market-perspectives-and-tax-planning
by
December 3, 2021

Market Perspectives & Taxes. And A Common Myth about Cash

 

As we approach the end of the calendar year, the time for last-minute 2021 tax planning is here. Here are 4 ideas for saving on taxes in 2021:
  1. Donate to Charity1 (if you’re over 70 ½ you can donate from an IRA for tax savings)
  2. Consider funding an HSA (must have HDHP)
  3. Prepay Deductions2
  4. Consider Business Expense Deductions
With talk around inflation in the media these days, it inspired me to share this chart below. A common financial myth is that keeping money in your checking account (commonly referred to as keeping money in cash) is “ultra-safe.” From a volatility perspective, I might agree. You won’t see your money fluctuate. But from a wealth perspective, I mostly disagree that money kept in checking accounts is “ultra-safe.”

 

If you notice, cash has lost the most on every single 5+ year period. And, if you also notice, stocks have had the exact opposite effect. Stocks become less risky as time goes on.

On every rolling 20-year period in stock market history, stocks have been up. Therefore, if you’re still working, you may consider keeping between 6-12 months in cash, depending on your situation. But if you’re retired, then it’s a different situation because you may not have other income. Distribution planning tells us that in retirement we should be more conservative.

Now, let’s recap stock markets this year.

In 2021, emotions fueled a stock market rally in the early part of the year. The rally cooled off by mid-spring and depending on the industry, some markets are down year-to-date. This is exactly why we diversify holdings and monitor performance. Nobody has the crystal ball to know exactly which investments are going to perform well into the near future. Therefore, prudence tells us that we should have several different investments.

We consider investing as a form of “probabilities”, rather than a form of speculation. Unlike rolling the dice, investing involves analyzing market conditions, monitoring economic and tax law changes, studying fundamental characteristics, and looking for investments that are undervalued or poised for growth (but at a reasonable price). This increases our probability of success. We are not speculators. We are long-term investors. We believe that by weighting towards these fundamentals (among others), long-term performance will be rewarded.

Reach out to our firm if you have any questions about saving on taxes or investments!
817-238-6300

Matt Ward

*All tax planning and investment content is generalized. Specific situations will apply in determining eligibility.

Financial Planning