Personal Finance Articles

The death of a spouse may be the greatest tragedy of your life, but sadly, it can happen. While you may not want to think about the possibility, doing so in advance can help you be prepared from a tax perspective. Here are some tips, whether you need them now or store them away for later.

File a joint return in the first year. Chances are when you were married you used the “married filing jointly” tax status. If your spouse passed away in the current year, you may still file a joint return for that year. This could provide you with the best tax rates and the largest standard deductions.

File a “qualifying widow or widower” return in the second and third years. You may file using a tax status called “qualifying widow or widower” for two years after your spouse passes away. This gives you the benefits of a joint filing. However, there is one caveat: you must have a child who is a dependent in order to file as a qualifying widow or widower.

File as “head of household” after the third year. Lastly, after those benefits expire, you may want to claim head of household status on your tax return. You can do so if you have a child who qualifies as a dependent. Tax rates are better than they are for single taxpayers (although they are less favorable than they are for “married filing jointly” and “qualifying widow or widower” returns).

This is a difficult topic. We cannot emphasize enough: the death of a spouse is a tragedy no one wants to contemplate. Certainly, it is not a time when you want to think about finances.

If you have any questions about how any of this works, please reach out. We’re just a call or email away.

As the end of the year nears, many of us give thought to getting our financial houses in order. Here are things to add to your to-do list.

Review your financial accounts: Look at your bank accounts, retirement accounts, credit cards and other financial accounts. Having too many is a common problem. Ask yourself: Do they still meet my needs? If not, should I consolidate some or close them? Should I open others? While you are doing this, also update your account information. Ensure that your other financial accounts have accurate contact and beneficiary information. If you have not changed your beneficiaries in some time, you may want to review them (and make all possible accounts transfer on death, or TOD, so they avoid probate in the event of your death).

Review your budget and debts. Do you have a budget? How does your spending align with your budget? If it is not on budget, determine why. Are you spending too much money on luxury items? Are you overwhelmed with debt? Develop a strategy for keeping your spending on track and eliminating debt (perhaps by consolidating loans).

Consider doing some estate planning. Lastly, estate planning is not just for the wealthy: everyone should have a will. If you do not have one, look into getting one. If you already have a will, year-end is a good time to review it to ensure it still protects your loved ones in the manner you intended.

Do you need help getting your financial house in order? Call us today for a year-end review.

Many people feel as if they have to choose between their values and their money, but socially responsible investing allows them to do both. And COVID-19 may be making socially responsible investing more popular.

Socially responsible investing is the use of an investment strategy that considers social good in addition to financial return.

In the early stages, socially responsible funds typically used screens to exclude companies in a portfolio based on certain criteria. For example, a fund might exclude companies that derive a certain percentage of revenue from weapons, tobacco, alcohol and gambling.

Later, socially responsible funds began including certain types of investments. For example, a fund might seek to support the environment by focusing on “green” companies such as solar panel manufacturers.

Today, the process is more robust. Recent events, including the COVID-19 pandemic and social unrest, have led to an increased emphasis on doing good for society.

Socially responsible investment managers seek to understand a company’s operations and social impact thoroughly. Often, they use environmental, social and governance (ESG) factors. Environmental factors consider how a company exhibits concern for the natural environment. Social factors consider how a company manages relationships with its employees. And governance factors consider a company’s leadership, including its executive pay and internal controls.

But these investments are not for everyone. If you are interested in socially responsible investing, it is a good idea to do some research to ensure that such a fund meets your financial goals. And you will want to look at performance, although ESG factors have been linked to good performance.

We can help you understand the options available to you and ensure they meet all of your needs, both personal and financial. Please reach out to me if you would like help understanding socially responsible investments.

Financial planning advice is often directed at those early in their careers or those who have retired. But what about the rest of us? Those of us in our working years who are approaching retirement need help too. Here are five ways for everyone to implement healthy financial habits.

Keep a budget. Track your income and expenses, both when you are working and when you are retired. Knowing what you earn and what you spend is the key to financial freedom.

Manage your spending. This may be the most important tip and the hardest to do, even if you have a budget. But small steps can go a long way. Don’t keep a lot of cash in your wallet. Avoid buying on impulse; make a shopping list and stick to it.

Save part of your income every month. Save, save, save. In your working years, save for retirement. In your retirement, save for a rainy day.

Take advantage of all tax-savings plans that are available to you. If you have an employer-sponsored 401(k) plan, use it. If you can contribute to an IRA, do it. Even a pre-tax transportation plan or a health savings account saves some money, and every little bit of tax savings helps you achieve your goals.

Be conscientious. This one is about mindfulness. Open bills when you get them. Review your bank statements for mistakes. Pay your bills when they are due. Plan your dinner menus in advance. Read all contracts before signing.

Can I help you save for the future? Feel free to reach out.

Markets have been volatile thus far in 2020, and you may be wondering how your investments are holding up. To gauge the performance of their investments, investors often turn to the Standard & Poor’s 500 (S&P 500) Index, which is widely used as a benchmark for the performance of equities. But is this the right approach?

The S&P 500 is not the only benchmark of investment performance. Designed to be a broad indicator of stock price movement, it consists of 500 leading companies in major industries chosen to represent the American economy. But the index has limitations. The S&P 500 tracks only a small percentage of the more than 5,000 stocks listed on the New York Stock Exchange, and it consists of primarily large-capitalization companies. But what if you don’t hold large-cap stocks? What if your portfolio is comprised of small-cap stocks or international stocks as well? In that case, the S&P 500 may not be the best benchmark for you.

There are other benchmarks. A bond fund might use the Bloomberg Barclays US Aggregate Index; an emerging-markets fund might use the MSCI Emerging Markets Index. If you invest in a mutual fund, your prospectus and quarterly reporting materials will likely indicate which benchmark your fund uses.

Know, though, that even if you are looking at the appropriate index, there are nuances you may not be aware of. For example, some indices are not equally weighted, so the strength of just a few popular stocks can boost the index’s return significantly.

That means it is important to find the right index and understand that differences in performance may be explained by differences in the composition of your fund versus the index.

Please reach out to me if you would like help understanding which benchmark is most appropriate for your investments.

As much fun as it is to watch an investment gain value, it is a drag to pay taxes on that appreciated investment. There are strategies, however, that will help you minimize capital gains taxes, but timing is everything. Here are some tips for deciding if now is a good time to take capital gains.

Have you held the investment for at least a year? The taxes you pay on your gains are determined by how long you hold investments in your portfolio before selling them. Gains made on assets that you have held for less than one year are taxed at your regular income tax rate; gains made on assets that you have held for one year or more are taxed at 0%, 15%, or 20%, depending on your tax bracket.

Can you use capital losses to offset capital gains? If you have a losing investment in your portfolio, you might want to sell it and use the loss to offset gains. If you have $5,000 in capital gains, for example, and you take a $5,000 capital loss, the two will cancel each other out. Additionally, if your annual losses exceed your annual gains, you can use the excess to offset your ordinary income, up to $3,000. And if you still have a net loss after that, you can carry $3,000 a year to future tax years.

Another option: consider investing in a low-turnover mutual fund that seeks to invest in a way that minimizes capital gains.

Can I help you find a low-turnover fund? Feel free to reach out

When it comes to investing for the long haul, you will often see the financial media recommending any one of many preferred techniques (especially when it comes to investing lump sums, such as an inheritance or a retirement account rollover). But which method is best?

One commonly recommended method is dollar-cost averaging, which involves putting money into the market a little at a time. The thinking is by investing money a little at a time, you will invest some of it at lower prices and some of it at higher prices. This will theoretically average out the risk over time. So, for example, if you have $100,000 to invest, you would move $8,333 each month ($100,000 divided by 12) from a savings account to a portfolio of stocks and bonds.

Another strategy is to decide on an allocation of stocks and bonds that will help you meet your financial goals, then invest the whole sum based on that allocation. For example, you might invest 60% of your $100,000 in stocks and 40% in bonds. This will allow you to reach your target allocation quicker (because some of the money is not sitting in your savings account for a year).

A third option: combine approaches. No one knows what stock or bond prices will do in the future, especially in the short term. So you might change the period over which you gradually invest. Perhaps you might do it over three or nine months.

Which of these approaches works best? It depends on your individual goals, time horizon, and tolerance for risk. And a perhaps more important point is that when investing for the long haul, it is important to have an allocation that allows you to ride out the market’s ups and downs.

Please reach out to me if you would like help understanding these options for investing.

The COVID-19 pandemic rattled the equity markets this year. That volatility should not be surprising. Most of us have lived through recessions (such as the dot-com bust and global financial crisis), and we have all heard harrowing tales of past stock market crashes, such as the one in 1929.

But what makes a recession different from a depression?

There is not a standard answer. Broadly speaking, however, both recessions and depressions are widespread economic declines. Generally, a recession lasts for at least six months. A recession is sometimes defined as two consecutive quarters of declines in inflation-adjusted quarterly gross domestic product (GDP); other times, it is referenced by monthly business cycle peaks and troughs. A depression, meanwhile, is worse and lasts for several years.

Since earliest records in 1854, there has only been one depression. You know it as the Great Depression. It was actually a combination of two recessions: one that lasted from August 1929 to March 1933 and one that lasted from May 1937 to June 1938. Since earliest records in 1854, there have been 33 recessions (plus the one we are currently experiencing).

The question, though, is not whether we are in a recession but what you can do about it. When markets are volatile for any reason, it is a good idea to review your portfolio with a financial advisor. We can tell you if you are set up in a manner that meets your investing goals and risk tolerance over the long term.

Can I help you manage market volatility? Feel free to reach out.

When interest rates are as low as they are today, it is common for fixed-income investors to seek higher yields. One option to consider: mutual funds that hold floating-rate loans.

Floating-rate loans have “floating” interest rates, which simply means the rates are variable. The rates adjust periodically (usually every 30 to 90 days) based on changes in widely accepted reference rates, such as the London Inter-Bank Offered Rate, commonly referred to as LIBOR.

Floating-rate loans offer investors several potential benefits.

First, floating-rate loans offer a measure of protection from interest rate risk, which is the risk that your investments will yield less when interest rates are low. That is because floating-rate loans generally pay interest rates higher than many other fixed-income investments.

Second, floating-rate loans are typically well secured. They sit at the top of a company’s capital structure. This has led historically to higher recovery rates in the event of default.

Lastly, floating-rate loans may offer the potential for diversification: they have tended to have low correlations to other major asset classes.

That said, there are risks to investing in floating-rate loans, as there are with all investments. Because they generally invest in low-quality credit, floating-rate loans should be considered somewhat risky. Additionally, floating-rate funds may not have stable net asset values, which makes some investors uncomfortable.

If you think the pros outweigh the cons, however, some mutual funds buy floating-rate loans, thereby giving investors the opportunity to share in the potential earnings.

Contact us today if you are interested in floating-rate loans.

Many people feel as if they have to choose between their values and their money, but that is not necessarily true. If you want to do well financially and do good in the world, you may want to investigate socially responsible investment funds.

At their most basic level, socially responsible investment funds use screens to exclude or include companies based on certain criteria. For example, a mutual fund might exclude stocks of companies that manufacture or sell weapons, tobacco, or alcohol. Alternately, a mutual fund might seek out companies involved in climate change mitigation, such as solar panel manufacturers.

But socially responsible investing can be even more robust. Some socially responsible investment managers conduct comprehensive reviews of companies to understand their operations and social impact, often traveling around the world to meet with management teams.

You may have heard of environmental, social, and governance (ESG) factors. These are often used to measure how a company stewards the natural environment, manages relationships with its employees and governs things like its executive pay. Third parties sometimes provide these ratings, but more and more managers have their own ESG teams and do their own research.

Good ESG factors have been linked to good performance. Companies prioritizing ESG factors have been shown to generate superior long-term financial performance across metrics that include sales growth, return on equity, and return on invested capital, among others, according to The Motley Fool.

If you want to invest in a socially responsible fund, you should check to ensure that the strategy and allocation match your financial goals. We can help you understand the options available to you and ensure they meet all of your needs, both personal and financial.

Call us today to learn more about socially responsible investing.