Investors will remember 2018 as a year of significant ups and downs.
On the bright side, a major North American trade pact took a big step forward, home sales picked up in the fall, and the U.S. economy featured low unemployment and steady consumer spending. There were also challenges in 2018. The Federal Reserve made a series of quarter-point interest rate hikes, the United States and China imposed tariffs on each other’s imports, new questions emerged about Brexit, Wall Street ended on a down note, and we closed the year with a partial government shutdown.
If the constant stream of events and news has left you feeling confused or concerned, with a healthy dose of whiplash, you’re not alone. To quote well-known financial expert, Cliff Asness, “This world is pretty much designed to convince us that we’re always at DEFCON 1, when 5 is the mode and 4.5 the mean.”
However, if you allow the constant information stream to rule your investing and planning, you are doing yourself a disservice. In capital markets, if you get caught up in extremes and devalue the sweeping tides of time, you risk giving up your greatest edge: a clear-eyed understanding of what’s really going on.
The fact remains that there are some things that are outside of your control and there are a great many that are within your control. That’s why Wisdom Wealth Strategies consistently recommends that you approach the market with patience. This doesn’t mean you get to avoid all the unpleasant jolts as they occur; you’ll still encounter them, and they’ll still hurt – sometimes at length. But instead of trying to brace for each bump, we recommend you remain as relaxed and resolute as possible. If you do, you’ll be in the best position to ride out the rough roads and reach your desired destination.
A smart step toward long-term financial success is making good decisions over the things you can control, which is why we’d like to provide you with a list of updates and opportunities you may face in 2019.
- Retirement account contributions have increased. In 2019, workers with a 401(k), 403(b), or a 457 can contribute $19,000. Those over 50 are allowed an additional $6,000 for a total of $25,000. Traditional IRA and Roth IRA limits have also increased to $6,000 for those under age 50 and $7,000 for those over age 50.
- We recommend that clients save a minimum or 10% of their income for retirement; 15% is even better. If you’re not there yet, try increasing your savings rate by a percent or two to start the year.
- 529 College Savings Plans remain a popular tool for those savings for the college expenses of a young person.
- The Tax Cuts and Jobs Act expanded the qualified use of 529 accounts by allowing withdrawals to be used toward K-12 expenses, rather than simply for higher education. However, each state is allowed to administer its own plan. Colorado has chosen the following policy: “In Colorado, the intent of the state’s 529 college savings plan, CollegeInvest, is to encourage savings for higher education. Colorado tax law remains unchanged and CollegeInvest 529 plans can only be used for qualified higher education expenses. Any other use, including K-12 tuition expenses, are considered non-qualified withdrawals and subject to penalties.”
Saving, Budgeting, and Debt
- Financial challenges can strike suddenly without warning. It’s smart to be prepared. If you don’t have 6 months of fixed expenses saved, start working toward that goal.
- Debt is dead weight when it comes to building wealth. If you are carrying expensive credit card debt, you must work to pay it off. The cost of the interest is a direct cost to your wealth.
- Knowing where your money goes and what you spend each month is a cornerstone in your financial plan. We have an excellent fillable PDF template on our website. You can find it at www.WisdomWS.com.
- 2018 ended with an increase in volatility in the stock and bond markets. There is good evidence pointing to a continuation of the volatility in 2019. Be prepared and be resilient.
- If you are concerned about your investments or if you feel your tolerance for risk has changed dramatically in the recent past, we should speak soon.
- When it comes to dollar-cost-averaging programs, like automatic contributions to retirement plans or investment accounts, volatility is your friend. Why? Because you are able to purchase shares at a reduced price, or more shares for the same dollar amount. Don’t stop contributing to your accounts. Remember your long-term goals and stay focused.
- 2018 is the first year that Americans will file tax returns that reflect the Tax Cuts and Jobs Act (TCJA), which was signed into law at the end of 2017. Through Wisdom Wealth Strategies Tax Services, we offer clients of our firm the opportunity to manage the preparation and filing of their income tax return in the same place where the rest of their financial planning and investing occurs. Please be in touch soon if you would like help preparing your 2018 tax return.
- You may be surprised by the impact of the TCJA on your tax return. If you learn that you’ll either owe a large amount or receive a large refund, you should make adjustments to your withholdings or your estimated payments.
- Strategies exist that can help you manage the impact of taxes on your wealth. If you feel you are paying a lot in taxes, a review may be in order.
Estate planning and Gift Planning
- The annual exclusion for gifts remains $15,000 in 2019. Every individual may gift up to $15,000 to as many individuals as they choose without a reporting requirement.
- Make sure your powers of attorney are up-to-date, including financial and medical powers. We also encourage you to have a valid will in place.
- We are committed to protecting our clients from fraud and elder abuse. We’ve drafted a form that will allow us to speak to someone on your behalf if we suspect you are being targeted for fraud or if we suspect cognitive impairment. If you would like to complete the form, please let me know.
- Verify your valuables are still covered. Most households have insurance: home, auto, life… maybe disability and/or umbrella. When is the last time you checked to see if these policies remain right for you? Over time, it’s easy to end up with gaps or overlaps. If you have not performed an insurance “audit” recently, put it on the to-do list.
- Your need for life, disability, and long-term care insurance changes over your lifetime. If you are concerned that you don’t have proper coverage, please be in touch.
- If you have a high-deductible health plan, make sure you are maximizing the value of the Health Savings Account (HSA). It has major tax benefits.
Smart Things to do Each Year and Important Reminders
- Check your credit report by visiting www.AnnualCreditReport.com.
- Ensure that the beneficiaries listed on investment accounts, bank accounts, and insurance policies are correct.
- Have any of your children turned 18 recently? If you don’t have the proper legal paperwork in place, healthcare providers and others may be unable to respond to your requests or even discuss your adult child’s personal information with you in case of an emergency. To remain involved in their healthcare or financial interests, you’ll need to have a power of attorney, durable power of attorney, and HIPAA authorization in place.
- Required Minimum Distributions from retirement accounts start soon after turning 70 ½.
- Looking for more financial education? Check out our blog at www.WisdomWS.com and follow our social media feed on Facebook, LinkedIn, and Twitter.
Have “that money talk” with your kids, your parents, or both. When is the last time you held any conversations about your family wealth? It’s never too soon to begin preparing your children for a financially literate adulthood. Financial independence rarely happens by accident, and in-depth conversations are in order. Then, as you and your parents age, you and your kids must prepare to step in and assist if dementia, disability, or death take their tolls. There also can be ongoing conversations related to any legacy you’d like to leave as a family.
We know this list is a lot to consider, and life never stops so you have time to get to all of these items. Don’t despair if you can’t get to all of them at once. Take on one each month, and you’ll still have a couple of months to spare before the end of the year. Better yet, don’t go it alone. Let us know how we can help you cut through the noise and make sure you are on track for another great year.
Andrea L. Blackwelder, CFP®, ChFC and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with Wisdom Wealth Strategies.