October 2021 | Planning Tips & Market Update

At Treasure Valley Financial Planning, our goal is to keep you well informed about what we are doing to help navigate the changing markets and provide information on other areas of personal finance you may find helpful.  As always, if you have questions or concerns, do not hesitate to contact us today.

Are federal taxes going up?

We’ve been receiving a lot of questions about President Biden’s proposed tax changes.  People want to know whether they will be paying more in taxes next year.  The short answer is that you most likely won’t unless your taxable income is more than $400,000 per year.

If proposed changes in the tax code that passed a House committee are enacted into law, and that’s a really big if, those that are wealthy, as defined by Congress, will likely see their taxes increase as follows:

• The top federal tax rate will increase from 37% to 39.6%.
• There will be a 3% surtax on income higher than $5 million for single and joint filers.
• An increase in the tax on dividends and the long-term capital gains tax rate for assets held over one year to 25% (up from 20%) for individuals earning more than $400,000 and couples earning over $450,000.
• New limits on those who have large retirement account balances ($10 million)

These proposals are a long way from becoming law but are winding their way through Congress.  The Senate may have its own set of recommendations, which would require both legislative bodies to forge a compromise before a tax bill lands on the President’s desk.  Moreover, a sharply divided Senate seems likely to pare $3.5 trillion in proposed spending, assuming legislators in the House compromise on new outlays.  If new spending is reduced, smaller tax hikes could follow.

Regardless of the ultimate decision, we are prepared to help you navigate this and put smart tax-planning strategies in place.

What is it about September?

According to St. Louis Federal Reserve data measuring monthly stock performance over the last 50 years, as measured by the S&P 500, September has historically been the worst month for stocks.  If you are wondering whether the trend has abated in recent years, the answer is no, it hasn’t. Over the last 10 years, September’s performance has been substandard. So far in October, however, the markets have been on a terror, and confirm our decision to “hang in there” during September.

So, what’s behind the sell-off last month?  In short, investors are concerned the economic recovery is cooling.  While the economy is not contracting, a moderation in growth was expected. However, the economic slowdown we’re seeing has been more pronounced than expected.

The next obvious question is, why is the third quarter disappointing on the economic front?  The spike in Covid cases is causing some hesitation in industries dependent on face-to-face transactions.  But there is good news on this front.  The CDC says cases have slowed recently.  We’ll see how this continues to play out later in the fall.  While bank deposit data from the St. Louis Federal Reserve suggest consumers have plenty of spendable cash in reserve, the influx of new stimulus money has dwindled, and spending has slowed.  We also see stubbornly high inflation in some industries as supply chain bottlenecks continue to be an issue.

As always, we will continue to monitor the data and adjust our investment models as necessary.

Changes to portfolios

As we turn the calendar to the final quarter of the year, there comes a few additional investment strategy adjustments.  Generally, the focus remains on growth, momentum, and larger companies.  The smaller-company stocks added in early 2021 have now been replaced by larger company stocks.

The bond investments remain largely the same, although some adjustments were made to keep the focus on better quality bonds.

Feel free to schedule with us anytime here: Schedule Now