Almost four years ago to the day, we reached the bottom of the COVID-fueled bear market. During the bear market, we witnessed the market drop by almost 34% over a month (2/20/2020 – 3/23/2020). Over the last four years, we’ve been through a lot. Two bear markets (-33.79%, -24.49%), 122 new all-time highs, over 58% growth, and an average annual return of S&P500 of over 12% (well above the average).
This may be a lot of change in the time it would take for a typical Marine Corps enlistment (Ooohrah) but it’s typical. Looking back, we traditionally experience one 20% decline every six years with a 10% decline typically every 3 years. I believe we should expect the future to be much of the same, so looking forward we need to stay focused on long-term goals and not short-term inconveniences and maintain the fundamentals of appropriate asset allocation and diversification.
Tax Sunset
In 2017, the Tax Cuts and Jobs Act made sweeping changes to our tax system. For businesses, the tax rate was fixed at 21%. Individuals and families on the other hand saw lowered tax rates, increased the standard deduction for all, and an increased estate tax exclusion.
The changes caused many to change how we think about taxes, not our dislike. The standard deduction increase changed how we thought about deductions because for most the Standard Deduction was enough to cover their traditional deductions like home mortgage interest and IRA contributions. Also, the change to the estate tax exclusion changed how most viewed estate planning. For example, lifetime estate and gift tax exemption from its previous levels. For 2024, the exemption stands at $13.61 million per person and $27.22 million for a married couple. For most changes made estate tax planning a non-issue.
Now that we’ve adjusted to the changes many of these provisions are set to sunset in 2026. This may or may not be an issue but when you’re thinking about your wealth you want to consider the potential and review your financial and estate plans to ensure you are prepared.
Understanding Asset Location
Asset location is a wealth management strategy that can help with tax management. The strategy helps you strategically diversify the location of your investments in different types of accounts based on their tax treatment and characteristics (income, growth, and holding period). It’s about knowing which basket to put your financial eggs in so that they not only have the opportunity to grow but also hatch with minimal tax bite. By understanding asset location, you may be able to optimize your investment portfolio, minimize taxes, and maximize overall returns.
The Finish
Spring is here in more ways than one. For me, Spring is a great time of the year to reflect on the challenges we’ve overcome and enjoy the beauty of all the flowers blooming, grass growing, and trees sprouting leaves. This Spring we wish the best to the DaSilva family as they prepare for the birth of their son. We will miss Cassy as she we be out on maternity leave for the next few months.
-Lamont
Principal Wealth Advisor
