Date: February 9, 2021
Our first Wealth event featured the expert Justin Charise, a financial advisor who leads a comprehensive financial planning practice. He explained the benefits of working with a financial advisor, addressed our questions regarding the new tax plan, and shared tips for making sound financial decisions that are responsive to the current market.
The Role of a Financial Advisor
While adhering to a financial plan, advisors adjust holdings by:
a) opportunistically rebalancing the portfolio and doing “tactical tilts” based on relative valuations. For example – certain asset classes might be overvalued judging from their price-earnings ratio.
b) responding to macro trends. For example, commercial real estate is affected due to the pandemic.
c) conducting tax-loss harvesting to realize losses that can help offset gains in other parts of the portfolio.
Advisors can help you make strong investment decisions by providing historical context, emotional objectivity, and a knowledgeable sounding board.
The Biden Tax Plan
Justin provided an overview of the Biden tax plan, which will mostly impact only high-income earners with a top marginal tax bracket that starts at an income of $400k with an 8.8% increase in tax rate for income over $400k. The plan will change the corporate tax rate from 21% to 28% which can impact equities. He posited that with the current focus on the pandemic, this plan is unlikely to be signed into law any time soon.
Advice & Takeaways
- A good financial plan relies on asset allocation, asset location, and active monitoring.
- Start with an overall asset allocation of stocks and bonds.
- Keep tax-efficient holdings (equities, passive index funds) in taxable accounts.
- Keep tax-inefficient holdings (bonds, actively managed funds) in tax-sheltered IRAs and 401k.
- Stay diversified! Every asset class will over- or under-perform from year to year. Tilt your asset allocation toward classes you have conviction about, but stay diversified!
- Due to low interest rates and low yields on corporate bonds, now 2.6% pre-tax, you can no longer live off interest income.
- In retirement, hold two years’ cash reserve for expenses beyond guaranteed income (social security, annuity, and pension income), so you don’t have to sell stocks when the market is down.
- Appreciated securities can fund charitable donations.
- Charitable donations can also be made through donor-advised funds, which enables the investor to get the tax deduction, and then spread out those donations to various charities over time.
Justin can be reached at [email protected] and 203-221-5275.