Our Blog

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:

 

Print
PDF

Paying Taxes on Your Investment Income

Written by Lester Detterbeck.

 

on_the_air.jpg

Press Release: On November 6, 2018 (Midterm Election Day), SC Public Radio Host interviewed Les Detterbeck. The message: Income Tax Planning for your Investments is very important.

Click here to listen to the audio http://www.southcarolinapublicradio.org/post/paying-taxes-your-investment-income and/or please read the transcript below.

Mike Switzer: There are two basic truths. We all love when the stock market makes us money. We all hate paying income taxes on those profits. But you still have almost two months to get your investment tax planning in order, so today we have a guest that may be able to help. Les Detterbeck is a Chartered Financial Analyst and Les is also a Certified Financial Planner and CPA. Les joins us from his office in Charleston, SC. Welcome, Les. Thank you for joining us today.

Les Detterbeck: Thank you, Mike for inviting me. Good to speak with you today.

Mike: So, let’s go ahead and dive right into these tips. What’s number one?

Les: Tip #1 is that each year you should go through your portfolio and identify those unrealized losses, that is where the current value is less than your cost. You should go ahead and harvest these losses by selling the securities so that these losses can come into your tax return for that given year. Of course, the losses would offset your capital gains for the year with the net objective that you will have no taxable capital gains for the year.

Mike: You’ll have a limit on the amount of loss you can take if you don’t have enough gains, correct?

Les: Exactly right, Mike. You have a $3,000 annual limit with the excess being carried forward indefinitely. Again, what can happen, because we have had a big pullback in October, you can harvest losses this year because you might need them next year. That wouldn’t be a bad strategy.

Mike: Does your tax bracket matter?

Les: The tax bracket does matter. The general tax rate for capital gains is 15%. However, for the lowest tax brackets, capital gains are taxed at 0% and for the highest brackets at 20%. And, of course, I am only referring to the federal income tax as there is SC tax as well.

Mike: Okay. What’s next?

Les: The next tip, Mike, is to always look at both asset allocation and asset location. You have three types of investment accounts: taxable, tax deferred or tax exempt. For taxable accounts, you must pay taxes in the year income is received. Retirement accounts, IRAs and annuities are examples of tax deferred accounts, in which you pay tax on the income when you take it out. Tax-exempt accounts, like Roth IRAs and Roth 401ks, are not taxed even at withdrawal.

Tax efficient investments should be in taxable accounts, tax inefficient investments should be in tax deferred or tax-exempt accounts. Stocks or equities are tax efficient- if you hold them for more than a year, you pay capital gains taxes not ordinary income.   Bonds/fixed income are tax inefficient. Interest earned on bonds in taxable accounts is income in the year received and is taxed at ordinary income tax rates. Income in a tax deferred account, such as an IRA or retirement account is taxed as ordinary income but only at withdrawal. Hence, the most efficient overall asset location is to put stocks/equities in taxable accounts and fixed income and alternatives in tax deferred accounts.

Mike: And, I heard you mention Roth IRAs. Is there anything there specifically that we should know about for our planning.

Les: Yes, Roth assets are tax-exempt, which makes them the most valuable investment you can own. Furthermore, Roth accounts, unlike traditional IRA accounts, do not require minimum distributions when you and/or your spouse reach 70 ½. Upon your passing, the beneficiaries of your Roth assets can “stretch them” by allowing them to continue to grow them tax-free over their lifetimes. Therefore, you want these assets to be able to grow as significantly as possible consistent with your risk profile and asset allocation.

Mike: And, we have time for one more tip.

Les: My final income tax planning tip today would be to do an Income Tax Projection. Do it yourself or work with your CPA. You need to look at it particularly for 2018 as the Tax Reform made some big changes this year. Review your income, deductions, tax bracket and estimated taxes. Two principal reasons, Mike. One, a projection will help you minimize surprises and penalties. And, two,

hopefully, you will come up with some tax savings ideas, some of which may need to be put into effect before December 31.

Mike: Les, thank you so much for the information and your time today.

Les: Thank you, Mike. Pleasure to be with you.

Print
PDF

A True Halloween Scare: Volatility Returns to the Marketplace

Written by Jake Rickord.

Spooky Graph

Recently, we here at DWM posted a blog discussing the phenomenon that “Bull Market Runs Come in All Lengths”. Within this article, we mentioned the idea that before our current bull run ends, we may see many more pullbacks and/or corrections.

Within the current month, we have seen these types of market downturns as investor fears of upcoming mid-term elections, tariffs, rising rates,  and international economic slow-down issues have spiked levels of consumer fear (measured by the volatility index, VIX), by nearly 50% .

While this data can’t tell us whether the current bull market run is coming to an end, it opens up the opportunity to better understand just what is happening in the economy, and how we should handle times like these.

To understand the severity of market moves, there are three unique distinctions: a pullback, a correction, and a bear market, which signify downward market moves of 5%, 10%, and 20% respectively.

Over the past month, securities within all asset classes – equities, fixed income, and alternatives - have experienced one of these. On October 23rd, in fact, over 40% of the stocks in the S&P 500 were considered to be in bear market territory. Since then, markets have continued their run of ups and downs.

What can this market data tell us about the future? Unfortunately, not much. While markets tend to be cyclical in nature over the long-term, the short-term is usually marred by emotions (herd mentality, greed, and fear) rather than by solid fundamental and economic modeling. Furthermore, the risk of attempting to predict these short-term outcomes can have a serious long-term effect on the performance of an investor. Studies have shown that by missing out on only a few days strong returns in a market cycle can drastically impact the portfolio’s overall return.

Thus, in order to stay on track with long-term financial goals, one of the most successful and least anxiety-inducing ways to manage investments is to generate a financial plan, assess and re-assess risk tolerance regularly, and continually stay disciplined to these values in order to avoid making emotional and poor decisions. In conjunction with these actions, an investment portfolio needs both an appropriate asset allocation based on a client’s financial plan and has to be made up of a well-diversified portfolio that can help provide exposure to market areas, such as fixed income and alternatives, that are arenas that may still produce returns even with stocks stuck in a slowdown. The combination of these strategies can work as shields to protect both an investor’s assets, and his/her mental health during times of volatility such as today’s challenging marketplace.

At times, corrections, pullbacks, and even bear markets can actually be good things! If certain areas of the market are being overvalued, or company valuations are getting ahead of their fundamentals, pullbacks and corrections can serve as a check and balance system, to get these more in line. This makes companies, sectors, and markets more stable as they can refresh a bull market that is verging on inflating itself beyond its means.

Furthermore, a pullback, correction, or bear market move down for a certain security can provide other opportunities. For example, this month, DWM will be creating value for clients by taking advantage of tax-loss harvesting options. Tax-loss harvesting is the process of selling out of a security that has lost value since an investor first bought it, and using that loss to offset any gains that an investor realized during a tax year. This upside can serve as a nice treat to offset the “trick”-y investment arena of October.

One other somewhat notable factoid is that in the mid-term election year of October 2014, the stock market took a noticeably similar look. That of the Dow Jones down nearly 3%, rebounding, and selling off throughout, ultimately dropping into correction territory. This was quickly followed by a November post-election market boom hitting record highs for the Dow and S&P 500. Once again, while interesting to see, take these numbers with a grain of salt moving forward and looking at future returns.

All in all, keeping in mind that while volatility and uncertainty in the marketplace can be scary, maintaining a balanced, disciplined portfolio and financial plan, and staying dedicated to that plan throughout all market cycles is the key to being financially sound and minimizing the number of sleepless nights. At DWM, we proactively discuss these matters with clients, and strive to keep our clients informed, motivated, and on-target to their financial plans to help them reach their long-term financial goals. Happy Halloween!

 

Print
PDF

Your “Hidden Brain” Impacts Your Politics

Written by Lester Detterbeck.

 

 

republicans_and_dems_holding_each_other.jpg

Hopefully, all of us will vote in the midterms on 11/6 or before. Roughly half the country will vote for Republicans (conservatives) and half will vote for Democrats (liberals.). Did you know that your choices are not only impacted by your upbringing and experiences, but also very specifically by your genes? We’re hard-wired from birth for much of our political views.

Shankar Vedantam is one of my favorite authors and commentators. He is NPR’s social science correspondent and before that a journalist at The Washington Post. His 2010 book “The Hidden Brain: How our Unconscious Minds Elect Presidents, Control Markets, Wage Wars and Save our Lives” describes how our unconscious biases influence us. I highly recommend it.

Mr. Vedantam relates the story that on a regular basis, right before an election, someone will share an article with him about how science proves that the brains of a liberal are stunted or that Republicans are less intelligent than Democrats. While those claims likely have no merit, Mr. Vedantam contends that there are “genuine psychological differences between liberals and conservatives.”

On a recent Hidden Brain telecast, Mr. Vedantam hosted political scientist Dr. John Hibbing to the show. Dr. Hibbing is co-author of “Predisposed: Liberals, Conservatives and The Biology of Political Differences.” Dr. Hibbing pointed out that differences between partisans are not limited to politics. There are generally differences in food choices, living spaces, and temperaments. Conservatives generally like meat and potatoes; liberals are more likely to prefer ethnic food. Conservatives tend to have organized rooms with things like sports memorabilia, while liberals tend to have lots more books and may not be as tidy. As far as temperament, conservatives tend to favor order and tradition and liberals tend to be more comfortable with ambiguity and change.

Then, there’s a huge difference between conservatives and liberals when it comes to threats and danger. According to Dr. Hibbing, conservatives tend to see the world with its terrorists, home invaders, drug cartels, and immigrants as a very dangerous and threatening place.   Liberals tend to believe they live in a relatively safe society.   Conservatives therefore want and need the government to help them “protect themselves and their family, limit immigration, and put lots of money into defense and law and order.” Liberals, on the other hand, are reinvigorated by immigrants coming to our country, don’t see the need to spend so much money on defense and support gun control. Conservatives and liberals read about events of the world and they simply don’t respond to them in the same way.

Mr. Vedantam chimed in: “There is a very powerful illusion that we have that the rest of the world sees the world the way we see the world. And, if they come to a different conclusion, it must be because they’re being deliberately obtuse or somehow deliberately biased, as opposed to the idea that people are actually seeing the world the same way, but reacting to it differently.” Psychologists call it a case of “false consensus” that we assume others will see the world the way we do.

People are wired differently. Roughly 30-40% of our political views come from genetics based on research by Dr. Hibbing. 60-70% comes from our environment. Mr. Vedantam has described how researchers separate the effects of biology from those of the environment. They look at fraternal and identical twins. Both sets of twins have identical initial environments, but the fraternal twins have similar but not identical genes. Data from thousands and thousands of twin pairs supports the conclusion that political views are quite “inheritable.”

Finally, brain activation patterns of liberals and conservatives are different. Dr. Hibbing has conducted tens of thousands of experiments in which he showed various pictures to individuals whose brain was being scanned. Liberals’ brains would highly activate at times much differently than when conservatives’ brains were highly active. The brain scan results alone proved “incredibly accurate in determining whether an individual was a conservative or liberal.”

Frankly, I find it very helpful to learn that political views are at least, in part, biological. Years ago, left-handers (like both my mother and father) were thought to be lazy and had their hands hit with a wooden ruler to make them write “correctly,” using their right hand. People saw left-handers as a flaw, something that needed to be driven out. Now, of course, we understand that being left-handed is very biological. Similarly with politics. Dr. Hibbing concludes: “If we recognize that others, virtually half the country, are oriented to the world in a different fashion, maybe we would be a bit more tolerant to them. This is the only way we’re going to get anywhere if we at least understand where they are coming from even if we might deeply disagree with their conclusions.”

As we approach the midterms with the vitriol rising, let’s all remember our hidden brains and those of others, particularly family and friends and show tolerance and respect to all. We may see the same world differently: our unique genes, unconscious biases and life experiences may produce different conclusions and different political preferences. Yet, we’re all Americans and we and our country will all do better if we work together.     

Let's Get Acquainted

We offer a complimentary "Get Acquainted" meeting to describe our services, and to see if our services are right for you.

Contact Us