Articles on Wealth Management Topics

When the U.S. stock market is expensive, diversifying your portfolio away from that asset class becomes even more important, either to reduce risk and/or to supplement future returns. Here are some possible moves to consider:

Retirees in particular tend to be exposed to purchasing power risk, the risk that their sources of income don't keep pace with the inflation of their living expenses.

Several recent surveys indicate that inflation has now overtaken the pandemic as the primary concern among investors and retirees. Allianz's 2020 Retirement Risk Readiness Study concluded that 57% of Americans are worried that inflation will make basic retirement expenses unaffordable. If in fact inflation does re-emerge after decades of benign behavior, it will be particularly damaging for those close to, or in, retirement.

Since March, COVID stories have dominated the headlines, and unprecedented financial market volatility has grabbed the attention of investors. As a result, it's been easy to forget that one of the most far-reaching pieces of legislation to affect the financial planning landscape in more than a decade was passed just before the pandemic struck. The SECURE Act, or Setting Every Community Up for Retirement Enhancement Act, contains provisions that impact saving for retirement, estate planning, retirement distribution strategies, tax planning, debt management, and retirement plan administration.

The Coronavirus Aid, Relief and Economic Security Act contains one-time provisions that apply to the taking of required minimum distributions (RMD's) in 2020. The CARES Act also makes temporary modifications to some of the tax rules surrounding this year's charitable giving. With just a couple of months left to take advantage of them, let's explore these changes and their implications.

As mentioned in the most recent issue of "Seasonal Musings" - the quarterly e-newsletter distributed by Five Seasons Financial Planning - the passing of the SECURE Act late last year permanently changed the financial planning landscape, and in particular, many of the rules on required distributions from IRA's and retirement plan accounts. The Coronavirus Aid, Relief and Economic Security (CARES) Act, passed just a few months later, contains a number of measures related to the taking of RMD's in this calendar year alone.

In the last installment of Articles on Wealth Management Topics, we discussed academic research on different ways to estimate the magnitude of future stock market returns. As a refresher, the worst of the ways studied was to extrapolate future returns from past returns. Nearly as ineffective is to base estimates of future returns on surveys of individual and institutional investors.

After having played political ping-pong with them for almost a decade, Congress finally made qualified charitable distributions (QCD's) a permanent feature of the tax code late in 2015. And that's a good thing: (a) for those who consider their IRA required minimum distributions to be an unneeded and tax-inefficient nuisance, (b) for charitably-minded retirees, and (c) for charities in general.

The Bipartisan Budget Act of 2015 was a mixed blessing for investors and retirees. As in most bipartisan compromises, there was plenty to dislike in that budget agreement. It did away with a couple of coordinated Social Security claiming strategies, "file-and-suspend" and "filing a restricted application", that were deemed by the Administration to be unintended loopholes.