Letter from Reagan

by | Apr 25, 2019 | Noteworthy

It was this month, 35 years ago, that a thirteen-year-old boy named Andy sent the following letter to President Reagan:

Dear Mr. President,
My name is Andy.
I am a seventh-grade student in South Carolina.
Today my mother declared my bedroom a disaster area. I would like to request federal funds to hire a crew to clean up my room. I am prepared to provide the initial funds if you will provide matching funds for this project.

I know you will be fair when you consider my request. I will be awaiting your reply.

Less than a month later, young Andy’s patience was rewarded when Reagan actually wrote back. Here is what he said:

Dear Andy:

I’m sorry to be so late in answering your letter but, as you know, I’ve been in China and found your letter here upon my return.

Your application for disaster relief has been duly noted but I must point out one technical problem: the authority declaring the disaster is supposed to make the request. In this case, your mother.

May I make a suggestion? This Administration has sponsored a Private Sector Initiative Program, calling upon people to practice voluntarism in the solving of a number of local problems. Your situation appears to be a natural. I’m sure your mother was fully justified in proclaiming your room a disaster. Therefore, you are in an excellent position to launch another volunteer program to go along with the more than 3000 already underway in our nation. Congratulations.

Give my best regards to your mother.

Sincerely,
Ronald Reagan

While his letter was amusing, President Reagan made a point we could all do to remember. We all face challenges in life. Some are small, like a messy room. (Although, we all were once thirteen and most likely remember how insurmountable the task of cleaning our room seemed to be.) Some are large.

But in truth, most of the challenges we face are also opportunities. Opportunities to try, to volunteer, to organize, to lead, to change, to grow. And like Andy, we are in an excellent position to tackle these challenges. To launch our own initiatives.

To seize our opportunities.  Whenever we find ourselves in such a position, we remember President Reagan’s letter and say to ourselves, “Congratulations!”

Have a great month!

Source: “My mother declared my bedroom a disaster area,” Letters of Note, June 19, 2012. http://www.lettersofnote.com/2012/06/mymother-declared-my-bedroom-disaster.html

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Lessons from March Madness

by | Apr 11, 2019 | Noteworthy

This year is no exception. Every spring, millions of people tune their televisions to March Madness, the annual tournament to decide the best team in college basketball. If you’ve ever watched before, you know it’s a time of great excitement as underdogs rise, giants fall, and new legends are made.

While watching a few games, it struck me how many parallels there are between March Madness and finance. The winning teams, whether they’re favorites or longshots, often display many of the same qualities that lead to financial success.

To illustrate what I mean, here are a few lessons we can take from March Madness:
1. Have a financial game plan. No winning team ever shows up to a game unprepared. They spend days, weeks, even months practicing, watching game film, and studying their opponent. The same should be true of your finances. Researching your investments, planning your taxes ahead of time, understanding your own strengths and weaknesses, laying out goals and determining how to achieve them – these are the best ways to get ahead in the game. Whether it’s sports or finance, planning beats just winging it every time.

  1. Aim for financial balance. Research shows that it’s not the teams with the best offense or best defense that are likely to win the tournament.1 On the contrary, it’s the most balanced teams – meaning those that play well on both sides of the court – that usually take home the trophy.
    Balance is important in finance as well. Some people spend all their money and time on their investments, thinking if they can just pick the right stock, they’ll be set for life. Others focus solely on saving every penny they earn without ever investing a cent. Still others think financial success is all about securing the highest-paying job.

The truth is, you’re more likely to achieve your goals when all aspects of your finance are in balance. That means paying equal attention to your income, investments, spending, saving, taxes, insurance, and so on. 
It doesn’t matter how much you earn if you spend even more. And while it’s great to save as much as you can, you won’t get as far as you would if you invested wisely. Furthermore, even if you nail every single one of those aspects, you could lose more than you can afford if the unexpected happens and your insurance isn’t in order. See what I mean about balance?

  1. It’s all about the team. Basketball is a team sport, not an individual one. A college could have the single best player in the world, yet still come up short if they played against a better drilled, better prepared, more balanced team. No one player can achieve victory by his- or herself. For a team to win, everyone must contribute. Similarly, you could be the smartest, hardest-working person in the world and yet still fail to reach your goals if you try to do it all alone. These days, having a financial team is more important than ever. That’s because there’s so much to know, so much to do. Working with experienced, caring professionals who specialize in the various aspects of your finances – your investments, your taxes, your estate, etc. – can make all the difference.
  2. Don’t blindly assume success. In March Madness, every team is assigned a seed from one through sixteen. (In this case, the lower the number, the higher the seed.) In most cases, when lower-seeded teams play higher seeds, nearly everyone expects the higher seed to win.
    But that doesn’t always happen.
    March Madness is (in)famous for upsets, where an underdog beats a favorite. This is more likely to happen when the favorite comes into the game assuming they’ll win. As a result, they may take the game less seriously or play less hard. The result? They go home early.
    Similarly, we shouldn’t just assume we’ll be financially successful. Achieving our goals takes planning, time, patience, and hard work – qualities we’re less likely to show if we just assume success is guaranteed.
  3. Always have a winning attitude. At the same time, we should never be pessimists about financial success, either. Remember what I said earlier about lower seeds beating higher seeds? When an underdog goes into a game thinking defeat is inevitable, their lack of belief becomes a self-fulfilling prophecy. But when a longshot plays with unshakeable confidence, believing they can win, knowing they can win – then suddenly, the impossible becomes very possible. We see it every year.

So, as you work toward your own goals, remember to always bring a winning attitude to everything you do. Believe in yourself and your abilities. Believe in your dreams.

It’s the surest way of making them come true.

There’s Still Time to Contribute to an IRA

by | Mar 30, 2019 | Noteworthy

If you haven’t already contributed to an IRA (Individual Retirement Account), there’s still time to do so.  Many people don’t know that the 2018 contribution deadline is actually the 15th of April.  However, if you do decide to contribute, you must designate the year you are contributing for.  Your tax preparer should be able to help you fill out the necessary forms.

For 2018, the maximum amount you can contribute is $5500 or $6500 if you’re over the age of 50.  This applies to both traditional and Roth IRAs. If you’re unsure whether to contribute or not, remember:

  • Contributions to traditional IRAs are often tax-deductible. While distributions from IRAs are taxed as income, your tax-rate after retirement could possibly be lower than it is now, lessening the
  • Contributions to a Roth IRA, on the other hand, are made with after-tax However, the advantage of a Roth IRA is that withdrawals are usually tax-free.
  • Whichever type you use, IRAs provide a great, tax-advantaged way to save for

If you have yet to set up an IRA for 2018, you can still do that. The deadline to establish an IRA is April 15th as well.  In other words, if you want to take advantage of the benefits an IRA has to offer, there’s still time to do so, either by contributing to an existing account or by establishing a new one.

If you have any questions about IRAs—whether it’s the right decision for you, how your IRA should be managed, or anything else—please give us a call at 301-294-7500. We would be happy to speak with you.

The 7 Rules of Investing

by | Mar 21, 2019 | Noteworthy

From someone who is considered one of the greatest investors of all time

During the past century, many of the world’s leading economists have studied the science – or art – of investing. A large number of investing systems, models, and theories have been created, most of them requiring a PhD to understand. But when it comes to learning how to invest, sometimes it’s best to turn to the people who actually do it for a living.

Case in point, take Peter Lynch.

From 1977 through 1990, Lynch ran one of the most successful mutual funds ever, posting an average annual return of 29%. Over his career, Lynch espoused many investing principles, but there are seven in particular that I think all investors should keep in mind.1 So without further ado, here are:

Peter Lynch’s 7 Rules of Investing
1. KNOW WHAT YOU OWN. Invest in companies, industries, and funds you understand well. What do they do? Who uses their goods or services? Is it a company you would want to do business with yourself?
2. PREDICTION IS FUTILE. No one can predict where the markets will go or what the economy will do, so don’t even try. Instead, focus on what you can control, like the types of companies or funds you invest in, how much you save, etc.
3. BEFORE YOU BUY, BE ABLE TO EXPLAIN. Before investing, can you explain to a family member what you’re buying and why? Can you describe how that company or fund works? If not, take your time and do more research.
4. AVOID LONG SHOTS. Investing isn’t gambling, either. While we have no control over the markets, we do have control over how much risk we take on. Your portfolio isn’t the place for speculation or bets. For that, head to Vegas.
5. BUY GOOD COMPANIES. Invest in companies that have proven management, a strong business model, and that sell things people actually use. Otherwise, you’re investing in companies you guess might prove popular…and that’s just another form of gambling.
6. LEARN FROM YOUR MISTAKES. Even the greatest investors sometimes get things wrong. When that happens, accept it humbly and try to determine how you can improve.
7. TAKE YOUR TIME. Investing isn’t a race. You have plenty of time to do your research and find outstanding companies to invest in. Follow the tortoise’s example, not the hare’s.

Ultimately, all investing comes with risk, and there is no strategy or rule that guarantees success. But there are solid “rules of thumb” you can follow to make smart, simple investment decisions. And best of all, you don’t need a PhD to understand them!

1 “The Greatest Investors: Peter Lynch” https://www.investopedia.com/university/greatest/peterlynch.asp

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The New Tax Law – A Year Later

by | Feb 28, 2019 | Noteworthy

Tax season is the time between January 1 and April 15. It is when most people prepare and file their taxes.  This year’s tax season is special.  It has been just a little over a year since the Tax Cuts and Jobs Act went into effect. It is the largest overhaul of the tax code since 1986 and the still-relatively-new law could have a major impact on your taxes, including your refund.  Just for that reason, I thought it would be good to review what the law changed, as well as what you can do to minimize headaches as you file your taxes ahead of the April 15 deadline.

Quick disclaimer: The tax law is a politically charged subject, but you will not find any politics here.  While some experts may argue whether the tax law has been good or bad for the country, this letter is only about how the law may affect you. So, without further do, let’s discuss:

Major Changes to Remember as You File
The most obvious major change to remember is that most tax rates have been reduced. That means there’s a good chance you paid less in taxes over the past year. Here’s how the various tax brackets look now: 1

If you receive a paycheck every month, you should pay special attention to your federal income tax withholding this year. This is the amount of federal income tax withheld from your paycheck. Because of the new tax brackets, most people started seeing withholding changes around February or March of last year. And while it’s likely that less of your paycheck went to federal income taxes, you should still scrutinize your withholding carefully to make sure it’s correct. The last thing you want is to find that not enough tax was withheld by your employer! That could require you to pay a penalty when you file your return.

According to the IRS1, people who meet any of the following criteria should be especially careful when checking their withholding:
• Belong to a two-income family.
• Work two more jobs, or only work for part of the year.
• Have children and claim credits such as the Child Tax Credit.
• Have older dependents, including children age 17 or older.
• Claimed itemized deductions on their prior year’s tax returns.
• Earn high incomes and have more complex tax returns.
• Received large tax refunds or had large tax bills for the prior year.

Ensuring the accuracy of your withholding is always important, of course, but because of all the changes to the tax code, it’s more critical than ever that you be thorough!  Speaking of changes, let’s now turn to:

Changes to Deductions
There are two basic kinds of deductions – standard and itemized. As the IRS puts it, “The standard deduction is a dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status.” 1 The new tax law nearly doubled standard deductions. Here’s what the new standard deduction looks like:1

But all this comes with a catch: You can’t take the standard deduction if you also itemize deductions. And for married couples filing separately, both spouses must take the same type of deduction. So if one spouse chooses to itemize, the other spouse must as well. So, here’s what you need to determine: Will you enjoy a larger tax cut by taking the standard deduction, or itemized?

For most people, the standard deduction is probably the way to go. But if you still choose to take itemized deductions, there are changes to those you need to be aware of as well. For instance:

Medical expenses: For your 2018 taxes, you can deduct out-of-pocket medical and dental expenses that exceed 7.5% of your “adjusted gross income”. (This is your total gross income minus specific deductions.) This is down from the previous 10%, although the level returns to normal next year.1
State and local taxes: One of the biggest changes to itemized deductions is that you can now deduct no more than $10,000 of any combination of state and local income taxes, sales taxes, and property taxes. For people living in high-tax states, this is perhaps the single biggest reason why it now makes more sense to take the standard deduction. 1
Mortgage interest: If you took out a mortgage or home equity loan before December 15, 2017, you can deduct up to $1,000,000 in interest. However, the new tax law caps the deduction at $750,000 for loans taken out after that date. 1
Charitable contributions: The limit on charitable contributions in cash is now 60% of your adjusted gross income, up from 50% before the new tax law. That means you may be able to deduct more of any charitable cash contributions you made in 2018. 1

Changes to Child Tax Credits and the AMT
Due to the new law, more families with children under 17 now qualify for a larger child tax credit. For your 2018 return, the maximum credit is now $2,000 per child for individuals earning up to $200,000 and married couples earning up to $400,000, so long as they file jointly. 1

Another major change to this tax season is that fewer people now pay the Alternative Minimum Tax, or AMT. Long considered one of the most complex aspects of the tax code, the AMT was originally designed to prevent 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 that has not changed. What has changed, however, is the threshold at which people are exempt from paying the AMT. For individuals, the exemption level has increased to $70,300, up from $54,300. For married couples who file jointly, the exemption has risen to $109,400, up from $84,500. 1

A few more things to be aware of this tax season
It’s impossible to cover all the ways the new tax law will affect your filing this year. But there are a few more things to be aware of.

Tax Refunds
First, your tax refund could be smaller than in years past. As of this writing, the IRS has reported the average refund to be 8.4% less than last year.2
This shouldn’t come as a surprise. Since many people received a tax cut in 2018, refunds will also go down. That’s especially true for people who previously used itemized deductions on their property and local income taxes. The changes in federal tax withholding also play a major role. It’s possible, too, that many people will end owing money to the government this year.

For that reason, taxpayers should hold off on planning any major purchases until they know exactly what their refund will be.

The IRS is playing catch-up
As you probably know, Washington was paralyzed by the longest government shutdown in history earlier this year. During the shutdown, the IRS operated with only 12% of its staff.3 That means the IRS has a lot to catch up on, including answering questions, preparing reports, processing returns, and distributing refunds. And because the tax code is so different now, you may need to wait longer than normal to get your questions answered or get your refund.

Ways to de-stress your tax filing
Preparing your taxes is never fun, but there are ways to minimize stress. For example:
1. Work with a qualified professional. While there is software aplenty to help you file, nothing beats working with an experienced Certified Public Accountant. I would be happy to put you in touch with a good one if you need assistance with this.
2. File electronically. If you’re doing it on your own, it’s better – and faster – to file electronically than on paper. You can learn more at www.irs.gov/filing/free-file-do-yourfederal-taxes-for-free.
3. Do a “paycheck checkup.” This is a resource the IRS provides to determine if you need to adjust your withholding or make additional tax payments. Visit www.irs.gov/paycheck-checkup to learn more.
4. Start now. If you’ve already finished your tax return, great! But if not, don’t delay. Start gathering documents, writing down questions, and examining your options. The easiest way to ensure tax-related headaches – and make mistakes on your return – is to wait until the last minute.

I hope you found this letter helpful. Of course, if you have any questions, please don’t hesitate to contact us!   Finally, remember that we at Research Financial Strategies are here to help you work toward your financial goals. Please let us know if there’s ever anything we can do.

1 “Tax Reform: Basics for Individuals and Families,” Internal Revenue Service,   https://www.irs.gov/pub/irs-pdf/p5307.pdf%20
2 “Filing Season Statistics for Week Ending February 1, 2019.” Internal Revenue Service,   https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-february-1-2019
3 “Federal shutdown means tax refunds may be delayed,” CNBC,   https://www.cnbc.com/2019/01/04/what-the-federal-shutdown-could-mean-for-tax-season.html

Market Volatility – Precautions are useless after a crisis!

by | Feb 13, 2019 | Noteworthy

As you probably know, there has been a lot of market volatility in recent months. Being a financial advisor, I get asked a lot of questions, even from people who aren’t my clients! Some ask if it’s a good time to invest in the markets, or if they should be sticking their money under a mattress. Others ask me about what the future holds for the economy. But the most common question I get is this:
“What,” they say, “is the number one financial tip you can give me?”
Here’s my answer:

Precautions are useless after a crisis!

You’re probably wondering what I mean. It’s simple. When is the worst time to buy a home security system? After a break-in. When’s the worst time to check your tire pressure? After you’ve already had a blowout. When’s the worst time to put your seatbelt on?
You get the idea.
It’s a fundamental fact of life, and it extends to your finances, too. I can’t say for sure when the next bear market will come – and the recent volatility is not necessarily an indication that a bear is just around the corner. What I can say, however, is that a bear market is inevitable, because the markets can take hits just like everything else.

Whether the next bear market comes this year or next, there’s only one thing to do about it, and that’s to have a plan. But a plan is nearly useless after the fact.
We’ve known this lesson since we were kids. Aesop, that ancient master of common sense, says it better than I can in his story, “The Caged Bird and the Bat.”

A singing bird was confined in a cage which hung outside a window and had a way of singing at night when all other birds were asleep. One night, a bat came and clung to the bars of the cage. The bat asked the bird why she was silent by day and sang only at night.
“I have a very good reason for doing so,” said the bird. “It was once when I was singing in the daytime that a fowler was attracted by my voice. He set his nets for me and caught me. Since then, I have never sung except by night.” The bat replied, “It is no use your doing that now when you are a prisoner. If only you had done so before you were caught, you might still have been free.”

As your financial advisor, one of my most important responsibilities is to help you do now what people in the future will wish they had done earlier. That includes preparing for more market volatility.

By reviewing your portfolio, your goals, your current vulnerability to risk, and your overall finances, we can do what needs to be done now rather than waiting until it’s too late. We can plan for the future before the future becomes the present. We can take precautions before the next market crisis. Please fill the questionnaire out and return it to me as soon as possible. By doing this, we can determine:
• Whether it’s time to focus on preserving your money over growing your money.
• Whether you currently own investments not under my management that are unsuitable for your financial goals – especially with more volatility knocking on the door.
• How the recent volatility may be affecting you and what we can do about it.

Market volatility is on the rise. By taking suitable precautions with your money, you’ll find that it’s always there to support you.
Because, after all… Precautions are useless after a crisis.

As always, thank you for your business! We look forward to hearing from you soon.

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