Market Musings Blog

As the market sank this last week, we had a few comments from clients about this ‘rocky ride’. (One note of appreciation – these clients were calling with more concern for us than their portfolios! Thanks for that!)

Now is a good time to review a few statistics about market movements. First of all, it’s hard to remember this after last year, but nearly every calendar year since 1926 has contained a ‘dip’ of around -5% to -7%, and many years have contained more than one ‘dip’. On average, these moves happen at least every year, and over some shorter time frames, they happen twice a year! So we can consider this kind of movement normal. What’s not normal is going without a 5% correction, like we did last year.

Furthermore, ‘corrections’, of more than -10%, happen about 2/3 of the time, also within the range of normal.

One alarming feature of both dips and corrections, which tends to imbue them with more importance than they deserve, is that they happen fast. Markets rarely slide centimeter by centimeter over a long period of time. Instead they tend to plunge. Meanwhile, the recovery from the dip or correction can take months, making this feel all the worse. However, recovery occurs – so far – 100% of the time. So using a correction or a dip to buy assets is smart, provided the increased exposure synchs up with your financial plan.

We had some feedback to our earlier blog on security, specifically around passwords. Our commenter indicated that her passwords were turning out to be too weak and she suggested that we augment our earlier post with some sites that can improve password quality – a worthy suggestion.

Here are a few password generators:

https://passwordsgenerator.net/

https://lastpass.com/generatepassword.php

If you just want to check your own chosen password for strength, try this site:

http://www.passwordmeter.com/

Additionally, there are a number of services to keep track of all your odd passwords, but of course you have to remember your master password – and that one can be hacked too. We often use Roboform, here:

https://www.roboform.com/

Happy browsing!

Americans are pretty charitable, and we’re not just talking about the rich. Generally, Americans give away between 3% and 4% of adjusted gross income per year, across all income levels, though giving tends to be a little higher at the lowest end of the income spectrum. Interestingly, isolating giving to just donors, instead of the entire population, totals are about one percentage point higher. So in the population of “donors only”, at the $100,000 income level, donations run about $4200. For all taxpayers at that level, donations are around $3700. Further, amounts given as a percent of adjusted gross income have remained very stable over the years.

Keep in mind that if you stray much higher than these figures, or outside the realm of any ‘norms’ tax-wise, you essentially flag yourself as an audit candidate. That’s not a reason to be stingy, but it is a reason to keep meticulous records if you have large charitable contributions.

What if you are asset-rich but don’t have much income? Maybe you own real estate or a large portfolio of lower yielding stocks and municipal bonds that don’t generate a high taxable income. It’s harder to find figures that correspond to how much is normal or even appropriate to give away where assets are high but income is low. However, we found an old study that investigated lifetime giving as a percentage of total wealth, using later-filed estate tax returns. Turns out that people give away about 0.4% to 0.5% of wealth per year, then upon death, charitable giving via estate planning spikes. People clearly have a preference for retaining wealth while alive, even when it cannot be consumed; then being generous at death.

Finally, a note on the new tax bill: the bill hikes the amount of AGI that a person can give away and still deduct to 60% from 50%. It’s hard to imagine giving away that much income, of course.

The new tax bill is just about 1100 pages long, and many of its provisions are very particular to certain situations, such as residents of high tax states, those subject to AMT, and so forth. For specific questions about your tax situation and the bill’s new provisions, be sure to talk to your accountant. That said, here are some little known provisions that will affect investors:

1. The exemption from AMT taxation was hiked, to take account for the fact that inflation has caused more folks to fall into the AMT trap.
2. Estates can now be nearly twice as large before paying tax, up to $10 million, with another hike due to inflation to over $11 million expected in 2018.
3. Phase out of the subsidy for purchasing an electric car. This one is complicated. It is geared to each manufacturer’s production. Once a car maker has constructed its 200,000th electric car, the $7500 subsidy associated with buying that maker’s EVs begins to decline. So Tesla’s subsidies will run out relatively quickly, while makers who have barely made one car will take months if not years to run out their subsidies.
4. No more deduction for home equity line of credit interest.
5. Private purpose municipal bonds, earlier on the chopping block, were preserved, so these can still be offered to muni investors. That is important for maintaining supply in this market.
6. Section 529 college savings plans can now be used for elementary and secondary school education, not just for college. This vastly improves these accounts’ usability.

Per above, any questions about the bill and its effect on your particular tax situation, we suggest a quick call to your accountant.

What do you do with financial accounts when a loved one is diagnosed with Alzheimer’s? This question is becoming more pertinent by the day as we live longer.

The issue of protecting assets that had heretofore been shared is a delicate one to be sure. We have seen any manner of difficulties arise as investors become less capable, including spending addictions; or the opposite -giving away joint assets; inappropriate trades, or simply misplacing or misunderstanding accounts (annuities are particularly tricky); forgetting passwords; incurring debts or forgetting to pay bills, etc.

A plan for Alzheimer’s ideally begins before anyone is affected. An easy way to start is with how assets are titled, allowing more than one person to have a measure of control over accounts. However, if you have an estate plan, be aware that you can defeat that plan if you change titling that your attorney has recommended. Another approach might be to grant another party power of attorney in some form. POA’s come in different strengths and should also synch with your estate plan. In extreme cases, and where you can gain cooperation with the affected patient, a conservatorship or trust may be in order.

Keeping an eye on transactions and accounts on a daily or at the very least a weekly basis is another possibility. This scrutiny has the added benefit of allowing you to watch for hacking fraud as well. Often you can sign up for email or other alerts as transactions process in credit card, bank, and investment accounts. Just be sure that the device you use to accept these alerts is itself well protected from theft. Don’t forget to watch for Social Security payments to arrive too. Those of us who do not receive SS yet aren’t tuned up to watching for it!

Credit card limits can be lowered, to help prevent overspending; and someone should monitor bills and billpaying activity so items do not go into arrears. Automatic bill paying from a checking account can be employed in some cases, but even this should be monitored as amounts can change, resulting in overdrafts.

Although it sounds self serving, an investment manager who is tuned in to the aging investor can cast a watchful eye on the situation frequently (we watch every account every day) and make suggestions as needed. If you bank at a branch where the personnel are stable and you know them, sometimes a banker can be drafted to duty, alerting a co-owner of suspicious activity. Be aware that no one will talk to you about accounts on which you have no authority – that’s where joint titling comes in handy.