Market Perspectives & Taxes. And A Common Myth about Cash
- Donate to Charity1 (if you’re over 70 ½ you can donate from an IRA for tax savings)
- Consider funding an HSA (must have HDHP)
- Prepay Deductions2
- Consider Business Expense Deductions
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!
1In 2021, a married couple can donate $600 regardless of if they itemize their taxes and receive a deduction. Any donations over $600 for a married couple will only be deductible if they itemize their deductions. Individuals over 70 ½ years old can donate from their IRA and they will avoid income tax on those distributions. Donating from IRAs also satisfies the Required Minimum Distribution for retirees as well.
22021. This will only apply to those taxpayers who itemize deductions.
*All tax planning and investment content is generalized. Specific situations will apply in determining eligibility.