Author: Minich MacGregor Wealth Management

Choosing Between Inflation and Recession

Written by Minich MacGregor Wealth Management on February 1, 2018. Posted in Minich MacGregor Missive.

Balancing the economy between hyperinflation and recession may sound like dangerous work, but it is the current responsibility of our Federal Reserve. The Federal Reserve (“Fed”) is the central bank of the United States, the national bank, so to speak. The Fed’s job is to keep the U.S.’s economy somewhere between growing too fast and not growing at all. To do this, they increase or decrease the money supply (they print or shred money, literally).

As short-term interest rates continue to increase, it is important to understand the effects of increasing interest rates and to understand a very important definition: the bond curve. This article will dive into the effects of interest rates and how they may even be used to predict a recession.

Suppose you have $1,000 in a Certificate of Deposit (“CD”) with a bank offering 1% interest rate. After one year of holding that CD, $10 of interest would have been earned. However, most of you know that by investing in a 3-year CD instead, you may be able to earn a higher interest rate, for example, 2%. A higher interest rate is usually given to longer-term bonds or CD’s because of two very important reasons: 1) Investors require more profit in exchange for locking in their money for longer periods of time and 2) The future is expected to be better off than the present.

The latter point is why capitalism works, why we have inflation, and why you would take $1,000 today rather than taking $1,000 one year from today. Over time, money tends to grow upwards and, hence, the future is usually expected to be worth more than the present. When this is not the case, then there are more serious worries about the economy. Let me expand.

The 10-Year Treasury Bond is debt that the U.S. sells and that almost anyone can buy. The term length is 10 years and it has an interest rate of 2.7%. The 3-Month Treasury Bill is also a type of debt that the U.S. sells; it’s term length is 3 months and its interest rate is 1.5%. The bond curve is the difference between the 10-Year and the 3-Month Treasury debt, so it is currently 1.2% (2.7% minus 1.5%). See the attached chart. As the Bond Curve approaches 0%, the future becomes less optimistic than the present. This is dangerous grounds, as the Bond Curve has predicted a recession in the United States nearly every time since the early 1960s.

As you may have heard in the news, the Federal Reserve is increasing the interest rate of the 3-Month Treasury Bill. If you’re looking at the previous paragraph and now wondering why the Fed would increase the 1.5% short-term bond, and thus decreasing the bond curve, see next sentence. Decreasing interest rates can be used as “steam release” during an economic slowdown. Corporations always have the option to either save their money or spend it. Decreasing interest rates during an economic slowdown will decrease the amount of money corporations save (because who wants to save at 0% interest rate?). This leads to an increase in corporate spending and thereby spurring the economy. If short-term interest rates are already near 0%, and an economic slowdown occurred, there would be no “steam release” to use. Furthermore, if inflation becomes too high, increasing short-term interest rates is an important method to steady the economy. Therein lies the choice: letting the economy overheat too much and letting inflation get out of hand, or, letting the economy flounder. This is the dance of the Federal Reserve to keep the economy somewhere in the middle.

However, as evidence from the graph below, we have been headed towards zero bond curve since we left the last recession. Now is the time to realize the music could stop and that the market could leave us standing with no chair to sit on. With the stock market at near all-time highs, now may not be the time to sit down, but you should at least know where your chair is.

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Shakespeare on Finance 5

Written by Minich MacGregor Wealth Management on January 25, 2018. Posted in Minich MacGregor Missive.

For centuries, people have studied Shakespeare for his wit and his wisdom. For the past few months, we’ve been sharing some of that wisdom in a new series of articles called:

Shakespeare on Finance

Shakespeare never actually wrote about finance, of course. But we’ve found many of his lines contain important financial lessons. In this article, let’s look at one such line from one his most famous plays:

Quote #5:
“How poor are they that have not patience! What wound did ever heal but by degrees?”
Othello

The virtue of patience is one of the most underrated aspects of working toward your financial goals.

To illustrate what we mean, imagine you’re recovering from a broken leg. While recuperating, you dream of the day your body will be healed and you can walk normally again.

How would you go about trying to make that day happen? Pop a couple aspirin and start playing hopscotch? Of course not. You’d get a cast on your leg. You’d take it easy for several weeks. Then, little by little, you’d gradually increase your activity level, giving your leg time to heal properly. You’d be patient. Antsy, maybe, but patient.

The same attitude is required when it comes to finances. After all, there’s a reason why the term “get rich quick” arouses so much suspicion. Building wealth and reaching your goals takes time. It takes planning. It takes meticulous attention to detail.

For example, here are three important steps to reaching your financial goals, all of which require patience.

1. Avoid impulsive investment decisions

Some investors, anxious to accumulate as much wealth as possible, will throw a lot of money at a “hot stock” or hop on board the latest trend. Others, fearful of even the idea of losing money, may sell investments too quickly at the first sign of trouble.

Both types of investors can be their own worst enemy.

Investing absolutely requires patience. That’s because successful investing is all about the long-term, not the short. Making rash decisions can often lead to losing your hard-earned wealth – or never being in a position to accumulate wealth at all.

2. Focus on What You Can Control

As you travel down the road that leads to your financial goals, there are a number of things you simply can’t control. Sickness, accidents, the economy – life can throw many imposing obstacles in your way.

Fortunately, there are many things you can control. How you react to obstacles, for instance. What kind of career you have. How hard you work. How much you save, how much you invest, how much you spend.

In other words, you’re in charge of the seeds you plant in life’s garden. Show some patience by giving them a chance to grow.

3. Save

This often gets overlooked, but saving money isn’t just for kids hoping to buy a new bike. Saving money is about paying your future self. Think of all your future wants, needs, or goals, like buying a new car, going on a dream vacation, or helping your child pay for college. Saving money specifically for those purposes is a must. People who don’t save usually end up borrowing, which is as useful for building wealth as a leaky bucket is for collecting rainwater.

Saving, of course, takes time and patience. More than that, it takes discipline. The discipline to set money aside before you spend it.

But it’s one of the surest ways to reach your goals.

***

As you work to build wealth and reach your goals, always remember to exhibit patience. Patience in your financial plan. Patience in your investment strategy. Patience in yourself.

After all, “How poor are they that have not patience? What wound did ever heal but by degrees?”

We will conclude our Shakespeare on Finance series in the next article by examining a quote from the Bard’s most highly-regarded work of all: Hamlet.

Shakespeare on Finance 4

Written by Minich MacGregor Wealth Management on January 8, 2018. Posted in Minich MacGregor Missive.

For centuries, people have studied Shakespeare for his wit and his wisdom. For the past few months, we’ve been sharing some of that wisdom in a series of articles called:

Shakespeare on Finance

Shakespeare never actually wrote about finance, of course. But we’ve found many of his lines contain important financial lessons. Let’s look at one such line from one of the first poems Shakespeare ever published:

Quote #4:
“Foul-cankering rust the hidden treasure frets, but gold that’s put to use more gold begets.”
Venus and Adonis

Imagine a heap of gold coins hidden in some lightless, underground vault, protected by a maze of labyrinthine tunnels, booby traps, and a fire-breathing dragon.

Seems pretty safe, doesn’t it?

But as the gold lies in disuse, it slowly begins to rust. Finally, after a decade, the owner comes to withdraw the gold. He takes it to the marketplace, only for merchant after merchant to turn him away.

To his horror, the owner realizes his gold has lost far more than its shine.

The gold has also lost its value.

***

According to a survey by Gallup, 65% of American adults reported owning stocks back in 2007.¹

Then the financial crisis hit. The recession followed soon after. And the S&P 500 dropped 38% in 2008 alone.²

Now, fast forward to today. Per Gallup, only 52% of Americans report owning stock.¹ In fact, that number has declined almost every year for the last ten years.

It’s not hard to understand why this is. So many Americans were burned by the financial crisis. So many saw the value of their retirement accounts plummet. It’s only natural that many people – almost half the country – would prefer to keep their hard-earned money out of the markets. Maybe they can’t hide it behind a fire-breathing dragon, but at least it feels safer.

But here’s the problem

Read the second half of that Shakespeare quote again: “…gold that’s put to use more gold begets.”

As the number of American investors has dropped, the value of the stock market has gone up. We’re now over eight years into the longest bull market in history – one in which many Americans have missed out.

Talk about gold begetting gold.

The sad truth is that for many Americans, their “treasure” has been left to rust. But those who put their “gold” to use have likely seen it beget more over the last decade.

Now, before we go any further, it’s important to note that we are NOT saying you should go out and put all your money into stocks. In truth, we’re not giving any investment advice at all. We would never do that in an article. Investment decisions should always be made after careful deliberation, and there’s no good “one size fits all” approach to investing.

Here’s what we are saying:

After the last bear market ended, many Americans made an emotional decision to hide their treasure, fearful of further losses. The key word here is “emotional.” Emotion, as the saying goes, is a good servant but a bad master, especially when it comes to making investment decisions. Too often it leads to “buying high and selling low” when the opposite is what everyone hopes for.

Fact is, every financial decision we make involves risk. Even deciding not to do something can be risky; in this case, the risk of missing out on opportunities.

That’s why it’s so important to have a plan. A plan for reaching your financial goals. A plan for putting your money to work instead of burying it under a mattress. It’s the best way to take emotion out of the equation. The best way to grow and manage risk.

So the next time you have to make a financial decision, ask yourself: are you making an emotional decision, or one based on a long-term plan? Are you hiding your treasure, or putting it to work?

Is your gold more valuable when hidden…or when it’s out there begetting more?

In our next Shakespeare article, we’ll move back to his plays by examining a line from Othello.

¹ “Just over half of Americans own stocks, matching record low,” Gallup, April 20, 2016. http://news.gallup.com/poll/190883/half-americans-own-stocks-matching-record-low.aspx

²Myles Udland, “The Dow just hit 20,000, but half of America missed out,” Yahoo! Finance, January 25, 2017.
https://finance.yahoo.com/news/the-dow-just-hit-20000-but-half-of-america-missed-out-181139332.html

Breaking Down the Tax Bill

Written by Minich MacGregor Wealth Management on January 3, 2018. Posted in Minich MacGregor Missive, Uncategorized.

Over the last few months, Republicans in Congress have labored over a new tax bill. On Friday, December 22, President Trump signed the final bill into law.

It’s the most significant overhaul of the tax code since 1986 – and it’s something political, legal, and financial professionals will be analyzing for months to come. The Tax Cuts and Jobs Act, as it’s officially known, contains many provisions affecting everyone from parents to small business owners – provisions that could have a significant impact on your overall finances.

Taxation is a politically-charged subject, of course. Everyone has an opinion, because everyone’s got a stake. We have opinions of our own, of course, but we’re not a political analyst. We’re financial advisors. So, we’ve tried to write this article to be as neutral as possible. For that reason, you’re about to see a lot of numbers.

Most of these provisions go into effect in 2018. That means we should start educating ourselves on the basics of the new tax bill now. To help, we’ve prepared a sort of primer that breaks down some of the main changes to the tax code. Understand, this article is not intended to be a complete, exhaustive analysis of the entire bill. But at least this way, you’ll be familiar with some of the broad strokes.

As always, if you have any questions, please don’t hesitate to let us know. Additionally, if you would ever like us to confer with your personal tax advisor (or recommend a good one!), we would be happy to do so.

Basic Provisions of the Tax Cuts and Jobs Act

Before we dive into the new bill, it’s important to understand that most of the following changes affecting individuals and couples are set to expire in 2025. Thereafter, tax rates and other provisions revert to their current form unless extended by a future Congress.

Most of the changes affecting corporations, on the other hand, are permanent.

Changes to Tax Rates – Individuals & Married Couples

When Republicans in the House of Representatives released their initial version of the bill, the plan was to shrink the number of tax brackets from seven to four. The final bill retains all seven brackets; however, rates for most brackets have come down.¹

Current Tax Brackets	New Tax Brackets in 2018	Income for Individuals	Income for Married Couples
10%	10%	Up to $9,525	Up to $19,050
15%	12%	$9,526 to $38,700	$19,051 to $77,400
25%	22%	$38,701 to $82,500	$77,401 to $165,000
28%	24%	$82,501 to $157,500	$165,001 to $315,000
33%	32%	$157,501 to $200,000	$315,001 to $400,000
35%	35%	$200,001 to $500,000	$400,001 to $600,000
39.6%	37%	Over $500,000	Over $600,000

Date of Effect: January 1, 2018

Expiration: December 31, 2025

Changes to Tax Rates – Corporations

Fun fact: The Tax Cuts and Jobs Act is the largest one-time tax cut for corporations in U.S. history, which are set to see their tax rate drop from 35% to 21%.² This is slightly higher than the 20% tax rate Republicans were originally shooting for, and significantly higher than the 15% President Trump called for. But it’s still a major boon for many businesses, especially large corporations, which Republicans hope will lead to more jobs and increased investment. (Hence the name of the bill.)

Date of Effect: January 1, 2018

Expiration: Permanent

Changes to Deductions – Individuals & Married Couples

To understand the changes being made to non-corporate deductions, it’s helpful to first understand how the current tax code works.

There are two basic kinds of deductions, standard and itemized. As the IRS explains it, the standard deduction is a “dollar amount that reduces the amount of income on which you are taxed.”⁷ Currently, single individuals can take a standard deduction of $6,350. Married couples can take a $12,700 deduction. Married couples with children can take even higher deductions.

Under the new plan, the standard deduction goes up to $12,000 for single individuals and $24,000 for married couples.³ That means many people will see a very nice tax cut for the next several years.

But when it comes to the standard deduction, there’s a catch: you can’t take it if you itemize deductions. So, while the bill doubles the standard deduction, that benefit could be offset for some because of changes to itemized deductions. This is especially true for those living in high-tax states.

Here are some changes to common itemized deductions³:

Mortgage interest: Currently, if you take out a new mortgage you can deduct the interest on debt up to $1,000,000. Under the new law, if you take out a new mortgage you will only be allowed to deduct the interest on debt up to $750,000. This includes your primary residence and one additional “qualified residence,” like a cabin or mobile home.
State and local taxes: A popular deduction is to write off state and local tax payments from federal tax payments. Originally, the Republican tax plan called for removing this particular tax break altogether, and you may have seen that reported in the news. This did not sit well with representatives from high-tax states, however, so a compromise was reached. Now, taxpayers can deduct no more than $10,000 of any combination of state income taxes, local income taxes, and property taxes.
Medical expenses: Originally, the House Republicans’ version of the bill would have eliminated all deductions for medical expenses, but the final version is quite different. Currently, you can deduct out-of-pocket medical expenses that exceed 10% of your “adjusted gross income.” (This is your total gross income minus specific deductions.) In 2018 and 2019, you can deduct out-of-pocket expenses that exceed 7.5% of your adjusted gross income.⁴

In 2020, the deduction reverts to the original level of 10%.⁴

Date of Effect: January 1, 2018

Expiration: December 31, 2025 for changes to mortgage interest and state/local income tax deductions. January 1, 2020 for changes to medical expense deductions.

Changes to Deductions – Businesses

One of the most significant provisions in the new bill is how it affects small businesses – specifically “pass-through” businesses.

What is a pass-through business? Well, for many small business owners, business income is taxed the same as their individual tax rate. In other words, any business income passes through to the owner to be taxed at the owner’s individual level. Essentially, this is a way to ensure a business owner doesn’t have to pay income taxes twice.

The new bill allows pass-through businesses to take a 20% deduction on their business income taxes. However, owners of service-oriented businesses (like a doctor’s office) cannot take the deduction unless their taxable income is less than $315,000 (if married) or $157,000 (if single).⁵

Date of Effect: January 1, 2018

Expiration: December 31, 2025

Changes to the Alternative Minimum Tax

The Alternative Minimum Tax, or AMT, has long been one of the most complex aspects of the tax code. Enacted in 1969, the AMT was originally designed to prevent the wealthy from using a dizzying array of credits, deductions, and loopholes to avoid taxes altogether. Over the decades, however, the AMT began hitting those who were already paying a host of other taxes.

Calculating what amount people actually pay is a complex process, and the new bill doesn’t change that. What does change, however, is the threshold at which people are exempt. For individuals, the exemption level increases from $54,300 to $70,300. For married couples who file jointly, the exemption rises from $84,500 to $109,400.⁶

For corporations, on the other hand, the AMT is eliminated altogether. Most industries claim this will help them spend more on research, expansion, and jobs, which would surely be welcome news to investors.

Date of Effect: January 1, 2018

Expiration: December 31, 2025 for individuals and married couples. For corporations, the elimination of the AMT is permanent.

Changes to the Estate Tax

Long derided as a “death tax” by its detractors, the estate tax is not being abolished, as was originally the case. The number of people required to pay it, however, will decrease. Currently, estates passed onto heirs are taxed up to 40%, with exemptions for those with estates worth up to $5.49 million ($10.98 million for married couples).

The new law doubles both levels.⁴

Date of Effect: January 1, 2018

Expiration: December 31, 2025

Other Changes

The Tax Cuts and Jobs Act is over five-hundred pages long. As you can imagine, it contains a lot of provisions – far too many to cover in a single letter. But here’s a quick rundown of some other significant changes⁴:

End of the Individual Mandate: After failing to repeal the Affordable Care Act, also known as Obamacare, earlier in the year, Republicans were nevertheless able to repeal one of the health care law’s signature provisions. The individual mandate, which requires people above a certain income level to buy insurance or pay a penalty, will end beginning in 2019.
Boost to the Child Tax Credit: Currently, parents up to a certain income level may claim a $1,000 credit for each child under age 17. Under the new law, this credit rises to $2,000 for both single individuals and married couples making up to $400,000.
Moving Expenses and Tax Preparation Deductions: Two more itemized deductions are consigned to the trash bin of history. Starting next year, people can no longer deduct either moving or tax preparation expenses.

What Didn’t Change

Congress debated many provisions that ultimately didn’t make it into the final bill. These include:

Student Loan Deductions: The original House bill eliminated the option of deducting student loans, but the final bill left it untouched.
Changes to 401(k) Accounts: At one point, it was rumored that the bill would restrict the amount of pre-tax dollars people could contribute to their 401(k). In the end, the rules governing 401(k) accounts went unchanged.
Capital Gains When Selling a Home: Married couples can deduct up to $500,000 in capital gains when selling their home, so long as they have lived it in for at least two out of the five years before the date of sale. Initial drafts of the bill would have limited this, but the provision escaped unscathed.
Selling Stock: When selling shares of a stock or mutual fund, investors can choose which shares to sell. This enables them to sell only those shares that would incur the least in taxes. The Senate tried to clamp down on this, to no avail.

Final Analysis

Still with us? Haven’t fallen asleep yet? At least this letter isn’t as long as the tax bill itself!

To be honest, there really can be no “final analysis” at this point. Tax experts are still wrestling with many of the bill’s provisions, and it may be months before we know all the consequences, intended or otherwise.

Furthermore, despite the fact President Trump signed the bill into law, plenty of questions remain, including:

What happens if Democrats regain control of Congress? Will parts of the law be repealed?
What happens by 2026? Will a future Congress extend these tax cuts, or will they be allowed to expire?
Will this bill create millions of new jobs and expand economic growth? Or will it merely add millions more to the national deficit? You can find experts on both sides of the issue. All I can say is, “Stay tuned.”

Generally speaking, the following things are clear:

Most Americans will enjoy a tax cut, at least temporarily.
Most businesses will see a significant reduction in taxes, which could, in theory, stimulate both the markets and the overall economy.

As we said above, this article is not intended to be a complete, exhaustive breakdown of everything in the Tax Cuts and Jobs Act. So, here’s what you should do: Write down any questions you may have. Hear something on the radio that doesn’t make sense? Write it down. Read something in the newspaper and want to know what it means? Write it down. Then, feel free to contact us with any questions. As always, we’ll do our best to answer them. If we can’t, we’ll direct you to a tax professional who can.

Taxes are a loaded topic, and it’s impossible to predict exactly what the future holds. That’s why we will continue to examine both the new tax code and the markets, so we can keep you informed about any potential issues or opportunities.

As always, remember that we at Minich MacGregor Wealth Management are here to help you work toward your financial goals. Please let us know if there’s ever anything we can do.

Sources

¹ Rob Berger, “The New 2018 Federal Income Tax Brackets & Rates,” Forbes, December 17, 2017. https://www.forbes.com/sites/robertberger/2017/12/17/the-new-2018-federal-income-tax-brackets-rates/#769a8d28292a

² Heather Long, “The final GOP tax bill is complete. Here’s what is in it.” The Washington Post, December 15, 2017. https://www.washingtonpost.com/news/wonk/wp/2017/12/15/the-final-gop-tax-bill-is-complete-heres-what-is-in-it/?utm_term=.0c659bee9706

³ Ron Lieber and Tara Siegel Bernard, “What’s in the Tax Bill, and How It Will Affect You,” The New York Times, December 16, 2017. https://www.nytimes.com/2017/12/16/your-money/tax-plan-changes.html?_r=0

⁴ Toby Eckert and Aaron Lorenzo, “What’s in the new tax bill,” Politico, December 14, 2017. https://www.politico.com/interactives/2017/whats-in-the-new-tax-bill/

⁵ Michael Rapoport, “What the Tax Bill Means for Pass-Through Business Owners,” The Wall Street Journal, December 19, 2017. https://www.wsj.com/articles/what-the-tax-bill-means-for-pass-through-business-owners-1513720953

⁶ Jeanne Sahadi, “What’s in the GOP’s final tax plan,” CNN Money, December 22, 2017. http://money.cnn.com/2017/12/15/news/economy/gop-tax-plan-details/index.html?iid=EL

⁷ “Standard Deduction at a Glance,” Internal Revenue Service, https://www.irs.gov/credits-deductions/individuals/standard-deduction-at-a-glance

Shakespeare on Finance 3

Written by Minich MacGregor Wealth Management on November 28, 2017. Posted in Minich MacGregor Missive.

For centuries, people have studied Shakespeare for his wit and his wisdom. Over the past few months, we’ve been sharing some of that wisdom in a series of articles called:

Shakespeare on Finance

Quote #3:
“How far that little candle throws his beams!”
The Merchant of Venice, Act 5, Scene 1

Imagine a dark room containing a single burning candle. A candle is a small thing, and its flame even smaller. But it still shines brightly – and its light casts large shadows. So, in this case, the candle is a metaphor for an important truth:

Even small things can have big effects.

This is certainly true in finance. Let’s take a (very) hypothetical scenario:

John is 30 years old. He has $5,000 saved up for retirement. John decides to invest that money, achieving a 7% return every year. (Again, this is hypothetical.) Furthermore, John vows to invest an additional $100 every month, which he does for the next thirty years.

These days, one hundred dollars isn’t exactly a lot of money. But let’s look at what the result is:

By the time John turns 60, he’ll have accumulated $162,529 for his retirement.

I don’t care who you are. $162,529 isn’t chump change.

Now let’s imagine John invests $150 every month – just fifty dollars more.

By the time John turns 60, he’ll have accumulated $223,578.

How about $200 a month…for thirty-five years instead of thirty?

By the time John turns 65, he’ll have accumulated $417,741.

Now, you may be thinking, “Sure, that’s all well and good, but it’s just hypothetical.” And that’s true, it is. But the principle is what matters here. Small things can have big effects, especially over time…and especially when done consistently.

This doesn’t just have to be about investing, either. Taking that small tax deduction or applying that tiny tax credit can be a significant savings boost, over time. Taking ten minutes to check your credit score every year can make life a lot easier down the road, if you ever want to buy a new home, car, or even start a business. Creating a stronger password rather than just using “password123” can save you countless hours and money if it protects your identity from ever getting stolen. Shopping around for cheaper car insurance, looking for unclaimed money in old insurance policies, even turning off the lights…all these things add up over time.

We’ve worked with all kinds of people over our careers. Some were already wealthy. Others were just getting started on their way to wealth. But for everyone, the same rule applied: little things have big effects. They add up. They make a difference.

We promise you: when you look back on your life, adding up all those small, seemingly insignificant decisions you made along the way, it’s not uncommon to think:

Look how far that little candle threw its beams.

So, as you work toward your financial goals, always remember: it’s the little things that matter!

In our next article in this series, we’ll move away from plays and into poetry, examining a line from the first thing Shakespeare ever published.

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Trump Tax Plan 2017

Written by Minich MacGregor Wealth Management on October 19, 2017. Posted in Minich MacGregor Missive.

Since President Trump’s election, the markets have climbed to record heights, partially thanks to investor enthusiasm for Trump’s policies.

One of those policies is tax reform. After months of behind-the-scenes talks between the White House and Capitol Hill, Republicans have at last released their plan to update the tax code.

Tax law is murky, and rarely much fun to read about. But because taxes have such a big impact on your finances, we think it’s important to look at the Republicans’ plan so that we can do some planning of our own.

First, a word of warning. The Republican tax plan is just that – a plan. It’s not yet a bill, and certainly not a law. The overarching goal seems to be to cut and simplify the tax code, and while that sounds great on paper, it’s proven extremely difficult to do in the past. A lot may change as Congress labors to get an actual bill onto the president’s desk.

Now, without further ado, some particulars:

The plan makes these changes for individuals¹

Currently, there are seven tax brackets. The plan changes that number to three, with rates of 12%, 25%, and 35%. (The current top rate is 39.6%, while the lowest is 10.)
Standard deductions for individuals and families increase to $12,000 and $24,000 respectively.
The current child tax credit of $1,000 increases as well, though no specific number has been released.
Introduces a new $500 tax credit for non-child dependents, like an elderly parent.
Removes the estate tax, as well as many common itemized deductions. However, the plan reserves deductions for mortgage interest, charitable giving, and retirement savings plans.

The plan makes these changes for businesses²

The current corporate tax rate is 35%. The Republicans’ plan would lower this to 20%. Small businesses, meanwhile, would pay 25%.
Companies can write off business investment expenses, though only for five years. A company’s overseas earnings will no longer be taxed, although a new foreign minimum tax would be introduced to “prevent businesses from moving abroad to avoid U.S. taxes altogether.”¹

There are some clear winners from this plan. On the surface, it appears many Americans will enjoy a tax cut, and the abolition of the estate tax would be welcome news to many investors.

Corporations, meanwhile, would also pay less tax, which could have a significant effect on their bottom lines. This, in turn, may drive the markets up even higher.

But there are still many things we don’t know…and that could cause major headaches for Republicans down the road as they try to hammer out an actual bill.

What We Don’t Know

First, we don’t know how much these cuts will cost, as neither the White House nor Republican leadership have released any estimates. It’s worth noting, however, that previous studies of similar plans estimated costs stretching into the trillions. In fact, “a preliminary estimate from the nonpartisan Committee for a Responsible Federal Budget found that the policies in [the plan] would cost between $2 trillion to $2.5 trillion over a decade.”¹

And that leads to the second thing we don’t know: how will all these tax cuts be paid for? As it stands, these cuts would lead to a dramatic increase in an already sky-high deficit, something neither party wants. But Republicans have not released any details about the payment question yet, though President Trump claims that economic growth stemming from lower taxes will do the job.¹

For these reasons, it’s an open question how much of this plan will actually make it into the final bill (assuming there is one). However, if Congress truly can pass significant tax reform, it will be the first since 1986…and it will undoubtedly have a major effect on investors and retirees.

We don’t believe there are any actions we need to take right now. We just want to make sure you understand some of these potential changes. The secret to healthy finances is good planning, which is exactly what we’re here for. While we do not provide tax advice, we can certainly confer with you and your tax advisor should any changes to the tax code take place.

In the meantime, rest assured that our team will keep an eye on Washington. If you have any questions, you can always reach us via phone at 518-499-4565 or toll free at 866-998-7331. If you prefer email, please contact us at info@mmwealth.com. In the meantime, have a wonderful week!

¹ Alan Rappeport & Thomas Kaplan, “Trump’s Tax Plan Cuts Rates for Individuals and Corporations,” The New York Times, September 27, 2017. https://www.nytimes.com/2017/09/27/us/politics/trump-tax-cut-plan-middle-class-deficit.html?mcubz=0

² Brian Faler, “Everything you need to know about the Big 6 tax plan,” Politico, September 27, 2017. http://www.politico.com/story/2017/09/27/everything-you-need-to-know-about-the-big-6-tax-plan-243205?lo=ap_d1

Shakespeare on Finance 2 – Avoid Impulsive Decisions

Written by Minich MacGregor Wealth Management on October 3, 2017. Posted in Minich MacGregor Missive.

For centuries, people have studied Shakespeare for his wit and his wisdom. Last week, we started sharing some of that wisdom in a new series of letters called:

Shakespeare on Finance

Shakespeare never actually wrote about finance, of course. But we’ve found many of his lines contain important financial lessons. This week, let’s look at one such line from perhaps the most famous play he ever penned:

Quote #2:
“Go wisely and slowly. Those who rush, stumble and fall.”
Romeo & Juliet, Act 2, Scene 3

In this scene, Romeo asks his mentor, Friar Laurence, to wed he and Juliet as quickly as possible. In response, the friar counsels Romeo to “go wisely and slowly. Those who rush stumble and fall.”

You can probably guess the lesson here: avoid the temptation to rush into rash, impulsive financial decisions.

Have you ever noticed how often people act on impulse? Advertising companies sure do. So do car dealerships, banks, and your local gym. In fact, every time you go to the checkout counter at a grocery store, take a moment to look at all those candy bars and tabloids strategically placed to take advantage of people’s impulsiveness.

Entire industries are built on capturing the human impulse. Most of the time these impulses are harmless enough, but the worst of them can have grave consequences. In fact, one of the greatest dangers to our financial health is that we don’t always think before we act. We rush into things.

Now, if you rush into buying a candy bar, it’s no big deal. It probably won’t have an impact on your overall financial health. But some decisions do have a major impact, and when people rush into them, it’s quite easy to stumble and fall. Here are some examples:

Major Purchases

Whether you’re buying real estate, a new car, or even that fancy new gadget that just came out, it’s so easy to be impulsive. To let the sensation of “want” override all other concerns. The result is often buyer’s remorse … or worse, debt.

Taxes

Everyone hates filing their taxes, and everyone wants the process to be as quick and painless as possible. Unfortunately, quick and painless in the short term often leads to drawn-out pain in the long. Rushing through your taxes can lead to mistakes, and it usually takes much longer to correct mistakes than to avoid them in the first place.

Investing

When making investment decisions, it’s easy to get excited about a hot new stock tip and decide to buy before the price goes up. It’s also easy to get spooked at the first sign of market volatility and decide to sell.

Both can be very risky decisions.

Whenever you make an investment decision, it’s important you put in your due diligence first. Take time to research the investment you have in mind. Talk to an expert and get a second opinion. Read the fine print. The media often portrays investing as a frenzied sprint, but for most investors, slow and steady wins the race. Making consistent, unemotional decisions will serve you far better in the long run.

Friar Laurence’s advice isn’t just for star-crossed lovers; it’s for all of us. The fact is that when it comes to your finances, being hasty and impulsive can lead to missed opportunities, mistakes, debt, and other negative consequences. But those who “go wisely and slowly,” who take their time, who look before they leap, are well-positioned to achieve their financial goals faster than they ever thought possible.

As Shakespeare might say,

“For never was a story of more woe,
than of the investor who made a financial decision too fast instead of slow.”

In the next Shakespeare article, we’ll move away from tragedy by examining a line from one of his comedies.

Check out other articles on Finance
Shakespeare on Finance 3	The Tip of a Lifetime
Shakespeare on Finance 4	Trump Tax Plan 2017
Shakespeare on Finance 5	Tweets & Tariffs

Shakespeare on Finance – Don’t Procrastinate

Written by Minich MacGregor Wealth Management on September 26, 2017. Posted in Minich MacGregor Missive, News.

William Shakespeare, as everyone knows, is the most famous playwright in history. His plays have been translated into every major living language, and it’s said his works have been studied more than any but the Bible. For centuries, people have loved him for his wit and his wisdom.

We’d like to share a bit of that wisdom in a new series of letters called:

Shakespeare on Finance

Shakespeare never actually wrote about finances, of course. But we’ve found many of his lines contain important financial lessons. So, over the next few months, we’d like to share a few quotations and the lessons they impart. Hopefully, the Bard’s words will make these lessons even easier to remember.

Quote #1:
“Better three hours too soon than a minute too late.”
The Merry Wives of Windsor, Act 2, Scene 2

In this scene, a jealous husband is planning to take revenge on another man who intends to seduce his wife. He resolves to start early rather than wait, reasoning, “Better three hours too soon than a minute too late.”

The lesson here is on the importance of not procrastinating.

Procrastination is one of the most common mistakes people make with their finances. Here are some areas where people often procrastinate:

saving for retirement,
creating a will,
filing their tax returns,
rebalancing their investment portfolio,
checking their credit score, and
purchasing life insurance.

It’s easy to put off basic, every-day activities, too. Balancing checkbooks, paying bills…even using that $20 gift card you got for your birthday before it expires.

What’s the harm in procrastinating? Because when done too much, for too long, it’s easy to end up “a minute too late.” When that happens, you

don’t have enough for retirement,
don’t have your affairs in order after you pass away,
pay more in taxes than you must, or even incur penalties because you waited too long, and
miss out on investment opportunities, or leave the door open for more investment risk.

You get the idea. On the other hand, being “three hours too soon” creates the opposite effect. When you start planning, start saving, and start acting long before required, you end up with more money for retirement, less money paid in taxes, more protection for your family, less headaches for yourself. More free time, less stress … the benefits are almost endless.

If there are any financial decisions you haven’t made yet, or any phases of your life you haven’t planned for, don’t procrastinate. Start now. We promise it’s worth it.

Borrow from the Bard. It truly is “better three hours too soon than a minute too late.”

Next month, we’ll look at a quote from one of Shakespeare’s most famous plays: Romeo and Juliet!

How to Protect Yourself—and Your Money—From Hackers

Written by Minich MacGregor Wealth Management on September 19, 2017. Posted in Minich MacGregor Missive, News.

You’ve probably seen headlines like this over the past couple of weeks:

Equifax^® Says Cyberattack May Have Hit 143 Million Customers¹

Every year, it seems more and more companies are falling victim to hackers. Even large organizations like Verizon^®, Walmart^®, and Target^® aren’t immune. But the recent cyberattack on Equifax is especially noteworthy. As one of the three largest credit-reporting companies in the United States, Equifax stores a lot of private information. In this case, names, addresses, birthdates, Social Security numbers and even driver’s license numbers were stolen.

What can hackers do with someone’s name, birthdate, address and Social Security number? The answer is chillingly simple: take the victim’s identity and use it for themselves.
Fortunately, there are steps you can take to protect yourself.

What to Do After a Data Breach

In a situation like this, there are both reactive and proactive steps to take. Let’s cover reactive steps first.

You may be asking yourself, “How do I know if I have personally been affected by Equifax’s data breach?” Equifax has created a website, www.equifaxsecurity2017.com, where you can check if your personal information has been compromised. You can also enroll in a free credit-monitoring service provided by Equifax.

However, we would exercise caution before going there. The website asks you to provide the last six digits of your Social Security Number to perform the check. Given their recent history, it’s reasonable to be wary of providing Equifax more personal information.

In addition, a report by the Washington Post suggests that “enrolling in the Equifax checker program … potentially restricts your legal rights. Buried in the terms of service is language that bars those who enroll … from participating in any class-action lawsuits that may arise from the incident.”²

It’s not our place to tell you whether to use the website or not, and indeed, the Federal Trade Commission’s official position is that “if a company responsible for exposing your information offers you free credit monitoring, take advantage of it.”³ But whether you choose to use Equifax’s checker website or not, there are additional steps the government suggests you take:³

Get a free credit report from www.annualcreditreport.com. Check for any accounts or charges you don’t recognize.
Consider contacting your financial institution and placing a “credit freeze.” This makes it harder for someone to open a new account in your name.
File your taxes as early as possible—before a scammer can. Tax identity theft happens when someone uses your Social Security number to get a tax refund or a job.
Don’t believe anyone who calls and says you’ll be arrested unless you pay for taxes or debt—even if they have part or all of your Social Security number, or say they’re from the IRS.
Watch for signs of identity theft. Warning signs include withdrawals from your bank account you can’t explain, failure to receive expected bills, and merchants refusing your checks.

Changing your online passwords and signing up for a third-party credit-monitoring service are also prudent steps.
For more information, we recommend visiting www.identitytheft.gov.

Proactive Steps to Take

Whether your personal information was exposed or not, there are some basic steps everyone should take to protect their identity. Here are just a few:

Delete your saved payment methods from online shopping sites. You will have to reenter your billing information each time you make a purchase, but it will protect your payment information if your account is breached or someone gains access to your login.
Review statements and credit reports regularly. Look for unauthorized charges or small amounts appearing on statements. Check your credit report regularly. Federal law allows you to get a free credit report every 12 months to review. Make sure all information is correct.
Don’t make impulsive decisions based on fear. If you receive an email or phone call stating that it’s from your bank or the government, and that you’re in trouble, don’t provide the sender with any personal information. Typically, the government will not contact you by email or phone. They will contact you by mail. Your bank will never ask you to provide information through email either. If you’re concerned about the credibility of a call or email from your bank, contact the nearest branch and ask them.
If someone contacts you saying they’re a relative in trouble and need your help, ask them something that only your relative would know. Or ask a trick question that reveals they’re lying, such as “How’s your dog Scruffy? Did he get better?” when you know that relative doesn’t have a dog. If they say, “Oh he’s doing much better,” then you know they’re a fraud and you should immediately hang up.
Keep all personal documents in a safe place. Don’t carry them around with you, especially not your Social Security card.
Don’t open emails from senders you don’t recognize, no matter how interesting the subject line.
Choose a different way to pay. Many merchants accept alternative ways to pay for goods and services, including Google^® Wallet, Apple Pay^®, or PayPal^®. These services provide an extra layer of protection because they keep your credit card information stored but do not actually provide it to retailers when you pay.
Don’t use your bank cards online unless the site is secure and reputable. Make sure you are purchasing from a reputable company and website. Don’t trust a site just because it claims to be secure. Use credit cards so you can dispute the charges if something goes wrong. You can still be reimbursed for fraud on a debit card but the process often takes longer and your money is already gone.

None of these steps are foolproof, but by taking concrete steps to protect yourself, your identity, and your money, you make it much, much harder for hackers and scammers.
As always, please let us know if you have any questions or concerns. Our team are always happy to be of service in any way we can.

¹ Brian Womack, “Equifax Says Cyberattack May Have Hit 143 Million Customers,” Bloomberg, September 7, 2017. https://www.bloomberg.com/news/articles/2017-09-07/equifax-says-cyber-intrusion-affected-143-million-customers
² Brian Fung, “By signing up on Equifax’s help site, you risk giving up your legal rights,” The Washington Post, September 8, 2017. https://www.washingtonpost.com/news/the-switch/wp/2017/09/08/what-to-know-before-you-check-equifaxs-data-breach-website/?utm_term=.de9d4617d81f
³ “When Information Is Lost or Exposed,” Federal Trade Commission, accessed September 8, 2017. https://www.identitytheft.gov/Info-Lost-or-Stolen

North Korea News – Geopolitics and the Markets

Written by Minich MacGregor Wealth Management on August 22, 2017. Posted in Minich MacGregor Missive.

There once was a time when the threat of nuclear war hung over America’s head like a storm cloud that just wouldn’t go away. Those days, thankfully, are long over—but the sky turned a little bit grayer lately.

As you probably know, tensions have surged recently thanks to news that North Korea has “produced a miniaturized nuclear warhead that can fit inside its missiles.”¹ President Trump fanned the flames even more when he stated that any attack by North Korea “will be met with fire and fury.”²

Since we are financial advisors, we’ll leave military concerns to the generals. The question we’re most interested in—and the question many people have asked us—is how all this saber rattling will affect the markets. Since we don’t have a crystal ball, there’s no way we can know for sure. But history would suggest that it won’t have much effect at all.

The financial services industry often likes to stress that “past performance is no guarantee of future results.” The reason is because we’ve seen time and time again that just because something happened a certain way before doesn’t mean it will automatically happen that way again. On the other hand, there’s another saying that’s equally valid: there’s nothing new under the sun. In this case, international crises are nothing new. That means we have a lot of history to turn to when trying to gauge just how tensions with North Korea might impact the markets.

Geopolitics and the Markets

Think back on all the major international events you’ve lived through; terrorist attacks and wars; economic recessions and elections; the Cuban Missile Crisis; the JFK assassination; the 1973 Arab oil embargo; the fall of the Berlin Wall; the 9/11 attacks; and Brexit. Unless you’re very young, you’ve probably witnessed many periods that seemed full of tension, drama, and importance.

But they rarely have much effect on the markets. Or rather, they rarely have a sustained effect.

Take the Cuban Missile Crisis. The world has probably never been closer to nuclear war than during those nerve-wracking thirteen days in 1962, yet during that time, the Dow^® only fell 1.2%. By the end of the year, the Dow was up 10%.³

More recently, look at Brexit. When the UK voted to leave the European Union, it took most analysts by surprise, and many predicted it would lead to a major drop in the markets. At first, it did. The vote took place on a Thursday. The next day, the Dow fell over 600 points, and then another 250 points the Monday after.⁴

But less than a month later, the Dow climbed to a new record high.⁵

A couple of weeks ago, the business with North Korea prompted the S&P^® to fall about 1.3%, its worst week in months.⁶ But last Monday, the S&P rose 1%, suggesting investor fear was short-lived.⁷

Of course, major events will sometimes cause a larger, longer drop. When World War I began, the Dow fell 30%, then closed for six months.³ After the 9/11 attacks, stocks dropped almost 15% over a two-week period.³

But even then, the markets recovered with amazing speed. For example, during the second year of World War I, the Dow rose more than 88%.³ And only a few months after 9/11, both the Dow and the S&P returned to normal.³

That’s a lot of numbers. So, what’s the takeaway from all this?

There are a few things we can learn from history.

First, we can learn that while geopolitical events often seem scary, their impact on the markets isn’t necessarily huge. That’s because many things impact the markets. Even something as big as the threat of war is only one ingredient in the dish, and it’s often buried and forgotten when the next headline hits.

If you think about it, the markets are essentially like giant aircraft carriers. It takes a lot to make them swing one direction or another, especially over a lengthy period of time.

Here’s the second thing we can learn. We said a moment ago, that geopolitical events often seem scary. We believe that’s why you often see a brief drop after they occur—because they seem scary, prompting the most jittery investors to sell.

But as you know, we must always strive to avoid making emotional investment decisions. That’s especially true when it comes to headlines and geopolitical events. Do they matter? In the grand scheme of things, yes. Do they matter to the markets? Again, yes—but not nearly as much as people think.

Remember, it’s impossible to predict what the markets will do. So, we’re not predicting here about whether the markets will climb or fall. We’re saying the recent news about North Korea shouldn’t prompt us to make assumptions one way or the other. Nor should it change how we invest.

Instead, we’ll keep doing what we always do. We’ll keep our heads and hold to our long-term strategy. In our experience, the ability to do that is far more valuable than any crystal ball.

If you have any questions about the markets, or your own portfolio, never hesitate to ask. Our team is here for you. In the meantime, enjoy the rest of your summer!

Sources

¹ Joby Warrick, Ellen Nakashima, Anna Fifield, “North Korea now making missile-ready nuclear weapons, U.S. analysts say,” The Washington Post, August 8, 2017. https://www.washingtonpost.com/world/national-security/north-korea-now-making-missile-ready-nuclear-weapons-us-analysts-say/2017/08/08/e14b882a-7b6b-11e7-9d08-b79f191668ed_story.html?utm_term=.0d2f43723e39

² Bryan Bender and Jacqueline Klimas, “Trump’s ‘fire and fury’ threat to North Korea sparks new fears of war,” Politico, August 8, 2017. http://www.politico.com/story/2017/08/08/trump-north-korea-warning-241409

³ Ben Carlson, “How markets reacted to geopolitical crises,” The Economic Times, April 13, 2017. http://economictimes.indiatimes.com/markets/stocks/news/how-markets-reacted-to-geopolitical-crises/articleshow/58158842.cms

⁴ Jethro Mullen, Ivana Kottsaova, Patrick Gillespie, “Dow plunges over 600 points as U.K. ‘earthquake’ crushes global markets,” CNN Money, June 24, 2016. http://money.cnn.com/2016/06/23/investing/eu-referendum-markets/index.html?iid=EL

⁵ Matt Egan, “Stocks have never been higher,” CNN Money, July 12, 2016. http://money.cnn.com/2016/07/12/investing/dow-stock-new-high-record/index.html

⁶ John Ydstie, “North Korea has markets neverous but not panicked,” NPR, August 11, 2017. http://www.npr.org/2017/08/11/542856313/north-korea-has-markets-nervous-but-not-panicked

⁷ Sue Chang and Ryan Vlastelica, “U.S. stocks gain 1% for the first time in 3 months as geopolitical fears ebb,” MarketWatch, August 14, 2017. http://www.marketwatch.com/story/dow-futures-flirt-with-100-point-gain-as-north-korea-fears-put-on-back-burner-2017-08-14

Author: Minich MacGregor Wealth Management

Equifax® Says Cyberattack May Have Hit 143 Million Customers1

What to Do After a Data Breach

Proactive Steps to Take

Equifax^® Says Cyberattack May Have Hit 143 Million Customers¹