Election 2020 – a nail-biter

Smart Advice. Simply. Clearly.

Election 2020
– a nail-biter

Provided by Hilltop Wealth Solutions

For the nation, 2020 has been one of the most difficult years in memory. We are grappling with Covid and its fallout, economic upheaval, racial tensions, wildfires, hurricanes, a presidential election, and a polarized electorate.

Despite this year’s difficulties, a strong economic recovery, record low interest rates, and an aggressive stance by the Federal Reserve have helped the major market indexes rebound from March’s steep sell-off.

But where do we go from here? What’s in store over the next four years? If we view the future through the lens of public or tax policy, visibility is extremely limited.

If we narrow our scope and review the landscape through the lens of the investor and the market, I believe we can look to history for guidance and at least obtain some degree of clarity.

First, let me say this. No one has a crystal ball. Any stock market forecast that you may hear from analysts is simply an educated guess. They may get lucky for the right or the wrong reason. Or analysts might miss the mark by a wide margin. As we already know, even the smartest folks in the room don’t know the future.

Besides, we already know that consistently timing the market is nearly impossible.

However, over a longer period, we recognize that stocks have historically had an upward bias.

“Since 1932, the S&P 500 Index has gained an aggregate of 710% under Democratic presidents and 375% under Republican presidents. But staying invested the entire time would have earned 47,000%,” according to the Schwab Center for Financial Research.

What’s that mean? If you shunned stocks when either a Republican or Democrat was president, you missed out on the lion’s share of the market’s gain.

If we take the last 12 years into consideration, a similar pattern emerges. Those who pulled out of stocks after the 2008 election because they were discouraged by the results lost out on a significant stock market rally over the ensuing eight-year period.

Anyone discouraged by the 2016 results also failed to participate in a significant stock market rally.

A disputed election could create short-term uncertainty. Yet, emotional decisions made outside the boundaries of a well-crafted financial plan have rarely been profitable over a longer period.

Longer term, the economic environment, Federal Reserve policy and interest rates, corporate profits, and inflation trends have historically had the biggest impact on the broader market.

Keeping perspective

The country will remain divided after the final tally is known. But let’s not forget that the U.S. remains the world’s largest economy; it has the deepest and most transparent capital markets, and innovation isn’t likely to end.

We will face challenges in the days and years ahead. We have always faced challenges. But we are resilient, and I continue to believe that history is on the side of the United States of America.

Table 1: Key Index Returns

Source: Wall Street Journal, MSCI.com, Morningstar, MarketWatch

MTD return: Sep 30, 2020—Oct 30, 2020

YTD return: Dec 31, 2019—Oct 30, 2020

7 financial planning steps you can implement today

The end of the year is fast approaching. As the calendar days march toward 2021, let’s keep in mind that there are several ideas we should review as you work to get your year-end financial house in order.

While procrastination is tempting, remember how checking items off our ‘to-do’ list always gives us a sense of accomplishment.

Before we get started, the tips below are simply guidelines. Feel free to check with your tax advisor, as various nuances can crop up. As always, we would be happy to assist you.

1. Health care open enrollment has begun. If you obtain your health insurance through the Heath Insurance Marketplace, now is the time to purchase your health insurance for 2021.

This is the one time of year you can change your health insurance coverage or enroll.  If you don’t act by December 15, you will miss out on coverage for 2021 unless you qualify for a special enrollment period. Plans sold during open enrollment start January 1, 2021.

2. On a similar note, open enrollment for Medicare has begun. You can sign up for Medicare health and drug plans between October 15 and December 7.

Decide if your coverage will meet your needs during 2021. If you like what you had this year and it is still available next year, you won’t need to take any action.

3. Did you max out your retirement accounts? You can put up to $6,000 into an IRA in tax year 2020; $7,000 if you are 50 or older. You will have until Tax Day to make a 2020 tax-year contribution. The sooner you contribute, the longer your assets can grow tax-deferred.

Contributions to your 401(k) are automatically deducted from each paycheck. Contributions for tax year 2020 must be made by the end of the year to count against 2020 income.

The 401(k) contribution limit is $19,500 for 2020 and the catch-up limit is $6,500.

Your employer or plan administrator will let you know if you can adjust changes to your contribution this year. As we have said in the past, we strongly suggest that you contribute the minimum amount necessary to receive your entire employer’s match. It’s free money. Don’t leave free money on the table.

4. This year’s RMD wrinkle. If you are 72 (or turned 70½ before January 1, 2020), you are obligated to take a required minimum distribution (RMD) from your IRA. But this year is an exception.

Thanks to the CARES Act, the  RMD is waived in 2020. This RMD waiver applies to everyone with a 401(k), IRA, 403(b) or 457(b) account. Owners of inherited IRAs may suspend RMDs for 2020, too.

If you took an RMD between January 1 and August 31, you were eligible to roll the funds back into your retirement account up until the August 31 deadline.

5. If you are over 70½, you may be eligible to transfer up to $100,000 from your IRA to a charity without paying taxes on the distribution. This is called a qualified charitable distribution or QCD. Moreover, a QCD satisfies the RMD requirement as long as certain rules are met.

6. Let’s consider “harvesting” tax losses. Do you own stocks, exchanged-traded funds, or mutual funds that are below the purchase price? If so, you may sell by the end of the year and offset up to $3,000 in ordinary income or capital gains.

However, please be aware of the ‘wash sale’ rule and treatment of long-term and short-term losses. The rule defines a wash sale as one that occurs when an investor sells a security at a loss and, within 30 days before or after the sale, buys a "substantially identical" stock or security. If so, the IRS disallows the loss.

Short-term capital gains occur when an asset that is sold was held for one year or less. Short-term capital gains are taxed as ordinary income. Long-term gains are taxes at a more favorable rate.

7. Consider converting your traditional IRA to a Roth IRA. Depending on the outcome of the election, tax rates may rise next year. Therefore, converting a traditional IRA into a Roth IRA this year would require taxes to be paid at 2020’s rate, but it would enable the account holder to withdraw funds without paying federal taxes at retirement.

Whether or not tax rates rise next year, a Roth IRA is an excellent retirement vehicle.

Final thoughts

Let me remind you that these year-end financial planning steps are guidelines. One size does not fit all. The advice we recommend is tailored to your specific needs and goals.  We would be happy to entertain any questions that you may have. We are simply a phone call or email away.

I trust you’ve found this review to be helpful and educational.

We have addressed various issues with you, but I have an open-door policy. If you have questions or concerns, let’s have a conversation. That’s what I’m here for.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

This article was researched and written by the staff of Hilltop Wealth Solutions.
It is one of many that are published on our website at hilltopwealthsolutions.com.

For more information on this article contact
Tim Ceravolo at 574-675-9277 or 574-889-7526

574.889.7526 | toll free: 833.889.7526
fax: 574.889.5392

email: info@HilltopWealthSolutions.com
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