Whether you’re of the Silent Generation, a Boomer, Generation X, a Millennial, or, even the up-and-coming Generation Z, your financial wellness has a beginning and an end. How you manage your money in between can make all the difference between living a financially secure lifestyle or not. Though life goals and lifestyle choices certainly play into one’s overall happiness, we present a fiscally subjective look at popular issues that could affect your well-being…and considerations on how to manage them. We went to several local experts, asking for answers to questions about financial markets, funds, fiscal security, technology, tax law, and general advice that you, our readers, should consider when planning your financial future. But first, a disclosure: the views, opinions, and statements made by the professionals in this article are hypothetical in nature, analysis, and guidance only; those seeking fiduciary advice should speak with a finance or tax professional.
On to our questions and answers…
What effect does anelection year have on the markets, generally speaking?
“Markets are cyclical and it is tempting to turn to history for investment decisions. However, you can’t count on future returns [based on] past ones. Elections do clearly have an impact on markets in the short term. However, in the long term, it’s nearly impossible to know what effect an election will have on the market. There is a lot of grey area and the long-term effects are based on what policies are enacted. According to Global Financial Data, the inaugural year of a president’s term can often be vastly different from the last three years of a term. During inaugural years, the market has historically averaged a 2.6 percent increase when the new president is Republican versus a 22.1 percent increase when the new president is a Democrat. During presidential election years however, again according to Global Financial Data, the market averages an increase of 17.9 percent when a Republican is elected and decreases an average of 2.7 percent when a Democrat is elected. The root of these market fluctuations are policy changes. Markets don’t like change, so new policies being enacted from either political party impact the market.”—Brion Harris, CEO and Founder, Premier Planning Group
“Generally, election years tend to produce positive returns for equity markets. However, the third year of an election cycle tends to produce the best returns. Markets don’t like uncertainty and as we approach end of 2020, we’d expect to see increased volatility as politics dominate the news flow. No matter what happens, it’s key to remember that markets have endured many elections over the decades and historically have rallied in time.”—Scott McRoy, CFP®, CAM Wealth Management, Ameriprise Financial Services, Inc.
“History has shown us that election years can be unpredictable. When a current controlling party stays in power through an election cycle, the stock market tends not to react very much, it is seen as four more years of the same thing—the preceding four years. When we have a change in the controlling party, (Democrat to Republican or vice versa), it doesn’t matter which party loses power and which party gains power, the stock market normally has a positive reaction for 2–3 three months before we have a small 5–10 percent drop in the market. Where the market goes after that drop is all dependent on the current party’s policies.”—Ryan C. Herbert, Financial Advisor, Prostatis Financial Advisors Group
What are the most influential issues affecting market performance today, in your opinion?
“There are really two issues that are currently influencing the stock market on a daily basis. The number one factor is the current geopolitical conditions. President Trump is unlike any other President we have ever had and communicates in much different manner. The stock markets swing in either direction based upon his press conferences and his tweets. The second factor for the stock market is the current trade war with China. Yet again, we see wild swings in the market on a weekly basis due to the back and forth between the U.S. Administration and the Chinese Government Policy Makers.”—Ryan C. Herbert, Financial Advisor, Prostatis Financial Advisors Group
“The Federal Reserve and our current low interest rate environment, as well as continued earnings growth, favorable economic conditions, and investors’ fear of missing the rise in equity prices are all factors that have an influence on today’s market performance.”—Christopher Asher, CFP®, CAM Wealth Management, Ameriprise Financial Services, Inc.
Do you foresee a market recession any time soon? If so, what advice do you offer investors?
“We are currently in the longest bull market in history. A quote from Warren Buffet that I like to share with my investors is to ‘be greedy when others are fearful and fearful when others are greedy.’”—Chris Harris, CFO and Case Designer, Premier Planning Group
“The U.S. stock market going back to 1930 has seen a Bear Market 20 times. That’s an average of one every 4.5 years. The average drop in the market is about 32 percent and has lasted almost a year. The average bull market lasts seven years, and we are currently 11 years into this Bull Market that started in 2009. This isn’t meant to be a prediction that a Bear Market is coming soon, but it is to serve as a reminder, not to be complacent and to review your investments and your written plan to make sure that you are properly positioned for any market.”—Ryan C. Herbert, Financial Advisor, Prostatis Financial Advisors Group
“Historically speaking, recessions are a common event that are part of the normal economic cycle. Therefore, they are continuously somewhat imminent. Presently though, strong economic indicators suggest that a recession is not likely to occur for many more quarters. How many is impossible to predict, as is the specific market or geopolitical event could trigger a downturn. It is important to keep in mind that the last recession is not necessarily indicative of what the next recession will bring. Maintaining a properly diversified portfolio with adequate cash reserves and a buffer of safe assets to weather market fluctuation is prudent in any economic environment. Our focus on financial planning and continuous communication allows us to maintain this balance for our clients.”—Scott McRoy, CFP®, CAM Wealth Management, Ameriprise Financial Services, Inc.
What, in your opinion, are the best investment vehicles I should consider putting my money into for: (a) short-term, big-ticket expenses; (b) education; and (c) retirement?
“Funds needed for short-term expenses should be kept somewhere safe, easily accessible, and where they can earn a little extra. A position traded Money Market can be a good fit. For education, individuals should consider using 529 plans in the state in which they live. Maryland offers both an investment plan and a pre-paid tuition plan. With the investment plan, you invest contributions in a choice of mutual funds and the value will be determined by the performance of those funds. With the prepaid option, you make contributions based on the current price of a Maryland state education and the value will be determined by the future cost of tuition. Contributions to these plans are tax deductible in Maryland up to certain limits and the earnings are tax-free if used to pay for qualified education expenses. Retirement should be invested in a diversified portfolio of stocks and bonds and the risk level should depend on your time horizon, earnings needs, and risk tolerance. You want to make sure your portfolio is geared towards earning what you need to reach your goals. For example, if you are way behind in saving for retirement, you might want to be a little more aggressive, even if you are older.”—Bill Hufnell, CEO, Baypoint Wealth Management
Should investors look to shift their investment strategies based on their age?
“Age can certainly affect an investment strategy; however, the most important factor is the time frame for the intended goal. Investment strategies should always have a time frame. In general, there are three time frames for investments:
- Short term: 0–5 years;
- a lower level of risk
- mid-term: 5–10 years
- long term: 10-plus years; higher level of risk
“We feel that is extremely important to prioritize what the intended goal is and then to invest in the most risk appropriate vehicles. Having a professional help to assess what your intended goals are and the proper vehicles to use can be crucial to overall financial success.”—Ray Hobson, CFP®, HF Advisory Group
“One of the most common investing misconceptions is the idea that people need to meaningfully reduce risk and equity exposure at retirement. Two prime risks for investors are the impacts of their longevity and inflation on their cash flow needs in retirement. While it is very important to remain mindful of downside protection and maintain adequate short-term reserves, having equity exposure is still essential to maintain purchasing power for the long-term. The allocation of equity exposure, though, varies based upon each investor’s needs and comfort.”—Scott McRoy, CFP®, CAM Wealth Management, Ameriprise Financial Services, Inc.
Should I simply invest in passive index funds? Why should active fund management still be a part of my portfolio/strategy?
“While passive investments can be a beneficial investing tool, active management has its place as well. Active management can be a powerful tool, especially when analyzing more niche areas of the market, for example, small cap companies. We take the time to monthly screen and analyze the universe of active money managers based upon several different metrics such as tenure, consistency, process, performance in different phases of the economic cycle, and downside protection. We evaluate this performance against passive index funds to determine how to allocate our portfolios. The ability for active managers to provide an enhanced downside protection is important to the long-term growth of a portfolio as well as protecting cash flow needs.”—Christopher Asher, CFP®, CAM Wealth Management, Ameriprise Financial Services, Inc.
Can I shift funds from one type of investment account (like a retirement 401K for example) into another (an education 529 perhaps) without getting penalized?
“When transitioning funds between different types of investments, it is important to understand the potential tax liability and any penalties that may be applicable. In most cases, an investor does not have the ability to move funds from a 401k to a 529 without realizing a tax consequence and potentially a penalty. That said, there are ways investors can save for both college education and retirement simultaneously. What that balance looks like depends on the investors’ individual situation, so I would encourage readers to explore savings options with a financial advisor.”—Pat Cotherman, CFP®, CAM Wealth Management, Ameriprise Financial Services, Inc.
Is there any pending legislation (state or federal) that I should be aware of, with regards to investing?
“In December 2019, Congress passed a new law called the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). This bill went into effect on January 1, 2020 and made some notable changes to retirement savings and distribution rules. The age to begin taking required minimum distributions was moved from 70-½ to 72 for individuals that have yet to turn 70-½ by the end of 2019. In addition, the maximum age for making deductible traditional IRA contributions was eliminated under the SECURE Act, and there were changes made that make it easier for small employers to offer retirement plans to their employees.”—Kevin Collison, CFP®, CAM Wealth Management, Ameriprise Financial Services, Inc.
Are there any tax strategies (re deductions, claims, donations, gifts, etc.) that you recommend or advise clients of, to improve overall financial wellness and performance?
“Due to the increase in the standard deduction, individual taxpayers should consider the timing of their charitable contributions and if it would be advantageous for them to make a charitable contribution in December or January of the following year. Also, given the positive run that the stock market has been on, a lot of individuals are carrying large unrealized capital gains. From a tax perspective, it’s advantageous for those gains to be recognized as long-term (i.e., a holding period of greater than one year), where individual taxpayers can receive a preferential tax rate versus a capital transaction that has a short-term holding period (i.e., one year or less). Consulting with your tax advisor on the timing of the gain recognition is important in creating tax-efficient investments.”—Brandon Wolf, CPA, CFP®, Managing Partner, Wolf Tax Advisory LLC
“Yes, there are many! Qualified Charitable Distributions from IRA’s, managing capital gains and losses in your portfolio, converting IRA’s to Roth IRA’s in low tax years, managing distributions and funding retirement in a tax efficient manner, holding different investments in different accounts depending on how they are taxed, holding appreciated stock for future generations and getting a step up in basis at death, charitable giving through donor advised funds, exchange funds for highly appreciated individual stock positions, back door Roth Conversions, contributing and converting after-tax money to retirement plans and then doing and in-service withdrawal. These are just some of the strategies that we review for each client.”—Bill Hufnell, CEO, Baypoint Wealth Management
What are the most concerning issues affecting individual tax clients today, in your opinion?
“Identity theft is a major concern right now. Criminals have become more sophisticated with their techniques in attempting to steal sensitive taxpayer information. Individual taxpayers may be eligible to enroll in the IRS identity protection PIN program to help protect against a fraudulent tax return being filed under their social security number. This program requires the taxpayer to go through an identity verification process. Once verified, you are assigned a 6-digit PIN which must be filed with your federal tax return. Maryland residents are eligible to sign-up through the IRS in 2020.”—Brandon Wolf, CPA, CFP®, Managing Partner, Wolf Tax Advisory LLC
Technology has advanced rapidly; what fintech excites you the most?
“Tools to help advisors manage investments, such as rebalancing software, are exciting because they allow us to focus more on planning and customized strategies for each client that add value for them.”—Bill Hufnell, CEO, Baypoint Wealth Management
“The advancement of technology has allowed our practice to stay interconnected with our clients. For example, our practice is able to plug into our client’s accounting software and stay up-to-date on the year’s results. This allows us to provide better client service throughout the year and advise on potential opportunities and things to consider, which, in the end, benefits our clients tremendously.”—Brandon Wolf, CPA, CFP®, Managing Partner, Wolf Tax Advisory LLC
How do I know if I’m choosing a reputable financial advisor? What should I look for?
“Choosing a financial advisor to work with can be difficult, but extremely important. When interviewing potential advisors to work with, make sure you ask them if they are a fiduciary. Acting as a fiduciary means that you must act in the client’s best interest at all times. This is crucial because if they are not a fiduciary, then the advisor can try to sell you investment products that benefit the advisor, not the client.
“Because there are many different designations that advisors can put behind their name, the CFP® designation is what I would consider to be one of the most reputable designations and requires the advisor to meet rigorous professional standards and to adhere to the principles of honesty, integrity, competence and diligence when dealing with clients. A CFP® is not only a fiduciary, but also is an educator. We will explain the pros and cons of many different solutions and help you decide on investment vehicles that will benefit you.”—Ray Hobson, CFP®, HF Advisory Group
What is your number one bit of advice to clients and prospects to ensure their future prosperity?
“Plan and diversify. People don’t plan to fail; they fail to plan. It’s important to work with a professional and build a strategy for success. Portfolio diversification is a big part of that strategy.”—Brion Harris, CEO and Founder, Premier Planning Group
“The number one piece of advice I can give to any investor is to sit down and create a plan for your investments and your retirement. Write that plan down and hold yourself accountable. Most importantly stick to your plan, stay diversified, and stay calm.”—Ryan C. Herbert, Financial Advisor, Prostatis Financial Advisors Group
“Being engaged in your finances and taxes year-round is incredibly important. I also advise that clients have their CPA and financial advisors in-sync with each other, as I have found that when these professionals collaborate, it usually leads to a more efficient result for the client.”—Brandon Wolf, CPA, CFP®, Managing Partner, Wolf Tax Advisory LLC
