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DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

Here’s our latest blog:

 

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New Tax Law’s Impact on Housing

Written by Les Detterbeck.

RE411-2014-03-Tax-Deductions-for-Homeowners-POSTCARD-front.jpgMany realtors across the country are not happy about the tax-code overhaul. The legislation reduces the tax advantage of owning a home, effectively making the “American Dream” tougher to achieve.  For decades, our government has encouraged homeownership, as housing is considered one of the engines that drive our economy. Now, the new rules will likely reduce homeownership and prices, particularly in those high-cost, high-income areas which have previously been receiving much of the tax benefit.  Here’s why:

Reducing deductible mortgage Interest.  The new tax rules state that only interest on acquisition debt up to $750,000 will be deductible.  Interest on home equity loans won’t be.  The prior $1 million debt limit is retained for mortgages originated before 12/15/17. 

Reducing the real estate tax deduction.  Taxpayers under the new legislation must add their state and local property taxes to their state income tax with the combination capped at a maximum $10,000 deduction.  For example, if the taxpayers have $15,000 of state income taxes and $20,000 of property taxes, they can only deduct a total of $10,000. The remainder is lost.  As you can see, those taxpayers with larger income and with expensive houses will be impacted most by these two provisions.  The third big change impacts the entire market.

The standard deduction has been doubled.  Previously, the standard deduction for a couple was $12,700, now it’s $24,000 ($12,000 for individuals.)  Here’s a quick example of the impact. Let’s say a young couple wants to buy a house.  Their combined income is $150,000.  They pay $7,000 of state income tax and have $1,000 of charitable donations each year.  They were renting and not itemizing deductions in 2017, because they didn’t have a house and the standard deduction was $12,700 which was more than their itemized deductions.  Under the old rules, if they bought a house and incurred real estate taxes of $4,000 and mortgage interest deduction of $11,000, their total deductions would have been $23,000.  And therefore, the purchase of the house previously would have provided $10,300 additional deductions over the old standard deduction of $12,700 and roughly $3,000 of tax savings.

Now with the tax overhaul, the total itemized deductions are $22,000 (remember that state and local income taxes plus property taxes are limited to $10,000).  So, the itemized deduction is less than the standard deduction of $24,000.  No tax advantage to buying in their current situation with the new rules.

Certainly, even without any tax benefit, there continues to be huge benefits to owning a house:

1.Predictable monthly housing payments

2.Appreciation

3.Freedom to make modifications

4.Cheaper than renting

5.You can live there forever

6.Increased privacy

7.Become part of a community

8.Build equity

9.Provide a retirement nest egg

10.(Perhaps some) tax benefits

11. A yard for the family dog (last on the list, but often a primary reason).

Using the example above, one would expect that with some of the tax advantage of home ownership taken away, some couples who are on the fence may wait another year or more before buying.  This new dynamic, along with the new potential limitations on interest and real estate taxes, could slow down the housing market.

Some areas will likely be hit much harder than others.  Individuals in states like CA or NY will likely be hit hardest.  Think of it.  Wages, state income taxes, housing prices, and real estate taxes are all very high.  Taxpayers could be incurring $50,000 to $100,000 or more total in state income and property taxes and only allowed to deduct $10,000.  And, if they are buying a very expensive house, interest paid on any mortgage amount over $750,000 would not be fully deductible.

It’s no surprise than many companies are now more intensely looking at moving their company in high-cost, high-income states to better locales.  SC and other states in the Southeast could be key beneficiaries.  States with no state income tax such as TX, FL, and WA are also in good position. 

Even before tax reform, the Charleston regional area has been booming with development.  Earlier this week, I visited the Palmetto Commerce Park in North Charleston, near the airport. It’s amazing. Boeing was the initial draw, and now Mercedes Benz, Cummins, Shimano American, Thyssen Krupp and others have moved in.  ReadySC is helping to prepare the workforce with education and training.  The Charleston region has become a globally competitive destination for business, entrepreneurs and talent. Add to that the climate, beaches, history, culture, food, golf and many more attributes and it’s easy to see how 34 new people move to the region every day. And, that could accelerate.

Finally, let’s not forget Chicagoland. Yes, Chicago can qualify as a high-cost high-income area.  Yet, Chicago is still an amazing place to live.  You’ve got an already thriving business community (Google and vacuum giant Dyson just moved there), four seasons, great athletic teams, super universities, amazing museums, Lake Michigan, food for everyone, Michigan avenue shopping and lots more.

We’ll be following the impact of the new tax law and its impact on homeownership and home prices.  There certainly will be some winners and some losers.

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DWM 2017 Year-End Market Commentary

SkiierinAir

Ah, winter…colder temps, snow (even in the Carolinas)…it’s a good time for the annual ski trip. But if there are words for caution when skiing, it’s always: “Don’t get too far out over your skis!” Something for investors to think about as we talk about how the markets fared in 2017 and where they might go in 2018.

Equities: “Fresh powder!” In concerted fashion around the globe, equities rallied in 2017, thanks to strong economic fundamentals and friendly central bankers. Almost like Goldilocks’s time, where the porridge is not too hot nor too cold, so is the pace of this economic expansion: fast enough to support corporate earnings growth, but slow enough to keep the Fed from putting the brakes on too quickly. This led to a magic carpet ride for equity investors, with returns of 5.1% for 4q17 & 18.3% YTD for the average diversified US stock fund* and a 4.1% fourth quarter return and a hearty 26.8% YTD for the average international stock fund*. “Gnarly!”  Growth outperformed value, with a handful of tech stocks (Apple, Microsoft, Alphabet, and Facebook) leading the way. But it should be noted that this won’t last forever. In fact, a 2016 study** showed that the average annual price return for growth stocks to be only 12.8% vs 17.0% for value stocks. Another reason to be diversified.

Fixed Income:   It was also a positive time for bond investors, as evidenced by the Barclays US Aggregate Bond Index gaining 0.4% in the fourth quarter and 3.5% for the year. The inclusion of global fixed income assets led to better results with the Barclays Global Aggregate Bond Index registering +1.1% for 4Q17 and +7.4% YTD. Yields on the ten-year bond pretty much finished the year where they started, with investors content with the Fed’s pace of raising rates.

Alternatives:  The Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, was up 1.7% for 4q17 and 4.6% YTD. Two of the most well-known alternative exposures, gold and real estate, had solid showings for both the quarter and the full year. Gold***: +1.6% and 12.9%, respectively. Real Estate****: +3.5% and 7.8%, respectively.

2017 proved to be another rewarding year for the balanced investor. But how do the slopes look for 2018? Will it be another plush ride up the mountain again? Gondola, anyone?!?

Indeed the same items – low interest rates, low inflation, accelerating growth, strong earnings – that propelled the global economy in 2017 should remain in 2018. The risk of recession seems nowhere in sight. Furthermore, the Republican tax overhaul is also expected to be a boost, at least in the near-term. But not sure if that represents “eating tomorrow’s lunch”. Moreover, two key drivers of economic growth, productivity gains and labor force expansion, have been on the downtrend. So is now the time to be thinking about the “vertical drop”???

With the bull market in its ninth year, many areas of the stock market at record highs, and volatility near record lows, it can be easy to become not only complacent but overconfident. Now is not the time to get too far out over your skis and take on more than you can chew! At some point, the fresh powder will turn into slush. Don’t be a “hot dog” or a “wipe-out” may just be in your future.

At DWM, we see ourselves as ski instructors, helping our skiers traverse the green, blue, and even black diamond runs by keeping them disciplined to their long-term plan, including the allocation and risk profiles of their portfolios.  Rebalancing, the act of selling over-weighted asset classes and buying underweighted asset classes in a tax-conscious manner, is part of our ongoing process and prudent in times like these. There are few signs of financial excess like ten years ago, but the market can only be predictable in one fashion: that it’s always unpredictable.

In conclusion, may your 2018 be a ‘rad’ one, with fresh powder on the slopes and fireside smiles in the cabin. Don’t hesitate to contact us if you want to talk or ‘shred’ the nearest run.

Brett M. Detterbeck, CFA, CFP®

DETTERBECK WEALTH MANAGEMENT

 

 

*according to Thomson Reuters Lipper

**study by Michael Hartnett of Merrill Lynch

***represented by the iShares Gold Trust

****represented by SPDR Dow Jones Global Real Estate

†versus your initial investment target

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Happy Holidays!

Happy Holidays

"The joy of brightening other lives, bearing each others' burdens, easing others' loads and supplanting empty hearts and lives with generous gifts becomes for us the magic of the holidays."

-W.C. Jones

Working with our client base makes working at DWM feel like the holidays all year-round. We could not be any more appreciative of the wonderful relationships we’ve been able to establish with each of you.

We wish the brightest of holiday cheer and happiness to you and your families this holiday season!

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