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Planning, Not Prognosticating, Is What Matters Thumbnail

Planning, Not Prognosticating, Is What Matters

By: Kelly Brothers

In conversations with clients recently, it has become clear the range of possible outcomes this fall means it will be a busy final 7 weeks of 2020.

  • What if… President Trump wins and as promised, cuts Capital gains taxes?  Maybe I should sell that asset next year.
  • What if… Biden wins (and the Senate goes to the Dems) and he raises Cap Gain rates next year (as promised) ?  Maybe I should sell that asset this year.
  • What if … Biden wins and the Senate stays Republican and we get “gridlock?”
  • What if… the new wealth tax under consideration at the State Capitol is passed and raises CA income tax rates retroactively?
  • What if…. I am planning a major gift to my favorite charity.  How do the above scenarios impact the timing of pledge payments?
  • What if… I am planning to move to Nevada, but realize their tax regime may change because their main revenue generators (casinos) have been decimated by the virus and shutdowns?

We know what the polls show today, but how will the debates impact the presidential race?  If we get a vaccine by mid-October, will that change the feeling in the country and possibly people’s votes?   It is impossible to predict what will happen, which means we have to be ready for any eventuality.    We know governments are spending more than ever before given the dislocation caused by the pandemic.  We also know many governments will take in far less in revenues than anticipated.  Eventually the bill will come due, in the form of higher taxes at all levels.  The question for investors… what can I do today to lessen that burden in the future?

Proactive financial planning also gives us insights into when to exit the market.  Kelly, are you saying we should practice “market-timing” where we get in and out of the market based on our feelings about events or elections?   No, but given that the market is near all-time highs with an economy still struggling to get traction and a contentious election a few months away, the short-term risks would seem to be to the downside. So… if you have a bill due at the end of the year and those funds are currently in the market, you might consider generating cash now.  My daughter will have a tuition bill due in December for the Spring semester… I will take that money out of the market in her 529 account before the end of this month.   In other words, even if you consider yourself a long-term investor, recognize that some of your needs are in the short-term and that money needs to be treated differently.

All of these questions and issues are best considered through the prism of a baseline financial plan.  Just like a medical professional can offer better advice if he/she knows your “baseline” readings of blood pressure, cholesterol, blood sugar; a financial professional can offer better advice if we know your threshold levels of risk tolerance, time horizon, and financial goals.     The best decisions made in November, will emanate from planning that has gone on for months or years.  The plan put in place today… will greatly inform the decisions that need to be made at the end of the year.

Our advisors would be delighted to help you understand and develop a financial plan for you and your family. Get in touch by calling (916) 924-7527 or completing our contact form.

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