Tax Reform – October 2017

A Message to the Valued Clients of ASG:

The US tax code has grown frustratingly complex over the last 30 plus years. In Washington, an army of lobbyists applies constant pressure for special tax treatment for constituencies of all shapes and sizes. The result has been a dizzying array of exclusions, exemptions, deductions, and credits. Uncertainty among taxpayers as to whether all of this has been correctly applied is nearly universal.

At ASG, we monitor the intersection of investing and tax policy with care. Asset location is an investment strategy used by ASG to place securities such as actively managed mutual funds in tax-sheltered accounts (IRAs) and tax-free securities such as municipal bonds in taxable brokerage accounts. We remind everyone to focus on what is within their control.

The divide between Democrats and Republicans in Congress, as well as the divide between the President and Congress, is as acute as ever. Therefore, we would not be surprised if the legislative effort to reform the US tax code was met with same fate as the recent effort to replace the Affordable Care Act. In the meantime, a string of deadly hurricanes has taken center stage. An urgent need for government aid in Texas, Florida, and Puerto Rico has thankfully been met with lessons learned from Katrina.

On the monetary policy front, changes are underway following a 2-day Federal Reserve meeting that ended on September 20. Although rates were left unchanged at the time of the meeting, one more quarter percent rate increase is forecast for December and three additional rate increases are planned for 2018. On October 1, the Fed will begin to unwind another aspect of its crisis-era stimulus. Their strategy is to end the practice of fully reinvesting the principal payments of maturing bonds (bought by the Fed after the financial crisis) into new bonds. This process is deliberately slow and is not expected to disrupt the economy. As interest rates rise, a corresponding drop in the price of bonds is to be expected. This decline in price comes as a shock to some investors, but those that maintain a long-term perspective will ultimately benefit from higher yields.

As we enter the final quarter of 2017, ASG reminds investors to check in with their advisors for an end-of-year portfolio review. Your financial goals are top of mind at ASG, especially if those goals include financial freedom in retirement. The stock and bond markets have proven to be remarkably resilient in the face of a challenging political environment, a powerful 1-2 punch from catastrophic hurricanes, persistent instability in the war-torn Middle East, a nuclear threat from North Korea, and on and on. Through it all, invest we must.

Happy Fall!

Asset Strategies Group, LLC / an Independent Registered Investment Advisor Firm

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