The market sees an end to the uncertainty of the virus and a light at the end of the tunnel.

Goldman released a report of 2021 key market risks.

How much damage was done to the economy as part of the coronavirus shutdown? Are there going to be industries that never recover.
Investor sentiment. There’s still a lot of uncertainty even though the market and investors right now are predicting a return to normal in the second half of 2021. It may not go that smoothly.
Federal Stimulus. Part of the reason why 2020 was a good year for the market there was an unprecedented amount of government stimulus. The stimulus put a floor on how low the economy and market could go. I think the market is craving more stimulus and we could see a big hangover if it doesn’t come.
Inflation. With all of this stimulus inflation is another key area to watch.With that, that federal stimulus that’s going on, inflation’s another key thing to watch. Because as trillions of dollars is going out into the economy and to help with all these relief packages, that drives up inflation a lot. You have many dollars competing for the same thing, it’s just going to increase the price of everything. The Fed will usually raise interest rates to combat inflation, however in the current state of the economy it’s kind of a dangerous game that they would have to play if they had to raise interest rates right now. We haven’t had any inflation for a while. If that comes into play, that’s another game changer.

China’s been on the back burner. In 2019 and into the start of 2020 the China trade war was the most popular economic topic. It disappeared during the virus. It may come back again even if it’s a little different under the new presidential administration.

There was just another relief package that came out at the end of December, and already President Biden’s proposing another third relief package on top of that. I think these relief packages are hitting different areas of different areas that need help.

One area that you don’t hear too much about but is definitely a concern is the finances at the state and local government level. Unlike the federal government, which can easily print money, the state and local governments have taxing power but not to the same extent as at the federal level.

A lot of people tried to time investing in the market around the election and like most market timing it didn’t work. From the November 6th election day to the January 20th inauguration day the markets were up 14% which was the most over that period of time since 1928.

If we look historically at how the markets have done under different presidential administrations it can be surprising. A lot of people take their political views and try and translate that into investing decisions..

It’s not just the presidential administration, because you also have to look at who is controlling the Senate, and who is controlling the House? Does one party control everything, or it is split.

What we’ve seen is that, when one party controls all three areas, the markets have actually done better. I think in this year’s election, the market does like the fact that the control over the House and the Senate is not at a big majority. The Senate is at a 50/50 split with the tiebreaker in democrat control. I think it will keep some of the potential changes in check.

What Happens if President Biden’s Tax Proposal Goes Through?

I was asked about what will happen if President Biden’s tax proposal goes through? Is it going to cripple the economy?

Some of the things that are proposed in Biden’s tax plan will accelerate changes that are set to take place in 2025. Corporate taxes were reduced as part of the 2017 Tax Cuts and Jobs Act. There were some changes to the estate planning. Basically a return up to the 39.6 tax rate for anyone who has income over 400,000, corporations would have to pay more in tax.

I’ll talk a little bit about the estate tax or estate planning. Estate planning has taken a little bit of a back seat for a lot of people because the exemptions were raised up to $11.58 million per person. If you coordinate it with a spouse, you can be looking at over $23 million that your estate would have to be before you would get hit with any kind of estate tax, that may change. The proposals are that it goes down to$3.5 million or $5 million. If you start adding up someone’s assets, you could hit that pretty quickly.

Then the step up in basis is one thing that’s a really good tool that we utilize a lot. If someone inherits an asset, the price that the asset was purchased for is called the cost basis, when someone passes away, it gets stepped up to whatever the value is at the time that they died. Even though they may have purchased a house in 1950 or 1960 at $50,000 and it’s worth $500,000 right now, if the person that inherits it then sells it, they wouldn’t have to pay capital gains tax on it.

That’s the way it works now and I think one of the proposals is to abolish that step up in basis so that the person that inherits the asset would have to pay tax on $450,000 of capital gain. That’s what they would sell it at with the current market when they inherited it minus what it was paid for back in 1950.

These are tax proposals that are proposed now which may potentially go into place, but even if some of them don’t get passed, the current ones that were passed in 2017, they’re set to aspire in 2025. We should all start doing tax planning now in preparation of at least that but also some of these which may go through. There’s different things to look at in terms of how to protect or hedge against some of these proposals that are in place.

A couple of those are Roth conversions which I’ll talk about, one of my favorite things going into 2021 that I want to look at. Harvesting gains, which means you’re paying the tax now at a capital gains rate, may potentially be lost. What the proposal is, is potentially capital gains rates might increase or go to ordinary income rates which we saw those can go as high as 39 and a half percent. Whereas capital gains rates right now are as high as 20%, so it’s kind of a balance act where you have to look at, how much gain is in a particular asset that you have? Does it make sense to pay the tax now, which is called tax harvesting?

Another popular thing is harvesting tax losses, so that means at the end of the year we’d look at how much is invested in an asset or or stock. If I have had a loss we can sell it, and we can take a tax loss on it. Going forward it may make sense to delay doing that because the loss may be at a higher, you can deduct it at a higher tax rate than if you did sell it now.

Like I said either way, it makes sense to look at the specifics and gameplan off of that and say, “All right the plan is, we’re going to leave this asset, not sell it, but we may sell this to harvest a gain on here. We’re going to keep the loss,” which is contradictory to the thinking in a lot of cases that has been previously.

Changes in Financial Planning

All right, so we’re going to talk a little bit about why planning is going to be a little bit complicated now versus how it’s been. There are four elements that complicate planning:

Presidential election and gridlock government.
Recent legislation (SECURE Act, CARES Act, TCJA).
Historically low interest rates.
Historically low tax rates that are subject to change (sunset of TCJA in 2025).

Obviously, we have the presidential election and potentially it’s a gridlock government. We don’t exactly know what can get passed or what is going to get tried to get passed. There’s been a lot of legislation that’s come out, so in the past three years we’ve had the SECURE Act, the CARES Act, and the Tax Cuts and Jobs Act. All three of those have been enormous bills that have really re-written a lot of retirement planning, tax planning that we need to look at and decide whether someone needs to take action or not on it.

Next, historically low interest rates. I think the number two question that I’ve gotten over the past year with number one being about the election and about investing at highs is, “I have money sitting in a bank account earning,” and it’s some poultry interest rate that they’re getting. “Should I be doing something different with it? Or is there something different I can do?”

The way I answer that is, “Yes, there is.” There always is, but you have to make an apples to apples comparison.” Usually you look at the bank and you look at some FDIC insured savings account, perhaps a CD. The way I approach it is say, yeah we can get a higher interest rate, but it means that we’re going to take on additional risk to do it. We have to look at, is the risk worth it to take? Is someone comfortable with the risk and does the risk make sense? That’s how I approach that, and again, everyone’s different in what they’re trying to do with it.

Then the last thing on here is what we talked about, the tax rates are historically low. They’re probably going up in the future, just like I’ve been saying, interest rates are probably going up in the future. It’s taken a lot longer to get there. We may see tax rates increase a little bit quicker than we’ve seen interest rates go up, I mean interest rates have gone down over the past couple of years.

In terms of the planning side, I think six things to focus on:

Review your portfolio’s asset location and asset allocation.
Understand the need for tax planning.
Retirement planning for peace of mind.
Estate planning is coming back!
General planning.
And don’t forget distribution planning and Roth IRAs.

We’ll go through each of these as, how is your portfolio allocated? There was a gut punch in March and you really have to look at how did you handle that? Did you sell and say, “I can’t take what’s going on. I want to wait until the coast is clear,” which may mean that you were allocated too aggressively. Or was it, “Yeah, it was bad and there was a big market drop,” but was it something that you were able to handle and able to stick out and wait out?

I think one common thing that I did see back in March was people saying, “This time it’s different, I can’t take it. I don’t want to take it. This time it’s different.” If you look back over the years, we’ve seen all these indications where I think some bad news came out and we thought to ourselves, “This time’s different, the market is not going to come back from this and things are going to change.”

I think one of the lessons we learnt is that, it wasn’t different in 2021 and it doesn’t mean we’re not going to see a pullback, and we won’t see a future pullback. The market did recover and the market probably will recover from any future pullbacks that we see.

The three through six is really looking at specifically retiring planning, estate planning, just general planning. Also, how distribution planning is coming back into play too. We’ve saved all these assets up, how can I be most tax efficient? Look at the returns I’m getting when I start taking money from these accounts. Does it make sense to pull money from my taxable account first or should I have stopped pulling money from my IRA? I know that tax rates might go up in the future and I’m going to have to pull money out at a higher tax bracket or tax rate.

First thing we’ll talk a little bit about the asset allocation that someone makes. I think one way to start is, where do you have your money and what are the taxable implications of where the funds are? If you have it in the traditional IRA or 401k, you’re getting that tax deduction upfront and it’s great to get that, but you’re eventually going to have to pay tax on it in the future.

You have to run a projection and say, “Well I’m pulling money out at this rate, I’m getting a deduction at this rate. It makes sense to continue doing that.” I’ve brought up the Roth IRA earlier, it’s something that I bring up a lot because it takes the tax brackets or tax increases out of the equation. You put post tax money into a Roth IRA or Roth 401k and as long as you take it out when you hit a certain age, there’s a couple other ways that you’re able to take money out, you don’t have to pay tax on the money coming out.

You know that if there’s a million dollars in your Roth 401k or a million dollars in your Roth IRA, you can plan for that and say, “Okay, I’m going to be able to pull out at least a million dollars from there.” Whereas your traditional IRAs where you’re getting that deduction each year, a lot of people don’t realize that they have a partner in that and their partner is the IRS. Every time you take money out, if you’ve stopped working, you’re retiring, you’re taking money out, part of that is going to have to be paid as ordinary income taxes to the IRS.

Roth IRAs also have the benefit in that they help with estate planning. They’re another way of transitioning accounts or assets to beneficiaries and, because they’ve been paid with pre-tax money, you have a little more access to the money prior to age 59 and a half.

Then the taxable accounts are another optional way to save money. You can be as conservative or be as aggressive as you want in them. The only difference is, you have that flexibility of using these accounts liquid. You can use them at any time, but you’re going to need a 1099 each year that shows this is the interest, these are the capital gains and you’re going to owe tax on them.

One visual is to look at the different types of allocations where you can add your funds to. We like to bucket this approach and it’s not that one is better than the other, but for example, in the middle you see the tax exempt interest and these are the municipal bonds that I was talking about. A lot of times retirees like these because typically the state and local governments are pretty stable. They can raise property tax or they have other taxing abilities. Or if it’s another type of municipal bond, it’s based off of revenue and the interest is exempt. Again, back to that Roth IRA type where you don’t have to worry about paying tax on it. Also, I do like to throw dividend stocks into there, just because the dividends are at a preferred or a lower tax rate that you’d have to pay than interest on a bond or interest from a rental real estate property.

I think going back to a Goldman study, where they’re looking at the outlook for bonds is not so good. Bonds can be across a couple different things, whether it’s treasury bonds, whether it’s corporate bonds or whether it’s state or local bonds. The reason why they have such a poor outlook is that the interest rates are so low right now, they can only essentially go up in the future. When interest rates go up, it has a negative correlation to or adverse correlation to the price of the bond.

There are ways to not be affected by this by holding a bond to maturity or holding a CD to maturity, but it’s like I said, planning is going to change in the future. It used to be 10, 15 years ago you could buy a bond and it would kick off 7%, 8% , 9% interest. Now you buy a bond and it’s producing 2%, 3% and you’re taking on the risk of interest rates potentially going up. Again, it’s something that we need to look at and see, does this particular bond, and they call it many different flavors ,make sense for what you’re trying to do?

3 Asset Allocation Themes to Consider

Structural growth
“Recovery trade”
Targeted alpha strategies

I think some asset allocation themes to look at are, a lot of people look at risk and I use risk a lot when I talk with people. They look at it as one of those four letter words, as a dirty word, but in some cases now it’s something you look at, how much risk does someone need to take? In some cases we need to take on risk to be able to get the growth that is needed or wanted in those accounts. You want to look at, “How do I still get growth in the account while maintaining the right level of risk?”

The recovery trade is another popular question that I’ve gotten and I’ve gotten this throughout the past year. But at what point does it make sense to invest in airlines or some of the industries that were really hit hard? It goes back to, “it depends,” and the understanding what the risk is in that particular investment.

Then the other thing which I’ll talk about in a little bit is what’s called the alpha strategies, which is how to gain a better return while maintaining the same risk. Or maintaining the same return while taking on less risk so that’s part of it that how we are trying to approach it. Look at it from a risk perspective, how can we attain alpha, which is that outperformance, while maintaining the same risk? Or if we have the right amount of risk or we have the right return that we’re targeting, how can we do it while taking on less risk with the portfolio?

Again, growth like I said is, sometimes an investment that’s typical for growth is the right investment to have in there. They shouldn’t necessarily be shunned or shied away. The recovery stocks as the economy does recover, there are certain types of companies that do perform better. They’re small, the small companies generally do better as do mid companies.

Foreign emerging markets have become an afterthought over the past 10 years just because of the US large cap, the companies we always hear about the Apples, the Disneys, the Amazons, the Microsofts have really done well. But that’s not always the case and some of the firm economies are in better shape than ours is. We may look out there and there may be a better return going forward from some of those countries than there is that we see on our side.

Then there’s other types of investments, everyone thinks, “Oh I need to invest in the S&P 500 or these US large cap stocks,” but there’s a lot of different investments out there. That the investment world is always evolving over time, and I think there’s been access to a lot of these investments over time that we all have the ability to invest in now. Some of them don’t make sense, but a lot of them do. As far as construction of a portfolio, they can help reduce the risk or hedge against taxes or provide the necessary income. Just like anything, we should look at them and consider them as potential additions to a portfolio.

I like to pull this slide up because a lot of people will say, “Well should I just invest in the S&P 500 and call it a day and everything will be fine?” They may over time be fine, but the S&P 500 does go through periods of time where it doesn’t do anything. The time slot that I show to illustrate that is between 2000 and 2009, so if we take those 10 years, that’s called the S&P 500’s loss decade because it actually started out in 2000 higher than it ended in 2009 if you did invest in the S&P.

But other types of investments actually did well over that period of time. If you just invested in foreign stocks, they were up 17% over that period of time. If you just invested in the small caps stocks, so these are the smaller companies, they were up 41%. If you had a diversified portfolio across a bunch of different ones, it was up 52. Even these stodgy bonds that people don’t like and shun, they were up 85% over that period of time. Then emerging markets were the big winner where they were up 162% where I think it was 12% per year over those 10 years that they were up. Diversified a lot of times is better than one asset class, but also, we should be looking at different things other than, “Okay, I’m just going to invest in the US large cap stocks.”

Should You Invest in Bitcoin?

All right, I guess I don’t know what number I’m at in terms of frequency of questions, but Bitcoin is up there. I’m not going to go into what Bitcoin is because I think there definitely are some questions that people have on that. The question I get is, “Should I be investing in Bitcoin?” A lot of times the question comes from, “Well I’m seeing it on the news that Bitcoin,” and if you look at this chart you see that big stick that goes up towards the end of it, that’s the price of Bitcoin going up 400% in 2020.

The questions come naturally with that FOMO or that fear of missing out, “I’m I missing out by not investing in Bitcoin?” I’ve never really gone after someone and said, “Invest in Bitcoin. Invest in Bitcoin.” What I’ve done when I got that question is, look at the pros and cons and how it will fit into what they’re trying to do and making sure that they understand the risks of it.

The first way I understand the risk is, if you look in the chart you see 2018, Bitcoin was up at $18,000, the price of Bitcoin was $18,000. Over that year from 2018 to 2019, it went down to $3,000 so that’s a mammoth drop that it had in that period of time. What I do say is, “What would happen if Bitcoin dropped 80% from where it is right now, would you be okay with that?” That’s one way to just have the investor visualize what potentially could happen.

Yeah it went up, it spiked up and the same goes for investing in other companies that have had really quick, really high gains like Tesla. Another example are some of these IPOs that have come out. My approach to answering the question has always been the same. There are some positives about Bitcoin and I think the number one reason why it’s getting a lot of traction now is, we’re also in the stimulus that’s going out there. The government just printed money, there are a finite number of coins that are out there.

I think people look at it as, well it’s going to hold its value. You can equate it to a digital version of gold, where people look at gold and they say, “Gold’s an inflation hedge. It’s a hedge against a weakening dollar,” and that’s what we might see. Of course all the stimulus goes out, the dollar may weaken which may have other impacts to the economy and to the markets. People look at Bitcoin and say, “Well they’re mining for them, but there’s no additional ones that are being created.” It’s a better way to hold value in something that’s valued in dollars.

It’s also getting more traction in usage, so if you look at it, you’re seeing it being accepted more. I think that was one of the things back in 2018 that people were worried about. It sounded great, sounded cool. It’s the thing that the government doesn’t have control over. I think that will change eventually in the future, but it wasn’t accepted anywhere. You couldn’t do anything with it really aside from hold it.

Now I think we’re seeing more usage of it. People are buying houses in Bitcoin. It’s being accepted a lot and you’re seeing some of the financial institutions start to accept it as well. On the con side of things, and this is what I always say is, Bitcoin, I think right now it’s down to like $32,000, but what’s the value?

How do you value Bitcoin? If we’re valuing a stock, if we’re valuing a piece of real estate, we can look at the cash flows, we can look at the earnings or the revenue that it’s generating and we can generally put a value on it. How do you value what is the right price for a Bitcoin? I think that’s one of the challenges of Bitcoin.

The other thing is, yeah it sounds great, it lives on this blockchain technology. It could hedge against some monetary and economic policy, but what if something better comes along and all of a sudden Bitcoin just loses all its traction and everyone goes to this new type of coin? I know there have been additional coins and it looks like Bitcoin has some staying power, but there’s always a chance that something new comes and Bitcoin just gets pushed to the side. Now how do you hedge against that with a new coin that looks like it’s getting traction after you allocate some of the money to that?

I think the way to approach it is look and see how it fits into what you’re trying to do. Look at the pros, look at the cons. Understand the risk, understand what you could see in terms of price increase, price decrease and from there make a decision whether to include it or not include it in your portfolio.

Taking Advantage of Tax Planning Tactics

I mentioned earlier that tax planning is going to be critical. Managing the tax brackets are extremely important. You’re in one tax bracket, and you have to look at, “Well, if I take any additional deductions, can I get to a lower tax bracket or vice versa? Can I accelerate any income,” Roth conversions are a big part of this, “and stay within my tax bracket?” That’s one thing that’s going to be a popular theme in 2021 is, looking at how to manage those tax brackets over time.

The other thing I talked about was the capital gains planning, and it’s being flipped on its side. Now where you want to harvest tax losses and deferred tax capital gains, it’s almost being looked at reverse starting now. Where it may make sense to harvest some of the gains now and pay the gains at a lower tax rate than you would if you waited until the future.

Real quick I’ll talk about some of the retirement plannings and again, Roth conversions taken into this account. Some of the other things we talked about with the SECURE Act has changed the way beneficiaries can inherit and stretch IRAs. It used to be that someone would be able to inherit an IRA, spread it out over their lifetime. If someone was in their 40s or 30s or even younger, they can really spread that IRA out over a long period of time. It was a great tool.

Now that law has changed, it’s part of the SECURE Act and it has to be depleted. An Inherited IRA has to be depleted within a 10-year period of time, but there are some specifics on how that has to be set up to be able to take advantage of that. If it’s not, it will have to get depleted over a five-year period of time, which obviously is less advantageous to having this IRA which is in this tax advantageous umbrella to utilize. There is some planning that has to go on, on the retirement side as well.

I think the main thing is contributing to retirement accounts is a good thing on multiple levels. If you look at the bottom to the HSA, which is a Health Savings Account, it’s a tax advantage account that you’re able to contribute to on a specific type of health insurance plan.

I think now is when many people are taking advantage of this as they have the ability to, but I’m a huge proponent of HSAs because unlike pretty much anything else, they have the triple tax benefit. Not only do you get a deduction from money that you put into the HSA, but you also don’t have to pay tax on it coming out. With all these 401ks and Roth IRAs, you either pay tax at the beginning and get a deduction or contribute with post tax money and don’t have to pay tax at the end. You get a tax benefit at one or the other, the HSA you get it on both sides.

The money does have to be used for medical expenses, but it can pretty much cover almost every medical expense and it’s a great way to save for medical expenses in retirement. I’m a proponent of when applicable to take advantage of HSA accounts.

I mentioned this earlier about estate planning, where it did get put on the back burner for a little bit because the estate tax exemptions were so high, that’s not going to happen in the future. They’ve set this up to some set in 2025, but also we could see some tax changes going forward now if they can get some kind of bipartisan bill across that may change the estate planning going forward. You want to look at how assets are titled, does it make sense to change the title of assets, put them in trusts?

Gifting is a big thing where we’re all able to gift up to $15,000 a year to any one person. A lot of times people will put a year by year gifting strategy in place, and what that does is that’s a way to transition assets to another generation without having any tax consequence by doing it.

Then like I said, the SECURE Act actually did have a lot of changes to estate planning as well, and it definitely warrants looking at how specific changes will impact you. Whether it’s beneficiaries, some of the ways that life insurance could be utilized and then also that distribution planning in the order of how you start withdrawing from your accounts in retirement.

That’s what I have up now is distribution planning and that really encompasses it. I have all these assets, I have an IRA, I have a Roth IRA, I have a savings account, I have a taxable investment account. I have this real estate property. I have maybe this life insurance policy. How do you look at all those different assets and the right order to start pulling money out of those? Then in addition to that, does it make sense to convert? It doesn’t have to be converted all at once any of those IRAs over to Roth IRAs or Roth 401ks for the benefits that we talked about earlier on.:

I talked a little bit about that tax bracket management or tax bracket strategy. This is just a quick slide that shows how someone is in one tax bracket and how they can convert some of their IRA over to a Roth and still maintain that tax bracket they’re in. Not bump themselves up into a higher tax bracket, so I started looking at or implementing these with some people. It makes sense to look at your specific tax bracket, how much you have before you get bumped up to the higher tax bracket, and then taking those two pieces of information and deciding whether it makes sense to convert any of an IRA into a Roth.

People will say, “Oh I’m retirement planning now, maybe I’ll do that as I approach retirement.” The younger someone starts looking at these Roth conversions the better, because once you convert it into a Roth, you don’t have to worry about taxes again. If someone says they’re going to convert $10,000 today into Roth and they don’t do it, and next year it’s worth $12,000, if they convert it they’d have to pay income on $12,000 versus a year ago they’d only have to pay it on $10,000. The timing of it is also obviously important as well.

A couple of key takeaways, don’t base your plan or your investments off of politics. I think we’ve looked at historically, I don’t think anything’s going to change in this administration in terms of, it would have made sense to have waited four years or wait until the next administration. I think in two years there’s going to be another set of elections really focusing on I think about 34 Senate seats. I think that’ll be important, because right now it’s 50-50 plus the tie breaker. If we see it sway one side or the other, I think that can change things.

The 60-40 portfolio, it was a common way to invest and I think it was one of these set it and forget it types of investments. I think the theme going forward is to be a little more cognizant of what’s going on in your portfolio, what’s it invested in and are there any opportunities to take advantage of a lot of this volatility or a lot of uncertainty that’s going on with the market?

This is just a rehash of what we talked about, looking at your portfolio, understanding the need for tax planning. That retirement estate planning and general planning, it’s not just do it as you’re older, as you’re approaching retirement or in retirement. The earlier you do some of this stuff and earlier you look at it, the better off you’ll be long term for it.

Key Takeaways:

Your financial plan isn’t based on the idea that a Republican or Democrat will always be in the White House. Elections should reinforce, not alter, strategic portfolio discipline. The market is driven more by fundamentals than politics.
The 60/40 portfolio is dead. Instead, think of your portfolio as a three-legged stool: Growth, recovery stocks and non-correlated, idiosyncratic strategies.
Consider high conviction strategies and determine which risk you will take on: Manager, liquidity, credit and so on. Stay focused on the long term and stick with your plan.

These are just some of the sources that we used. I’d be happy to talk to anyone about the information in this webinar. You can schedule a consultation with me to discuss more.