Recently we have experienced significant market declines. It is that time that we all must look at our investments and make changes before a bigger correction comes and losses are more massive. For the coming year, the U.S. growth will most likely slow and the risks of a recession climb in 2019 as the near-decade-long economic cycle ages. According to some investment forecast, the probability of a U.S. recession over the next 12 months has risen to about 30 percent recently. It is higher than at any point in this nine-year-old expansion, The last few months have given us a sense of the types of risks that are out there, that both the economy and markets are going to face in 2019. Expect ongoing volatility, and that’s true across all segments of the financial markets. Also, expect U.S. growth to slow to less than 2 percent in the second half of 2019, converging downward with other developed nation economies. A pause in Federal Reserve interest rate hikes is likely in the first half of 2019, but tightening will persist as the Fed continues reducing its balance sheet holdings.
So you may have just been hit with the first storm, What are you going to do now?
The options one needs to consider are 1.) Reviewing asset allocations and moving or selling riskier ones that could deflate the portfolio, 2.) Transferring money to Safer Investments. If your investments are not needed for 5 or 10 years, then consider insured plans, such as Equity Indexed Annuities or Fixed Annuities, averaging 5-6% returns. 3.) For the Assets, you wish to keep in place, review current conditions and news regarding the Company. Morningstar software is always an excellent tool for evaluations. Remember that the Market is like being in Vegas on a betting table, it is not going to deliver a great win after a significant loss; it will call you to “Stay In” to recapture losses until it is too late.
Many investors have already evaluated and moved their holdings to safer ground, however, many investors who have their money in retirement accounts; i.e., 401K. 403B, and have not had the time to make changes at work. It is a hectic time of the year for most, but it is time to safeguard your retirement assets. There is still time to maximize your contribution for the year. Sheltering your income will save taxes by contributing to your employer’s retirement plan or ed IRA. The maximum that one can contribute is $18,500/year, plus $6,000 “catch-up,” for people 50+ and the coming year it increases to $19,000/year, plus the same $6,000 “catch-up,” so you’ll want to make the necessary adjustments to maximize deductions and review your account. For IRA owners, the limit is $6,500 with a $1,000 catch up over age 50.
Also, consider these options to save taxes: Tax-loss harvesting- if you currently have unrealized investment losses (who doesn’t), then you might benefit from selling those positions to realize those losses. The first $3,000 would be a write-off against your ordinary income, and the remainder could offset future capital gains. Don’t buy back the same security immediately as you’ll trigger a “wash sale,” eliminating your ability to take the deduction. Instead, buy another investment or wait 31 days to buy back the same stake. Gift appreciated stock- if you are sitting on a few successful ventures, you could benefit from transferring appreciated assets to a charity or a family member who might be in a lower tax rate up to the gift tax-free amount of $15,000. Gifting this to a charity could have the double whammy of removing the capital gain from your portfolio and providing you with the charitable deduction.
Charitable gifting – if you give every year, you’ll find that this year you won’t be able to take the deduction, unless your itemizing. To make a difference on your taxes, you’ll need to gift a sizable amount that’s above the standard deduction: $12,000 for single filers, $24,000 for married filing jointly. Another solution to charitable gifting is the Legacy Plan, where you can contribute, deduct, and the proceeds go to your charities of choice.
Janice Goughis an advisor in Palm Springs, Ca. We welcome your calls and wish you a Safe, glorious holiday. At Gough Financial, we I help our clients identify areas that could improve their tax situation and set them up for a better financial future. Contact Janice at (760) 251-7724 or Mobile (650) 200-8291 or email: janice@GoughFinancialSvcs.com and visit www.GoughFinancialSvcs.comfor more tips.