With the end of the year quickly approaching, there are some important financial planning measures we can take to reduce our taxes and improve our financial position. This year poses a bit of a challenge while the control of the Senate remains uncertain, but there are measures we can implement that will be beneficial no matter the change in policy.
While Tax Day has passed, the time to pay close attention to your tax return never does. You can always file an amendment and if you filed an extension you have until October 31st to make any changes.
Benjamin Graham, the father of value investing and mentor to Warren Buffett, liked to refer to “Mr. Market” as having bipolar disorder. The stock market tends to behave much more like a human being than a financial instrument. The market can be euphoric one moment and despondent the next. John Keynes, the famous economist, described the market as often being driven by “animal spirits” which could frequently seem irrational.
Unfortunately for investors, when the market starts to act erratically, it can be quite stressful. It causes people to go through similar emotional swings. We feel great when the market is up and believe all is right with the world, and then the moment the market has a down day or two, to immediately thinking we are on the verge of economic collapse.
As of my writing this, the S&P 500 is officially in “correction” territory, which means a 10% pull back from the most recent high. During these times it is beneficial to readdress some very common investing myths that will start to creep into our thoughts and emotions, potentially pushing us to make a poor decision. Below are two of the most common I see:
The Tax Cuts and jobs Act is the most sweeping tax reform measure in over 30 years. The new legislation makes fundamental changes to the Internal Revenue Code that will upend the way all taxpayers (individuals, businesses, foreign taxpayers) calculate their federal income tax liability.
Contribute to Your 401(k) or other Qualified Plans
Not only do you want to build wealth for retirement, but you also gain a tax break by contributing to your employer’s retirement plan (or Individual 401(k) if you’re self-employed). Unfortunately, there is a cap on contributions each year.
Recently, Legacy was voted by AdvisoryHQ as one of the Top 10 Best Financial Advisors in Oklahoma City and Tulsa. We have experienced tremendous growth within our firm over the past few years and we are happy to see the positive reflection that has for our clients and our community. At Legacy we strive to offer the best client experience possible.
Despite all the negative news constantly streaming on our TV screens, the equity and fixed income markets continue to perform very well thus far in 2016. In fact, this year we have seen many equity asset classes bounce back from a lackluster 2015. US value stocks, US small stocks, emerging markets and the energy sector are handily outperforming the S&P 500 in 2016. Yet another lesson in why investing requires discipline and a long term, evidence based strategy and not predictions or forecasts involving short term market movements.
Now that we are only a month away from the elections, many people are wondering how this event might affect their investments. Investors often get caught thinking that if their candidate wins the market will do much better and if the other candidate wins the market will immediately fall sharply. The problem is that both sides of the political isle think the same thing!
So who is right? Maybe surprising to some, the answer is neither. While the US Presidential election is certainly a major world event, it is but one of thousands of variables that can affect the stock market. The chart below shows the average annual returns for every president since 1929.
Presidents vs. Markets and Inflation
Recently a well know financial advisor wrote a very good article concerning the difference between investing process and investing outcome. It is easy to read and he provides some great examples so I encourage you to read it:
Here at Legacy Financial Group we have always been proponents of academic based investing. Our goal is to design portfolios based on what we know from academic research and empirical data about how markets work and where returns comes from. As a result of this philosophy we have used mutual funds from Dimensional Fund Advisors (DFA) as the core of most of our portfolios. They have a long history and strong foundation in building investment vehicles that maximize the use of our knowledge of financial markets. Below is a video highlighting the academic pedigree of DFA and some of the key academic finding that are incorporated into all their funds.