A recent Wall Street Journal headline reads, “Americans Save Less as the Good Times Roll”. Personal savings as a percentage of disposable income dropped to a 12-year low in December as consumers spent more. In our consumer-driven economy, this spending is good for businesses and is reflected in rising stock prices.
At ASG, we are not opposed to personal spending, unless it leaves saving and investing neglected. A common rule of thumb when it comes to saving for retirement or financial independence is to set the savings rate at 15%. Any number of tax favored account types can be used to separate these saved dollars and get them intelligently invested in a low-cost portfolio of stocks and bonds.
Newly enacted Tax Reform legislation improves the take home pay for most Americans. This is where the “pay yourself first” mantra helps to build a powerful offense. The timing of Tax Reform is good because this is IRA season. Your ASG advisor can help calculate contribution shortfalls for the 2017 tax year right up to the filing deadline. The best practice for IRA investing is fully funding the current year early in the year to capture dividends from stocks and interest payments from bonds. Of course, capital gains are icing on the cake.
The dramatic stock market action on Monday, February 5thalso deserves attention. To review, the Dow Jones Industrial Average dropped 1,175 points, a record. The one-day loss of 4.6 percent was painful but ranked well outside the top 50 losses by percentage for the Dow. For perspective, the largest single day loss (by percentage) was on October 19, 1987 and clocked in at -22.6%.
This recent bout of volatility did have a harder edge than usual, coming on the heels of a long period of relative market calm. As investors, we were suddenly reminded that market prices go up anddown. We were reminded that the mix of stocks, bonds, and (to a lesser degree) cash determines the risk/reward relationship of investment portfolios. Lessons in risk appetite must be relearned from time to time and ASG always stands ready to help clients determine appropriate asset allocation percentages.
It is tax season. It represents an opportunity to evaluate our earning power from work and the role of company sponsored retirement plans, as well as IRAs. When it comes to pay, what we do with what we make is more important than how much we make. This year, the Roth IRA turns twenty. As clients of ASG, you already know that no other account type offers tax-free growth, tax-free distribution, and tax-free transfer to heirs. Spread the word. The investor class is too small in these United States.
Happy Winter!
Asset Strategies Group, LLC / an Independent Registered Investment Advisor Firm
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