Welcome to the first Perspective of 2018. First, we’d like to wish you a very Happy New Year from your team at Sagemark! Second, let’s take a moment to revisit what our Perspective series is all about. In a word, it’s about YOU!!! This is our effort to bring you important information and perspective enhancing commentary, often from third party experts, on a variety of topics that we hope will benefit you, your family and your network.
With that, the two topics that we are hearing about most frequently right now are:
- The Tax Cuts and Jobs Act: What exactly does it mean for me?
- The Stock Market: It seems to be doing better than many people expected…
We’ll give you some highlights related to #1, then move on to #2 which for most people is more fun and interesting...
What you need to know about the Tax Cuts and Jobs Act:
- With one hand the Act giveth, with the other hand it taketh away: Not all tax payers will get a tax cut.
- Remember the acronym, TRUMP = Tax Reform Unleashes Major Planning. Because everyone is affected differently, planning needs to be done for your specific situation to benefit from tax Deferral, Exclusion, Conversion, and Deduction techniques.
- It is temporary. After 2025 the tax laws revert to 2017 rules.
- The lifetime exemption is now $11.2 million per person. The estate of a married couple is not subject to estate tax this year unless the total value is greater than $22.4 million. Use it or lose it. If you don’t die or implement planning techniques to take advantage of the massive exemption, you will lose it if you find yourself alive just 8 years from now (or sooner if the next administration changes the rules). If you do find yourself using the exemption due to a death, certain trusts will have formula issues that cause unintended consequences, like disinheriting the surviving spouse!
- The standard deduction is now $12,000 ($24,000 for a married couple). Talk to your CPA about whether you need to itemize deductions or if the standard deduction is of greater value.
- There are many other details in the act that may affect you so 2018 should be the year you update your plan.
What’s up with the stock market? As we’ve said before:
- The bull market that began almost 9 years ago is old by historical standards (remember, this is just half of the full market cycle).
- Bull markets do not die of old age, they die of some other cause, usually preceded by a phase of manic growth underpinned by a euphoric narrative (think, dot com = new paradigm, or real estate = never lose).
If you are interested, read Market Cycles: The Key To Maximum Returns.
Read The Market Cycle of Emotions to learn of the emotions tied to different phases:
- While there is certainly data that is concerning as it relates to longer term returns (remember, for the cycle to complete we still have to go through the back half, or bear market phase), we haven’t seen a strong euphoric phase in the current bull market phase yet. In other words it’s a bull market, and a potentially accelerating bull market at that, until it’s not.
For more on this theme, here is a link to a recent piece from Steve Blumenthal about the potential for a “Melt-Up” market this year.
Ryan and Mike