Third Year Presidential Markets

The long-awaited elections are finally over – and believe it or not the next election cycle has already kicked off. And that will affect markets for the next two years as the incumbent tries to keep the economy moving. We are about 7 weeks from a new year, so let’s look at some history.

While I am the first to admit I have no idea what the markets are going to do in the next year, it is interesting to look at what has happened in the past. History shows us the third year of the presidential term has almost always been good for stock markets and its even better if it is the first presidential term. With a divided Congress and extremely positive economic momentum (reduced corporate taxes and regulation, full employment, rising wages and no major external challenges) the current administration has every incentive to kick start making market friendly decisions ahead of the next election.

Since 1950, average third-year of a presidential term has experienced 16% market returns and 18% from November of the election year to the middle of the third year of the presidential term. With GDP growth above 3%, we have more momentum to our economy which may yield even higher returns.

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If we consider only first term third presidential year the average S&P 500 returns were even sweeter with returns averaging 20.37% and median returns of 20%. Since 1950, the third year returns in the first term presidential year were never a negative one but have averaged 20%.

Given the state of our economy and the growth prospects and business friendly policies and recent market correction, it is possible of getting market returns even higher than normal.

Of course, past performance is no indicator of future performance. There are 1,000s of moving parts to an economy, both in the US and internationally, that could cause this third year to not follow historical patterns. We should discuss your unique individual situation and position your investments to reflect your unique situation.


(HT – Lakeland Wealth Management)

The Qualified Charitable Distribution

The Qualified Charitable Distribution (QCD) rules can help you leverage your donation—and minimize your taxation. This short article will explain how to get a tax break, without even itemizing, by directing your custodian to donate your Required Minimum Distribution (RMD) directly to the charity of your choice.

The qualified charitable distribution rules have, in previous years, not been set in stone according to the IRS. Starting in 2018, however, the IRS has declared that charitable donations made from one of your tax-deferred accounts will be exempt from taxation up to $100,000 as long as the distribution comes from a qualified account and is donated to a charity that meets the IRS stipulations. The IRS has enacted this as a permanent rule moving forward as of next year.

Under the 2018 tax law, now fully in effect, a couple over the age of 65 will receive a standard deduction of $26,500 ($24,000 plus $1,250 per person over age 65 per person additional deduction). So, it is possible your charitable contributions, along with your other deductions, may not be enough to exceed the standard deduction under the new tax law.

However, reducing your income, by taking advantage of the Qualified Charitable Distribution could accomplish the same objective. This lowers your adjusted gross income and taxable income, resulting in a lower overall tax liability.

This is good news for IRA owners that would like to be generous with their funds, while at the same time lowering their overall estate and avoiding taxation on their distribution.

What Are the Qualified Charitable Distribution Rules for 2018?

The new qualified charitable distribution (QCD) rules for 2018 can and should play an influential role in how you withdraw funds from your retirement accounts. As an example, when you reach the age of 70 ½, you will need to withdraw a required minimum distribution from all of your qualified accounts (the specific amount will be calculated using your age and total account value).

The IRS determines the amount of money that you are required to withdrawal from your qualified accounts, therefore guaranteeing that you will be paying taxes on that previously untaxed money. However, if you are able to leverage the qualified charitable distribution rules, you can avoid paying taxes on IRA distributions of up to $100,000 a year.

Refer to IRS Publication 590-B for further information or consult your Tax Professional.

End of Life Issues

We all have denial about dying. End of Life issues can divide and bankrupt your family. Plan now in case you end up seriously ill.

I have had several conversations about estate planning and last wishes lately with clients. A client today said she sat down with her daughter, who is a nurse, and went over line by line the clients wishes should she ever be in the last stages of life.  I think it is such an important topic, that I suggested she record a video for her 4 children so there was no misunderstanding.

In the US, the total health care expenses in 2016 was $3.4 TRILLION. According to Kaiser Health News, in 2011 Medicare spent $554 billion and 28% of that number or $170 billion was spent on the patients last 6 months of life. That doesn’t even include the enormous amounts spent by families for home healthcare, travel to specialist, co-pays and the list goes on and on. Even after spending $170 billion PLUS the patient was still dead. (Remember – last six months of life)

I know of a gentleman with Alzheimer’s. His wife was his primary caregiver and as is common, she predeceased him. The children stepped in to take care of their father but as is also very common, when it became over bearing they hired caregivers. (I have a client whose family hired round the clock caregivers – not nurses – at a cost of over $8,000 a month for over a year.) When the gentleman contracted pneumonia, he was rushed to the ICU. The children were then split over this “exit event”. Two children wanted to do everything possible to keep their dad alive and two children wanted to make him comfortable and let him go.  The out of pocket care for their dad, who had Alzheimer’s, was over $250,000.  The daughter believes her dad would have been horrified to watch that much money being spent to keep him alive.

This gentleman had a will and a Living Will. He thought he had done everything he needed. But they had not discussed his explicit wishes for this end of life situation.

In a 2014 lecture Dr. Michael Mitchell said “When someone is dying, there is no such thing as a functional family”

Every person should have a Last Will and Testament, Health Care Power of Attorney with Advanced Directives (including the Living Will) and General and Complete Power of Attorney (Durable) as a start. There are advanced planning tools that deal with this issue explicitly.

I watched my father die of bladder cancer almost 12 years ago. My mom, sister and I knew what his wishes were, and he passed peacefully, with the help of wonderful people from Hospice, at home in his bed.

Please plan ahead and spare your family the pain of making those decisions in a very stressful emotional time. It may be the most loving thing you can do for them.