Volatility on Valentine’s Day: How Couples Can Overcome Disagreements About Investment Risk

Valentine’s Day is supposed to be a day for romance and reconnection. For many couples, however, this time of year could be marked by disagreements about money. Nearly half of all married couples argue about financial issues.1

With the new year just starting and tax season right around the corner, many people use this time to evaluate their spending, earnings and financial performance over the previous year. That analysis could reopen sore spots about money management.

The performance of the financial markets over the past few months could also be a source for disagreement among couples, especially those who have differing investment styles. After starting strong for the first three quarters of the year, the S&P 500 finished with an epic meltdown in the fourth quarter. The index ended the year down 7 percent, the first time in history it’s finished the year negative after being positive for the first three quarters.2

Do you and your spouse disagree about investing styles? Does one of you take a more aggressive stance while the other prefers to play it safe? Below are a few helpful tips on how you and your spouse can meet in the middle and get past your investment-related disagreements:

Draft an investment policy statement.

Many couples disagree about their investment approach because they’ve never developed a formal investment strategy. They generally know they want to save for retirement, but they’ve never discussed their specific objectives or tactics. An investment policy statement does just that.

Your investment policy statement is a written document that states your goals, acceptable risks and the steps you will take to reach your objectives. It outlines which types of investments are appropriate for your strategy and which are not. You can use your investment policy statement as a guide for making future decisions.

The process of developing the investment policy statement could be beneficial for many couples. You’re forced to share your differing opinions and compromise to reach a strategy. Those conversations could help you work out differences and find areas where you agree, which could diffuse future arguments.

Develop a retirement income plan.

Often, arguments are fueled by uncertainty about the future. You’re unsure of when you’ll be able to retire or how much more you need to save, so that heightens your anxiety and sharpens disagreements. You may be able to avoid arguments by eliminating the uncertainty.

Work with your financial professional to develop a retirement income plan. You can project your future retirement income from sources such as Social Security, an employer pension and even your own savings. You can also build a retirement budget to estimate your spending. These two projections should give you an idea of how close you are to reaching your goals, how much more you need to save and how much risk you should take to achieve growth.

Don’t avoid the conversation.

Have you and your spouse agreed to disagree about your differing investment styles? Do you avoid the conversation? Or do you go it alone with your individual accounts so you don’t have to discuss issues that may lead to disagreement?

While you may not want to disagree or argue, it’s also not helpful to avoid the conversation. If you each have differing styles and don’t have a cohesive plan, you could be missing out on opportunity.

For example, assume your spouse is aggressive with his or her investment style and takes on a substantial amount of risk. Perhaps you’re conservative and choose assets that offer little return potential but also have little chance of loss. You may feel that the “go it alone” approach works because you each invest according to your comfort level and you avoid arguments.

By avoiding the conversation, however, you may be missing out on opportunities to meet in the middle and achieve better performance. For example, you could find an allocation that has growth potential and reduced risk. You could use tools such as equity index annuities that offer growth without downside exposure. The only way to find these opportunities is to discuss your differing approaches and look for middle ground.

Work with a professional.

Finally, you may find it helpful to bring in a third party, like a financial professional, who can give objective, impartial feedback and also provide information and analysis that may make it easier to reach agreement. An experienced advisor can also help you develop a retirement strategy and an investment policy statement to guide your decision-making.

Ready to overcome your investment differences with your spouse? Let’s talk about it. Contact Sage Financial Partners. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

1https://nypost.com/2017/08/03/the-reasons-most-couples-argue-about-money/

2https://www.cnbc.com/2018/12/31/the-sp-500-will-make-history-when-it-ends-the-year-with-a-loss.html

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18408 – 2019/1/14

What Do January’s Market Returns Mean for the Rest of the Year?

It’s that time again. A new year is here, which means a volatile 2018 is in the rearview mirror. The markets suffered a steep drop at the end of last year after climbing steadily through the first three quarters. A number of factors contributed to the markets’ fourth-quarter tumble, including tariffs, interest rate hikes and trouble in the tech sector.

A new year doesn’t mean those challenges are gone, but it does represent a fresh start. And if history is any guide, January can be a strong month for investors. According to a study from LPL Research, in the 68 years from 1950 through 2017, January has been a positive month for the S&P 500 41 times. It’s been negative 27 times.1

As any investor knows, history doesn’t guarantee future performance. However, there does seem to be a correlation between market performance in January and the rest of the year.

How do January returns impact the rest of the year?

According to LPL Research, there’s a relationship between January returns and market returns over the remainder of the year. Its research showed that during years in which there was a positive January return, the market had an average return of 12.2 percent over the next 11 months. When the January return was negative, the S&P 500 returned only 1.2 percent the rest of the year.1

If January returns are more than 5 percent, the correlation is even more pronounced. In those years, the market had an average return of 15.8 percent over the next 11 months. In fact, when January has a return of more than 5 percent, the rest of the year is positive 91.7 percent of the time.1

What is the January effect?

Why has January been positive more often than not? And why does January’s return seem to impact the rest of the year? There are no definitive answers to these questions, but there are theories.

There’s an idea called the “January effect,” which suggests that January returns may be the product of tax strategy. Investors sell stocks in December to harvest tax losses before the end of the year. That depresses prices and creates a buying opportunity in January. Because investors sold at the end of the year, there’s cash on the table to buy in the beginning of the next year.

Of course, this is just a theory. There’s no way to conclusively prove whether the January effect is a real phenomenon. Even if it could be proved, it’s never wise to change your long-term investment strategy based on short-term prospects.

If you’re concerned about the volatility of 2018 or in the coming year, now is a great time to meet with a financial professional. They can help you review your strategy and possibly make changes that reduce your risk exposure protect your assets.

Ready to evaluate your retirement strategy? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and goals and implement a safe and secure retirement plan. Let’s connect soon and start the conversation.

1https://www.thestreet.com/story/14469889/1/stock-market-s-strong-january-performance-bodes-well-for-the-rest-of-the-year.html

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18345 – 2018/12/31

What Can You Expect From the New Tax Law in 2019?

A new year is here, and with it comes a flood of year-end tax documents like W-2s, 1099s and others. Before you know it, the April 15 tax filing deadline will be upon us, and it will be time to submit your return.

It’s always wise to meet with your financial professional at the beginning of the year. It gives you an opportunity to discuss the past year, your goals for the coming year and your tax strategy. That advice rings especially true this year, with a number of tax changes about to kick in.

The Tax Cuts and Jobs Act was signed into law in late 2017 by President Trump, and 2018 was the first full calendar year under the new law. The return you file in April will likely be the first that reflects much of the law’s changes. Below are a few of the biggest changes and how they could affect your return:

Increased Standard Deduction

The new tax law impacted a wide range of credits and deductions, from the deduction of medical expenses to credits for child care. Those who itemize deductions may have felt the brunt of these changes.

However, the tax law significantly increased the standard deduction. In 2017 the standard deduction was $6,350 for single filers and $12,700 for married couples. The new law increased those numbers to $12,000 and $24,000, respectively.1

Given the changes to itemized deductions and the increased standard deduction, you may want to consult with a financial or tax professional before you file your return. If you’ve traditionally itemized deductions in the past, that may no longer make sense.

New Tax Brackets

The new tax law also made significant changes to the tax brackets. There are still seven brackets, just as there were before the passage of the law. And the lowest rate is still 10 percent. The top income tax rate is down to 37 percent from 39.6 percent.2 There are similar cuts to other brackets as well.

Under the old tax code, for example, a married couple earning $250,000 would be in the 33 percent bracket. Under the new law, that same couple is in the 24 percent bracket. A single individual earning $80,000 was in the 28 percent bracket under the old law but is now in the 22 percent bracket.2

Itemized Deduction Changes

As mentioned, the new tax law increased the standard deduction qualification amounts. And many itemized deductions were eliminated or reduced including those for state and local taxes, real estate taxes, mortgage and home equity loan interest, and even fees to accountants and other advisers.

However, there could be other opportunities to boost your itemized deductions above the standard deduction level. Charitable donations are still deductible, as are medical expenses assuming they exceed the 7.5 percent threshold. If you’re a business owner, you can deduct many of your expenses, including up to 20 percent of your income assuming you meet earnings thresholds.3

Ready to build a sound tax strategy? Our founding partner is a chartered accountant. He can show you how taxes impact your entire retirement picture. Contact us today at Sage Financial Partners.

1https://www.nerdwallet.com/blog/taxes/standard-deduction/

2https://www.hrblock.com/tax-center/irs/tax-reform/new-tax-brackets/

3https://money.usnews.com/investing/investing-101/articles/know-these-6-federal-tax-changes-to-avoid-a-surprise-in-2019

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18326 – 2018/12/26