NWP Monthly Digest | December 2020
All I Want for Christmas Is You
As December begins, COVID cases are reaching new highs. Many Americans struggle to find work and plan their financial future. Whether you or your loved ones have dealt with health or financial issues, 2020 has been a tough year for almost everyone. Without minimizing the dire impact the pandemic has had, perhaps it has shown us what makes life special and perhaps we will not take them for granted when the pandemic subsides. On Thanksgiving, I was grateful to have special people around me and a number of things to look forward to. Over the holiday, listen to the lyrics of the single from Mariah Carey, All I Want for Christmas Is You. As you reflect on your life, you may not remember your material possessions, but you will always cherish the relationships you built and the memories you shared. Learn from Mariah when she says, “I don’t care about the presents underneath the Christmas tree,” and focus on the people in your life. Mariah’s perspective can even help you build and preserve your wealth. By focusing on what you have and not what you could have, you may avoid frivolous spending that can destroy wealth.
“Getting wealthy can occur with luck, but staying wealthy relies on humility and frugality.” Morgan Housel
November was a month investors should be grateful for. The Dow Jones Industrial Average finished November up 12%, marking its best month since January 1987. What happened? The election is over. As I wrote in October, the stock market does not like uncertainty and it is not partisan. Once a candidate is elected, the stock market no longer discounts the possibilities of analyzing the legislative agenda of two presidents. Investors, please remember this for the next election. There is never a perfect time to invest, and if it feels perfect, you are probably too late. Vaccine news from Moderna, Pfizer/BioNTech, and AstraZeneca also helped the stock market charge higher in November. Those companies are expected to seek approval to distribute the vaccine shortly and begin distribution before the end of the year.
The pandemic has created a dichotomy between those industries affected by the virus, stay-at-home trends, and those prospering from the environment. In many ways, the pandemic has accelerated technological change. When it comes to investment themes, the performance gap between value and growth stocks has widened. As some technology names trade at inexplicable prices, many are waiting for a catalyst for this dynamic to correct. The vaccine news could be the spark to change the investment landscape. On Monday, November 9, 2020, SentimenTrader witnessed the largest one-day outperformance of value over growth in the past 75 years (based on S&P index data).
To rescue the economy at the from the worst recession since the Great Depression, congress and central bank enacted unparalleled measures. These measures may have been necessary, but we will be dealing with this burden for years to come. Below, is a chart found on USDebtClock.org. There’s a lot to unpack here so let me run through some of the numbers I find starling (these are real-time numbers and will be different from the official annual projections):
US national debt per taxpayer is over 219 thousand dollars.
US federal tax revenues are around 3.5 trillion dollars but we are spending almost 7 trillion dollars a year (official).
Medicare/Medicaid and Social Security make up almost 2.4 trillion of the roughly 6.7 trillion budget.
As a financial planner, I’m apprehensive when I see ~$3.5 trillion of income (federal tax revenues) and a spending budget of around $6.7 trillion. Would you spend $660k every year if you only had $340k of income?
Total unfunded liabilities (debt owed without any corresponding assets) from Social Security and Medicare combine to around 470 thousand dollars per citizen.
The US workforce is smaller than it was in 2000, we now have more than 18 million people unemployed, and almost 100 million people that are not in the labor force.
Why would I show you this? First, this is a problem we have to deal with, and ignoring a problem is never a solution. Second, these numbers are useful as we help clients with tax planning. If we have to deal with this debt burden, what is the obvious solution? Increase taxes - remember this when you get to the Noble Wealth Pro Tip of the Month section on tax planning.
Finally, I always like to see clients inspired by our newsletters, even if it means pointing out my blatant plagiarism in the October newsletter. Below, are their comments to the newsletter. I hope you enjoy them as well.
Your Nevermore adaptation, unapologetically plagiarizing a macabre poet, moved my own internal rhymes.
Pardon a big salutation at a time of national tribulation
Fears are arousing at overblown housing
Pandemic's foundation is like insipid inflation
Yet the market's compounding with no sight of dousing.
To all our clients out reading this - thank you for being a part of our life, and partnering with us to pursue your financial goals. To quote Mariah Carey, all I want for Christmas is you!
One more thought - humans are social creatures and you may find some of those closest to you are isolated, sad, and even depressed. Please reach out to your friends and loved ones over the holidays. It may not seem like it matters but it could mean the world to them.
Noble Wealth Pro Tip of the Month
Year-end Tax Planning
Charitable Deductions
As part of the CARES Act, households can receive a $300 above the line deduction for contributing to certain qualified charities. If you have a charity you value, there is an additional incentive to donate this year. Be sure to do so by December 31st. Also, if your itemized deductions are going to be near $12,400 if single and $24,800 if married and filing jointly, you may consider additional charitable contributions or contribute to a donor-advised fund.
Review Tax Withholdings:
Review your withholding amount to avoid underpayment penalties. If estimated payments are required, you may consider taking a distribution from a retirement account and withholding 100% for federal tax purposes. Withholding from a retirement account distribution is treated as if the withholding was done equally throughout the year.
Manage Your Adjusted Gross Income
If your Modified Adjusted Gross Income (MAGI) is over $200,000 ($250,000 if married and filing jointly), you may be subject to the 3.8% Net Investment Income tax on the lesser of net investment income or the excess of MAGI over the threshold. If you are 64 or older, be mindful of IRMAA charges on Medicare if your income exceeds specific levels.
Tax Considerations if We Encounter a Democrat-Controlled Senate
A Republican-controlled senate handcuffs any major legislative changes to the tax code that President-elect Biden had originally planned on implementing. Until the Senate run-off in Georgia occurs on January 5th, 2021, we will not have the political clarity many of you seek to make important year-end decisions. If Democrats manage to take control of the senate after the run-offs are complete, it’s very possible changes to the tax code will be effective for the tax year 2021. The dilemma – should you act now and make potential changes that could be costly and/or unwanted if substantial changes to the tax code are not implemented for 2021, or wait and risk the chance that such changes may be implemented, potentially dramatically increasing costs? The table below outlines some of the key items in Biden’s plan, how it may be applicable to your wealth, and some potential strategies you can use to circumvent the issue.
The information above is for educational purposes only and should not be relied upon for tax or legal advice. Please seek counsel for help implementing the strategies above.
Delegate and Focus on the Biggest and Most Important Tasks in Your Life
In Morgan Housel’s book, “The Psychology Of Money,” the author explores the differences between being rich and being wealthy; the second examines what it takes to not feel “rushed” (hint: it’s all about delegation to focus on the biggest and most important tasks); and the last explores recent research finding that those who work with financial advisors don’t just do better with their money… they’re also happier with it, too!
“Nothing in life is quite as important as you think it is while you’re thinking about it.” Daniel Kahneman
Things We’re Reading and Enjoying
I’ll Invest When The Dust Settles | The Compound Show with Josh Brown
No, this isn’t a book but I bet some of you will love this podcast episode. In this episode, Josh discusses those famous words we hear from investors, “I’ll invest once the dust settles.” As we have learned, the market is forward-looking. Once the dust settles, the opportunity is gone and it is too late. During the financial crisis, the stock market bottomed in 2009 but the housing market did not bottom until 2011. This year, the market bottomed in March but COVID is far from over (as we know). Josh does a good job of explaining why investors should not wait until the dust settles. After listening to the podcast, those of you guilty of waiting until the dust settles, remember his words and it may help you once we see opportunities in the market. Josh is joined by Nicholas Colas (DataTrek Research) to discuss the current stock market opportunities around the world, from the US to Europe to Japan to the Emerging Markets. We get Nick's take on autonomous vehicles, Chinese tech giants and some of the things he's learned from 30 years on Wall Street.
One Up On Wall Street by Peter Lynch
Lynch offers easy-to-follow advice for sorting out the long shots from the no shots by reviewing a company’s financial statements and knowing which numbers really count. He offers guidelines for investing in cyclical, turnaround, and fast-growing companies. He even offers some advice that may have stopped many from investing in Nikola.
“In my experience, the next of something almost never is.” Peter Lynch.
The Hour Between Dog and Wolf | John Coates
John Coates, once a derivatives trader, used the expression “the hour between dog and wolf” to refer to the moment of Jekyll-and-Hyde transformation traders passed through when under pressure. They became cocky and irrationally risk-seeking when on a winning streak, tentative and risk-averse when cowering from losses. In a series of groundbreaking experiments, Coates identified a feedback loop between testosterone and success—one that can cloud men’s judgment in high-pressure decision-making. Coates demonstrates how our bodies produce the fabled gut feelings we so often rely on, how stress in the workplace can impair our judgment and even damage our health, and how sports science can help us toughen our bodies against the ravages of stress. Revealing the biology behind bubbles and crashes, The Hour Between Dog and Wolf sheds new and surprising light on issues that affect us all.
The Hard Thing About Hard Things | Ben Horowitz
While many people talk about how great it is to start a business, very few are honest about how difficult it is to run one. Ben Horowitz analyzes the problems that confront leaders every day, sharing the insights he’s gained developing, managing, selling, buying, investing in, and supervising technology companies. A lifelong rap fanatic, he amplifies business lessons with lyrics from his favorite songs, telling it straight about everything from firing friends to poaching competitors, cultivating and sustaining a CEO mentality to knowing the right time to cash in.
Happy Holidays!
-Your team at Noble Wealth Partners
“There is nothing noble about being superior to your fellow man. True nobility is being superior to your former self.” Ernest Hemingway
