Summer 2020 Quarterly Newsletter
Author: Denis R. Curcio, CFP®
With the world turned upside down by the coronavirus pandemic, I think it is a good time to focus on what we can control. Optimization is defined as the action of making the best or most effective use of a situation or resource. Here are a few ideas for your consideration to optimize your financial resources given the current environment.
Napoleon defined a military genius as “the man who can do the average thing when everyone else around him is losing his mind.” I believe rebalancing a portfolio falls into this category. When volatility hits the market to the extent it did in March, it is difficult to have a long-term view on your portfolio. During times of peak uncertainty, accompanied by constant negative news, scrambling policy makers and changing personal lives, the act of rebalancing or “buying stocks low” when the market retreats can have a positive impact on long-term returns. A hallmark of Carroll Financial is the experienced professionals who stay calm and make rational decisions for your long-term time horizon amidst uncertainty.
There are two items to note on taxes. First, volatility often provides the opportunity to realize losses in a portfolio that can be used to offset current or future gains. Many advisors in our office combine the above-mentioned rebalancing with tax loss harvesting to optimize both asset allocation and tax efficiency. Make sure your advisor is aware of any holdings that are not managed at Carroll Financial as there could be opportunities to make changes there as well. Secondly, the IRS recently released updated guidance regarding Required Minimum Distributions (RMDs) for 2020. Anyone who has taken a RMD for 2020 and would like to put it back in his or her IRA can do so if they meet the August 31, 2020 deadline. We have been working diligently to speak with clients who can utilize this strategy to lower their 2020 taxes.
You may have decided to leave your IRA to a trust for various reasons. With the SECURE Act that passed into law on December 20, 2019, it is critically important to review trust documents with your attorney to ensure they coordinate with your intent. With the new 10-year drawdown on nonspouse inherited IRAs it is likely your trust documents will need to be updated depending upon what your intentions were when you created the trust.
I cannot predict when things will return to normal or if there will be a new normal. However, many of the financial principals that have been successful in the past will continue to work in the future. I encourage ongoing communication with your advisor to discover how you can optimize your financial life.
This article was featured in our Summer 2020 Quarterly Newsletter available here:Estate Planning, In the News, Market Volatility, Quarterly Newsletter, Tax Planning