Before we get to the timely year end ideas and goal setting, let's talk about the elephant in the room. If you are like most investors, you have experienced a negative return this year. Whether you are a speculative risk taker that swings for the fences on every pitch or an ultra conservative investor that hides cash in a mason jar, you probably lost money this year. Yes, even cash lost money this year as the purchasing power of your dollar went down with inflation raging. Here are the numbers as of 12/09/22:
S&P 500 -17.45%
Dow 30 -7.88%
Gold Spot price $/0z. -2.06%
S&P U.S. Aggregate Bond Index -10.86%
Year To Date Performance as of 12/09/22 Source: Wall Street Journal, Marketwatch, SPglobal.com
As always, I encourage you to work with your advisor. If your financial condition and goals have not substantially changed, keep the faith and continue on with your plan. However, if you have experienced a job loss, disability, divorce, new child, retirement, inheritance, etc... by all means, contact your advisor. It is likely that your investments need to change as well. Waiting to discuss could be costly.
Down years do happen. It's just part of the nature of markets. However, the long term results are what we are concerned with. Lastly, I often say, "don't drive your car by looking in the rearview mirror. You may just crash." These words have never been more true. Focus on today and tomorrow and share with your advisor your wants, needs and if need be, concerns. They should be able to handle all three and whether or not you are on track. If you do not have an advisor or your advisor is in denial, give us an opportunity to interview for the job!
Here are a few year end issues that many investors need to consider. If you have any questions or needs concerning any or all of them, please give us a call to schedule an appointment.
Forced Capital Gains: This time of the year, mutual fund companies send out capital gains distributions to their clients. The value of the share (NAV) is lowered by that distribution so its a wash. However, it doesn't mean that you do not owe capital gains tax on those distributions come April of next year. Remember, I am not talking about mutual funds inside of any type of retirement account. Those types of accounts grow tax deferred or even tax free in the case of ROTH IRAs or ROTH 401ks. I am talking about taxable accounts, also known as non-qualified accounts. It is important that you find out what those distributions are now. You may be able to off-set those gains and save yourself some tax liability. See "tax loss selling" below.
Required Minimum Distributions: If you are 72 years old in 2022 and own an IRA or retirement account, you will have to withdraw funds from your account. This is known as a required minimum distribution (RMD) and it is the governments way of getting their share and keeping you from leaving it to another generation. The amount is a calculation based on the previous year end and your age. Thus, the amount changes every year. Kim and I calculate these for clients and distribute when the client wants but generally the beginning of December. This year, the last day of the year falls on a Saturday. So you have until Friday, December 30th to get this done. However, if you don't have enough cash to make a distribution, you will need to sell an investment or make an in-kind distribution to a taxable account. This means you have until December 29th. Regardless, do NOT wait until the last moment. If you need help with determining if and how much you need to distribute, give us a call.
Gifting to Family: At this time of year, many like to make financial gifts to their family members. BUT... what if you gave them an investment instead. Yes, you can transfer an investment that you already own to anyone you want. In doing so, you are also transferring your cost basis to them. It has been my experience that this promotes saving. A beneficiary is less likely to sell that investment and buy something they don't need than if you give them cash. Call me if you would like to know how to do this as well as the pro's and con's.
Gifting to a Charity: Just like giving to a person, you can also give to a charity. And in doing so, just like a person, you transfer the basis. However, charity's do not pay taxes. So once the charity receives the investment, they can immediately sell it and receive the full value with no liability. Due to the fact that I can not give personal advice on a blog, this strategy definitely should involve your CPA and financial advisor. However, if you are charitably inclined and have investments with a low basis, I suggest you explore this idea sooner rather than later. Give me a call if you would like to discuss.
Tax Loss Selling: If you have a loser and many do this year, what is the benefit of carrying that investment into next year if you have "forced capital gains" or gains from a winner that you sold earlier in the year. The answer is NOTHING. That winner or FCG will have taxes owed on regardless. The wash sale rule allows you to offset gains with losses. There are certain stipulations, but generally speaking, as long as you do not re-invest in the same investment for 31 days, you can use the loss to offset gains. If you would like help with this, we simply need a list of investments with basis and unrealized gains or losses along with a list of your realized gains and/or forced capital gains for 2022. With this, I can help you devise a plan that will minimize or eliminate capital gains taxes for 2022 while keeping you invested.
Although this is not "financial", I think it could help you out in 2023. Many people make "new year's resolutions", however many fall short months or even weeks into the new year. We are creatures of habit and habits are hard to break. It takes discipline but you must also remember your resolutions. A resolution is nothing more than a goal. Here are a few tips on how to give yourself a better chance of successfully achieving your goals.
1.Write it down! Everyone gets ready in the morning. If you want to remember your goals at the ideal time of the day, write them down and tape them to your mirror where you get ready. Reading this handwritten lists daily programs you over time to at least try. Without this constant positive reinforcement, you are likely to forget and go back to your old ways.
2. Be real. Do not set goals that you can not achieve. We all want the impossible. But that is a recipe for failure. In recently writing down my goals for 2023, rather than set a year long goal that is really hard to accomplish, I wrote down a goal with a 5/1/23 time limit. This goal with this time frame is achievable. From there I will adjust depending on how I do. Without reasonable goals, you are likely to give up as time to achieve gets shorter and shorter.
3. Set goals on things you can control. You can control your diet, your exercise, how much you spend and who you let in you life (relationships). Set positive goals concerning those broad subjects. Be careful when setting goals that you can not control. For example, if you work for someone else or a corporation, don't set a goal such as "I am going to make Vice President this year." That decision is in somebody elses hands. Consider a goal such as, "I will take care of my customers as I want to be treated". You can control that mindset and by doing so, you become more valuable to either your company/employer or their competitor. Either way, you win.
Kim and I hope you achieve more than you can imagine in 2023! As always, if we can help you in any way, please reach out. Please have a safe, happy and peaceful holiday season!
Until next time... Cheers!