What–Me Worry?

What–Me Worry?

Mark Lazar’s December 2020 Newsletter

Fear of death is worse than death itself. Gosho Aoyama

We’ve closed the books on November and the election is officially over … sort of. Ironically, Both sides of the political aisle have reasons to applaud as well as agonize. While Donald Trump’s team is pursuing legal avenues to challenge the count in several swing states, Joe Biden garnered sufficient votes to win the White House. Conversely, and contrary to the political pundits’ expectations, Republicans are poised to gain 13 seats in the House. Democrats have thus far picked up one seat in the Senate, but two seats in Georgia are set for a runoff election in January, the outcome of which will determine which party controls the Senate. What’s the Ray Charles song, “Georgia on my mind”?

Item
Data Point
Dow Jones Ind Avg
6.11%
S&P 500 Index
14.02%
Developed International Index
4.36%
US Dollar Index (DXY)
-4.69%
2020 Federal Budget Deficit
$3.7 Trillion
US Q4 GDP Forecast
11.20%
Unemployment Rate
6.7%

*Market data as of 11/30/2020

While there’s been much hand-wringing and pearl clutching over the past month, the market has dismissed election concerns, soaring COVID cases, and increased lockdown measures in several states. The Dow Jones Industrial Average broke 30,000 for the first time in history, and the S&P has jumped an incredible 68% from its March intra-day low. The market has shrugged off virtually all fears, and is boldly looking forward to 2021. As Mad Magazine’s Alfred E Neuman famously quipped, “What–me worry?”

It’s the end of the year and we still have time for last minute personal finance to-do items. The following list contains twelve tips to address this month to make sure you start out on the right foot in 2021:

  1. Harvest unrealized losses in your taxable investment accounts. Realized capital losses offset capital gains dollar-for-dollar, with the remainder, up to $3,000 per year, reducing ordinary income. Any amount remaining can be carried forward and used in future years (throughout your lifetime).
  2. Maximize retirement account contributions. If you still have active income, you are allowed to contribute to a retirement account; your employer’s plan, IRA, or self-employment plan. Employer plans must be funded no later than 12/31, and don’t forget catch-up contributions for those 50 and over.
  3. Convert a portion or all of your IRA to a Roth IRA. If your taxable income happens to be unusually low this year, you have until 12/31 to convert a portion of your traditional IRA to a (potentially) tax-free Roth IRA.
  4. Make charitable contributions by or before 12/31. For those eligible to itemize their deductions, complete your charitable gifts prior to year-end, and don’t forget the receipt.
  5. Gift highly appreciated stocks rather than cash to your favorite charity. If you have a concentration in a highly appreciated stock or mutual fund that you’d like to reduce and you are charitably inclined, gift the security directly to your charity of choice.
  6. Accelerate charitable contributions. The CARES Act increases the maximum deduction available for cash contributions to eligible charities to 100% of adjusted gross income for individuals and 25% of taxable income for C corporations.
  7. Complete non-charitable gifts by 12/31. The current estate tax exclusion amount is $11.58 million per person, $23.16 million per couple. However, the incoming Administration has proposed reducing the amount to $3.5 million per person, plus hiking the rate from 40% to 45% for larger estates. For those with estates over that amount, it may be prudent to make large gifts to family members today in order to lock in the higher lifetime exclusion limit. The current non-charitable gift is $15,000 per person, per year. Gifts over that amount should be reported on IRS form 709.
  8. Review your health insurance coverage. Schedule a phone or Zoom consultation with your insurance agent or contact me to schedule a review with a consultant at HealthPlanOne.
  9. Maximize contributions to your Health Savings Account or Flexible Spending Account, if eligible. HSA plans are available to those with high-deductible health insurance plans. FSA plans are generally available for both standard and high-deductible health insurance plans.
  10. Schedule a property and casualty insurance review. Review coverage and premiums on your home, auto, umbrella policy, etc. Make sure you have the right amount of coverage and for the best price. You should obtain rate quotes from at least two other highly rated companies.
  11. Review and update beneficiary designations. Review your beneficiary designations on retirement plans and life insurance, as well as transfer-on-death and payable-on-death non-retirement accounts to ensure they’re aligned with your current wishes and estate plan.
  12. Evaluate your cash reserve. The rule of thumb is three to six months’ worth of expenses, meaning a person who spends $5,000 per month should keep, on average, between $15,000–$30,000 in cash or cash equivalents. If you have less than that, you should increase your savings. If you have more than that, in a zero percent interest rate environment and inflation running close to 2%, you’re losing money safely. Shift excess cash to sensible investments or pay off outstanding debt, if any.

Merry Christmas and happy holidays.

Mark Lazar, MBA
Certified Financial Planner®
www.pathwaytoprosperity.com

Views expressed in this newsletter are the current opinion of the author, but not necessarily those of Raymond James & Associates. The author's opinions are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. The S&P 500 is an unmanaged index of 500 widely held stocks. The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities. It is not possible to invest directly in an index. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the US. The information in this article is general in nature, is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Investments and strategies mentioned may not be suitable for all investors. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Raymond James is not affiliated with any of the organizations listed above. Neither Raymond James Financial Services no any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Be advised that investments in real estate and in REITs have various risks, including possible lack of liquidity and devaluation based on adverse economic and regulatory changes. Additionally, investments in REIT's will fluctuate with the value of the underlying properties, and the price at redemption may be more or less than the original price paid. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.