4 Things to Consider as the Dow Rallies to 20,000

Here are four things to keep in mind as the Dow Jones reaches the 20,000 milestone.

With the Dow Jones industrial average surging this week, some stock pickers are wondering whether the 20,000 mark is in reach. As CNN reported, Wall Street is betting on President-elect Donald Trump to beef up the economy. It’s quite the opposite of what happened when Barack Obama was elected president, although that changed over time, and there’s no telling if this winning streak will last.

“Most investors think of round numbers as good,” Robert Dowling, a certified financial planner with Modera Wealth Management in Westwood, New Jersey said, but “I wouldn’t say someone should make a specific move” based on the 20,000 milestone. Dowling and Jude Boudreaux, a certified financial planner with Upperline Financial Planner in New Orleans, shared some things to consider as investors keep an eye on the index.

1. Asset Allocation

Now’s the time to look at your asset allocation and see if it’s where you’d like it to be, Boudreaux said. “We keep hitting new highs in U.S. markets, and valuations are at historical highs, especially compared to international equities, which are at historical averages.” So rebalancing, or taking some of your gains and reinvesting them in slower-performing assets, may be the best practice. “If we believe things tend to reverse to the mean over time, which we do, and we don’t know when that will happen,” Boudreaux said, “now’s the time to take some of those gains [and reinvest them].”

Ask yourself: Do you have too much exposure in a particular area? If so, should you reduce it and allocate it to other assets that aren’t performing as well this year? “You need to be aware of how much is in each asset class,” Dowling said, not because you think the market is ready to burst but so you have confidence in what lies ahead. “The old adage is, buy low and sell high,” Boudreaux said. “When the market hits new highs, we have to ask ourselves if it’s time to sell even just part of our portfolio, but that’s never the way our brains work.”

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2. Tax Implications 

“This is the time of year to be thinking of tax strategy because these transactions have to happen before December 31,” Boudreaux said. You may consider gifting your appreciated stock or mutual funds to a charity or working with your tax advisor to determine your percentage of capital gains, which are capped at 15%.

3. Upcoming Expenses

As you look to the new year, consider any expenses for which you’ll need to prepare. These may include paying off credit card debt, refinancing your mortgage or shoring up enough savings to take on that home improvement project you’ve been putting off. Whatever it is, taking advantage of the market now by selling off assets may give you the cash cushion you need in the future, Dowling said. No one knows what will happen months from now, but some concrete planning can take out the guesswork.

4. The Number Itself 

Remember, it’s likely that, at some point, 20,000 will be just another milestone in the Dow’s long history, Dowling said, so don’t make any decisions based on the number itself. Be aware of the tax implications for selling gains, and don’t make any drastic moves if you can’t afford it. “Don’t say, ‘OK, the market is going to crash, so I’m selling everything or buying more of whatever is doing well,'” Dowling said. Plan your moves based on what’s best for you.

Image: shapecharge

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Congratulations! You May Be Getting a Tax Break

tax-break

When tax season rolls around, most of us are just relieved to get our paperwork in on time. Now, according to Wolters Kluwer Tax & Accounting, a software solutions provider for tax, accounting and audit professionals, there may be even more reason to rest easy: A sweet little tax break.

According to the firm, since the late 1980s the U.S. Tax Code has required that federal income brackets be adjusted for inflation each year. These inflation adjustments were added to the Internal Revenue Code in recent years, and now over 50 other inflation-driven computations, as the firm describes them, are required to determine deduction, exemption and exclusion amounts, along with the 40 separate computations used to adjust the tax brackets for inflation each year.

Now, based on the Department of Labor’s inflation figures for the 12 months between August 31, 2015 and August 31, 2016, the firm is projecting that taxpayers will “experience modest savings” when filing their 2017 taxes compared to 2016. Here’s a closer look:

  • “A married company filing jointly with a total taxable income of $130,000 should pay less income taxes in 2017,” said the firm.
  • Marginal tax rates will have increased due to the income ranges bracketing, meaning “a single filer with taxable income of $50,000 should owe $22.50 less next year,” the firm concluded.
  • Meanwhile, “the additional standard deduction for those 65 years old and older, or who are blind, will remain at $1,250 for 2017, as will the $1,550 additional amount for single-aged-65-or-older filers,” the firm wrote.

Beyond that, the standard deduction for single, married filing jointly, and married filing separately filers is expected to jump in 2017 to $6,350, $12,700 and $6,350, respectively. That’s up from $6,300, $12,600 and $6,300. This change can bring about lower taxes, the firm explained, by “decreasing the taxpayer’s taxable income.”

According to Kelly Phillips Erb, a Philadelphia tax attorney who frequently blogs at Forbes, this is good news since “every time the bracket shifts even a little bit, all the taxpayers below that threshold benefit a little bit.” So with the standard deduction threshold rising, “the higher it is, the more people can claim it.” Two-thirds of taxpayers already take advantage of the standard deduction, she added.

Taxpayers should also consider how stagnant incomes — those that haven’t increased with inflation — can play a key role in their taxes this season. “If your income stays flat, which most people’s tend to do, but the tax breaks go up and the brackets shift up, you’ll get to trim off a few dollars from your taxes,” Erb said. Put another way, “you’re benefitting from the fact that the tax brackets are going up while your income is staying the same.”

As you gather your taxes together, it’s a good idea to spend some time researching some of the ways you can maximize your refund. You’ll also want to be wary of filing your taxes with accountants who aren’t on the up-and-up and, of course, to pay your taxes on time. Unpaid taxes can ultimately lead to a lien, which can hurt your credit. (You can view two of your credit scores, updated every 14 days, for free on Credit.com.)

Image: Georgijevic

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