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:

 

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Happy Valentine’s Day- Here’s Something Better than Chocolates!

Written by Les Detterbeck.

tax advantages and chocolate

We love chocolate. We also love saving taxes for our clients. Hard to believe- we’re already 45 days into 2018, dealing with a very different tax structure. We’ve been working on 2018 tax planning for our clients and wanted to share some early observations with you. Our twin goals: eliminate surprises and identify tax strategies/advantages to save money.

First, a review of the major changes in personal income taxes for 2018:

  • Standard deductions are increased (to $24,000 for couples and $12,000 for singles).
  • Exemptions are eliminated.
  • State and local tax deductions are capped at $10,000 total.
  • Interest on home equity loans is no longer deductible and mortgage interest is also reduced.
  • Miscellaneous deductions are no longer allowed.
  • Tax rates have been lowered.
  • Alternative minimum tax will likely affect fewer taxpayers.
  • Self-employed taxpayers may get a 20% reduction for small businesses, partnerships and S Corps “pass-through income.”
  • Section 529 Plan distributions have been expanded to include K-12, though capped at $10,000 per year.
  • Corporate tax rate decreased from 35% to 21%.

Second, a quick recap of what we have seen on the 2018 income tax projections we’ve completed so far for a dozen or so of our clients:

  • Except for certain anomalies, such as large families, most taxpayers will be paying less tax than 2017. Larger income generally means greater tax savings. And, business owners with pass-through income will get the biggest tax benefits.
  • New, lower withholding tables have been released.
  • More taxpayers will be using the standard deduction.

Third, a summary of some key new/enhanced tax planning strategies/advantages that may help:

1. Expanded use of 529s. We think 529s are a great educational funding planning tool. As long as the distributions are for qualified expenses, there is no income tax on the appreciation of contributed funds. Furthermore, contributions are tax deductible, within certain limits, for both IL and SC taxpayers and both states offer quality investment options. Contributions can be made in installments or lump-sum.

2. Bunching of deductions. With itemized deductions being reduced, more taxpayers will use the standard deduction. A decision to use the standard deduction or itemize can be made each year. If your itemized deductions typically are less than the standard deduction, you could consider bunching deductions, particularly charitable contributions in one year, so that you could alternate between itemized and standard deduction from one year to the next. The use of Donor Advised Funds can help accomplish this.

3. Using the Qualified Charitable Deduction (“QCD”) for all or most of your Required Minimum Distribution (“RMD”) from your IRA. Once you reach 70 ½, required minimum distributions need to be made annually from your IRA accounts. Instead of simply taking the distribution and paying income tax on it, you can instead direct money to a charity and not pay tax on that part. Hence, a married couple could get the $24,000 standard deduction, plus reduce their taxable income by making QCDs. The maximum annual amount of QCDs is $100,000. If the total QCDs are less than the RMD, then you will pay tax on the difference.

4. Paying investment management fees in part from retirement accounts. Most CPAs have been deducting investment management fees as allowable miscellaneous expenses for years. Some only deducted amounts paid by taxable accounts. Some deducted the full amount, whether paid by taxable accounts or retirement accounts. Now, in 2018, investment management fees will not be deductible at all. We believe it is best to have fees for retirement plan funds paid by retirement funds and fees for taxable accounts paid for by taxable accounts. Pre-tax money in retirement accounts will be taxed someday, typically when RMDs start. Taxable accounts represent money that has already been taxed. And, paying for taxable account investment management from a retirement account would be considered a taxable distribution for which a 1099-R would be issued. Best to split it up.

5. If you are a business owner, meet with your CPA early and often. In order to give small business owners a similar tax break to the new corporate tax rate of 21%, the 2018 tax reform provided a deduction of up to 20% for pass-through entities on “qualified business income.” There are three important tests however. Certain specified businesses are excluded. Limitations may be imposed due to wages and capital amounts. And, lastly, if individual income exceeds certain limits, no deduction is allowed. CPAs are still waiting for clarification on a number of very important items associated with the 20% deduction. Regardless, keep pestering your CPA until she or he helps you put together a plan to take advantage of this huge potential tax savings if it applies to you.

Happy Valentine’s Day. We hope you enjoyed some tax savings ideas. We also hope your loved ones bring you chocolates as well. Love those Daily Doubles!!

 

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Complacency Check: Markets Finally Go Down & the Return of Long Overdue Volatility

 Source: Goldman Sachs

 

The last week hasn’t been kind to investors. The S&P500 and Dow officially entered “correction” territory, which signifies a decline of at least 10% from a recent high, after all-time record highs only a couple weeks ago.   What’s going on???

 

The culprit: things were too good!  Recent stronger than expected reports on wages and jobs means growth may be “overheating” and that can lead to inflation and rising interest rates. Rising rates equal higher bond yields, which can make bonds more attractive than stocks, and – VOILA! - now traders don’t want to own stocks, many of which have become quite expensive on a valuation perspective from the nine-year Bull run. Then, in this worst-case scenario, stocks go down and that causes consumer confidence to wane which means Joe Investor won’t want to be another 4G TV. Consumer spending slows, corporate earnings suffer, and recession takes place.

 

Vicious circle, huh? It doesn’t have to be exactly like that. Furthermore, cycles can take a long time to play out – years, not days. In this fast-paced, information at your fingertips society we’re in, we forget that.

 

Last Friday’s jobs report showed the largest annual increase in wages since 2009. In hindsight, this wasn’t surprising given that 18 states pushed up minimum wages to start 2018. Furthermore, many major corporations, raking it in from the recent tax cuts, have provided one-time Tax Reform-related bonuses to workers. So these government reports, that some traders obsess over, may have been amplified for January and most likely will come down to earth in the ensuing months.

 

 

It was just a couple of years ago when many were concerned about DEFLATION and hoped of the day when the Fed could raise rates back to “normalcy”. This schizophrenic market is now focused on the fear of INFLATION. The threat of inflation and higher bond yields - evidenced by the Ten-Year Bond reaching four-year highs yesterday at 2.85% – has some worried. But frankly, a 3% or even 4% Ten-Year Bond environment shouldn’t be so concerning. For the last several decades, the 10-Year was higher than that and could be nice “fresh powder” for a Fed when recessionary times come.

 

 

The “buy the dip” mentality that has been so common place the last few years has not shown up this time around, or at least not until today. Some contend that “buy the dip” investors didn’t have enough time as the quants and hedge funds with big volatility-related bets work through the crash in that subsector.

 

 

After a very calm 2017 where we didn’t see any stock markets daily moves of over 2%, we’ve already had a few this year. Volatility is back to “normal” – not 2017 normal, but normal when we are comparing to the last 100 years or so. It was only February of 2016 when we had our last correction, which really isn’t that long ago. But complacency is unfortunately an easy characteristic to exhibit after such a long period of subdued volatility. Hopefully it didn’t lead to overconfidence.

So we’re in a correction…what do we do now?

 

 

There have been over a dozen market pullbacks of 5% or more since March 2009. This is another one! According to Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer within a January 29 report, “The average bull market ‘correction’ is 13% over four months and takes four months to recover.” Which tells you that generally when the market comes back, it does so relatively quickly, as we've already seen today.

 

 

So, it’s a fool’s game to try to time the market and jump in and out of it. No one has a crystal ball. Furthermore, we know that over time that staying invested is your friend. Studies show that just missing a few days of strong returns (which we could very well get next week or later this month), can drastically impact overall performance. 

So avoid any emotional mistakes by staying invested and staying disciplined. Don’t be making any short-term knee-jerk reactions; instead think long-term and focus on the things that can be controlled:

 

§  Create an investment plan to fit your needs and risk tolerance

§  Identify an appropriate asset allocation target mix

§  Structure a well-balanced, diversified portfolio

§  Reduce expenses through low turnover and via passive investments where available

§  Minimize taxes by using asset location, tax loss harvesting, etc.

§  Rebalance on a regular basis, taking advantage of market over-reactions by buying at low points of the market cycle and selling at high points

§  Stay Invested

 

In closing, a pullback / correction like this one is needed to allow the market to recalibrate. It can be a very healthy event because it may signify that the underlying assets’ valuations are getting back in line with fundamentals. So don’t get anxious over this return of long overdue market volatility. We should all get used to this “new normal” and not let our emotions cause us to take irrational actions that could lower our long-term chances of financial success.

 

Don’t hesitate to contact us to further discuss your portfolios and your overall wealth management.

 

 

 

Complacency Check: Markets Finally Go Down & the Return of Long Overdue Volatility

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How to Access the DWM Blog

Written by Grant Maddox.

email-logo.pngAt DWM, we work hard to stay up to date on all things related to your total wealth management. We share this important information with you through our weekly blog, so you can count on being one of the first to know. To ensure that you and your friends are always on top of current financial trends and insights, please consider subscribing to our email list to get new blogs sent directly to your inbox.  

 Do you have a friend you want to add to our email list or just having trouble receiving our emails? Since our blogs are sent out through a third party, Robly, and not our normal Outlook email, it’s possible you may not be currently receiving our weekly blog posts. Check out these troubleshooting tips below:

 How to get added to the blog list:

 This is the most simple and straightforward of all our troubleshooting tips. If you want to receive new blog posts from us in your inbox, simply email us with the email address you would like added and we’ll add you to our list. It’s that easy! Financial knowledge is just an email away.

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 If you’ve already joined our email list and suddenly stop receiving our weekly blog, there are a couple of different solutions to this problem.

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