BY BEN OFFIT, CFP®
We have a newly designed website that looks fresh and sharp - Check it out!
Ben Offit and May Jiang were both named Five Star Wealth Managers in 2021 by Baltimore Magazine
We have a new office in Mt. Vernon in Baltimore that you can see from I-83
- Epidemiologists at Emory University in Atlanta believe that raising the minimum wage in the U.S. by $1 would have prevented 27,550 suicides since 1990. A $2 increase would have prevented 57,000.
-The Economist, January 20, 2021
- Last year, U.S. bankruptcy filings - thanks to unprecedented fiscal and monetary support - hit their lowest level since 1986. However, chapter 11 filings, which are primarily used to reorganize larger businesses, jumped 29%.-Axios, January 6, 2021
- There are points in the Pacific Ocean where, if you dug a hole to the opposite point on Earth, you would still be in the Pacific Ocean.-Permaculture Research Institute, May 25, 2017
- According to the WSJ, business travel will drop by up to 36% in the post-pandemic world. Bill Gates is even less optimistic. He recently projected business travel would decline by more than 50%. Business travelers only make up 10% of airline passengers across major carriers, but they account for 55%-75% of revenue. -The Wall Street Journal, December 1, 2020
- Digital wallets, that store cryptocurrencies, have soared in value but some investors can’t cash in because they forgot their passwords. One programmer in San Francisco has two password guesses left before being locked out, to access a wallet containing 7,002 bitcoin, or $220 million. -Newsweek, January 12, 2021“The trust of the innocent is the liar’s most useful tool.”-Stephen King
- In 2020, eleven of the top 15 U.S. TV broadcasts were NFL games.-Axios AM, January 6, 2021
- “If you tell the truth you don’t have to remember anything.”
-Mark Twain
- In 2020 the price of copper was up 26% finishing the year at $7,766 per metric ton. One reason demand’s been insatiable is that the average battery in an electric vehicle contains 83 kilograms of copper compared to 23 kilograms of copper in a typical internal combustion vehicle.-Bloomberg Businessweek, January 5, 2021Former Zappos CEO Tony Hsieh, worth an estimated $840 million when he died as the result of a Connecticut house fire last month, died without a will.
Tax Planning in 2021
I am writing today about some proposed tax changes by President Biden that could make some changes in your planning in 2021 and beyond. However, it is important to note that these ideas are not in effect yet, and there could be delays or changes to them.
1. The highest income tax rate could move from the current 37% to 39.6%.
2. The social security tax/FICA wage base for 2021 is capped at $142,800 of income, but traditionally after that, you don’t need to pay into it any further. This number is 6.2% for employees, and 14.2% if you are self-employed because you are the employer and employee. President-Elect Biden’s plan is to have this kick back in for those making income over $400K per year. So, in essence, you would pay tax on this for earnings from $0-$140K, no tax on $140-$400K, and at $400K and beyond it kicks back in.
3. For high-income earners, they may be used to a 15-20% long term capital gains tax rate, but if your income is over $1M per year, President-Elect Biden’s proposal is to change that to ordinary income tax rates which could be 39.6%.
Planning Idea: For people with incomes in excess of $1M or business owners selling their business or retiring, capital gains could go from 20% to 39.96, which is almost double the tax. You may want to consider an installment sale, to spread the tax impact over a number of years to artificially keep your income under that $1M threshold.
4. Overall, if your family makes $400K or less per year, which is most Americans, your taxes won’t really change and it could help your family with more tax credits available– including those for childcare expenses, caregiving of elderly relatives, and first time home buyers credits.
Planning Note: For high-income earners making over $400K, you could be seeing a 10% increase in taxes or so between the increase in the top ordinary income tax rate and additional tax on social security tax for income over $400K, so if you have concentrated stock positions or stock options, it could make sense to exercise these in 2020 instead of 2021 and beyond.
5. The federal estate tax exemption is scheduled to be $11.7M per person in 2021, but under President-Elect Biden’s proposed changes, that would go to $6M per person. Also, there could be a reduction in the lifetime exemption, and removing the step-up in basis on inherited property or assets, so this could pose quite a few planning opportunities for those who have high net worths.
I hope this is helpful as a starting point. However, you should make more detailed plans with your tax advisor about these proposals.
S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.
Dow Jones Industrial Average - The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.
NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes approximately 5,000 stocks, more than most other stock market indices. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indices.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index which includes the 3,000 largest companies in the U.S., based on market capitalization. As of the latest reconstitution, the average market capitalization was approximately $762.8 million; the median market capitalization was approximately $613.5 million. The largest company in the index had an approximate market capitalization of $2.0 billion and a smallest of 218.4 million.
Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
Government bonds are guaranteed by the U. S. Government and, if held to maturity, offer a fixed rate of return and fixed principal value.
EQUITY MARKETS
The S&P 500, Dow Jones Industrial Average, NASDAQ Composite and Russell 2000 Indices all recorded new all-time highs in January. The month was marked by strength through the middle part of January, but the last several days of the month saw volatility rise and equities decline. The late month drop pushed the Dow and S&P 500 into negative territory, but the Russell 2000 and NASDAQ Composite still recorded gains to begin the new year.
The CBOE Volatility Index or VIX Index spiked higher in late January. After spending most of the month in the low 20s, the VIX Index shot to its highest closing level since late October of 37.21, before settling at 33.09 to end the month. Volatility had clearly declined during November and December, which we believed might be pointing to some complacency building in the market and potential short-term weakness. Particularly as we moved into the new year and as COVID-19 cases accelerated, we expected that volatility could rise once again. We saw this rise in volatility late in the month and we believe investors should continue to be prepared for a bumpy ride as we move through these near-term difficulties with the pandemic until the vaccine becomes more widely distributed.
From a style perspective, there was not a huge degree of difference between value and growth to begin the new year. Value modestly lagged in the large to mid-cap space, but it outperformed growth in small-caps. We still believe that the value/growth disparity that reached a peak last year will likely continue to shift in 2021, with value improving on a relative basis.
The numbers for January were as follows: The S&P 500 fell -1.01%, the Dow Jones Industrial Average dropped -1.95%, the Russell 3000 slipped by -0.44%, the NASDAQ Composite advanced 1.44%, and the Russell 2000 Index, a measure of small-cap stocks, rallied 5.03%, and was the clear leader among these widely followed U.S. equity indices. Mid-cap and micro-cap stocks also turned in gains to begin the new year.
We will continue to monitor the trend that began to develop in the latter part of 2020 with small and mid-caps outperforming large-caps. Large-caps dominated for most of last year, but small-caps surged late in 2020 and that momentum has continued into 2021.
Looking closer at style, the headline Russell 1000 Index slipped -0.82 to begin 2021. The Russell 1000 Growth Index was off -0.74%, while the Russell 1000 Value Index declined -0.92%. After growth dominated in 2020, the beginning of 2021 showed only a modest disparity between growth and value from a style perspective.
International equities maintained momentum that picked up later in 2020. The MSCI Emerging Markets Index gained 3.07% in January and the MSCI ACWI ex USA Index, a broad measure of international equities, made a modest advance of 0.22%
FIXED INCOME
The yield on the 10-year U.S. Treasury moved higher early in January and spent most of the month yielding above 1%, which was the first time it had been above this level since March 2020. It closed January at 1.11%. The most interest-rate sensitive bonds struggled with that backdrop of rising rates. We continue to believe that we will be in a “lower for longer” interest rate environment for the foreseeable future, but we also think that some modest steepening of the yield curve could occur in 2021. The ongoing and massive support from the Federal Reserve is generally keeping a lid on interest rates, (particularly on the front end of the yield curve) and we expect that environment to continue.
Fixed income returns were as follows for January: the Bloomberg Barclays U.S. Aggregate Bond Index fell -0.72%, the Bloomberg Barclays U.S. Credit Index dropped -1.19%, the Bloomberg Barclays U.S. Corporate High Yield Index was able to advance 0.33% and the Bloomberg Barclays Municipal Index rose 0.64%. Treasuries (with the exception of TIPS) were negative in January as rates moved higher. The general Bloomberg Barclays U.S. Treasury Index declined -0.96%.
Securities offered through Kestra Investment Services, LLC (Kestra IS), Member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Offit Advisors is not affiliated with Kestra IS or Kestra AS. Offit Advisory Services, LLC is a tax firm but neither Kestra IS nor Kestra AS provide legal or tax advice and are not Certified Public Accounting firms.For more information on the Five Star Wealth Manager and the research/selection methodology go to: www.fivestarprofessional.com. Investor Disclosures: https://bit.ly/KF-Disclosures
Offit Advisors
28 E Susquehanna Ave
Towson, MD 21286
Phone + Fax: 410 600 PLAN (7526)
E – BOffit@OffitAdvisors.com
W- www.OffitAdvisors.com
To schedule an appointment with us, click here!
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list.
