We’re continuing our video series highlighting team members, and this month I encourage you to watch John Reagan’s under two-minute piece. John dedicates his professional life to client service. It’s that simple. He is reliable with a capital “R,” and I consider him the backbone of Hill Investment Group. John is a partner in the firm, leads client service, the Financial Planning Committee, and founded our Longview Charitable Initiative (where we give back to our communities). John is someone you want on your side. Clients have told me that they wish they could “find a John Reagan in other parts of their lives.” John works every day to help simplify and add value to the lives of the families we serve. He’s self-described as “slow and steady” in the video, and we love him for it! It’s also a perfect fit with this month’s podcast.
There has been a lot of talk about the House Ways and Means Committee’s tax proposal. Whether in The Wall Street Journal or from Take the Long View podcast guest, John Jennings’ break down of the good, the bad, and the ugly, speculation is all over the place. As a client of Hill Investment Group, you can rest assured that we are planning for all of the potential iterations.
Below we’ve reviewed the most relevant points for our clients. Have questions? Feel free to reach out to us to discuss how the potential changes may affect you. Set up a time to talk here.
|House Ways and Means Tax Proposals||Current Law|
|Top Income Tax Bracket||Increase the top individual income tax bracket to 39.6 percent. This new top bracket would start at taxable income levels of $400,000 for single filers, $450,000 for joint filers. Effective 1/1/2022.||The current top tax rate is 37 percent on taxable income over $523,600 for single filers and $628,300 for joint filers.|
|Capital Gains||Increase the statutory capital gains rate to 25 percent. Effective 9/13/2021, subject to a binding contract exception.||The current top statutory capital gains rate is 20 percent.|
|Estate and Gift Tax||Reduce to an inflation-adjusted $5 million. Effective 1/1/2022.||Inflation-adjusted $10 million ($11.7 million in 2021).|
|Roth Conversion||Eliminate Roth conversions for both IRAs and employer-sponsored plans for single filers with taxable income over $400,000 and joint filers with taxable income over $450,000.||A person can convert their eligible IRA assets to a Roth IRA regardless of income.|
Have questions? Feel free to reach out to us to discuss how the potential changes may affect you. Set up a time to talk here.
You might have seen articles making equity returns predictions for the next 5, 10, or 20 years. These predictions often forecast dire conditions, which in turn get the reader asking questions like “Is this true?”, “Should I be worried?”, “How should I use this information?” When reading these articles, it’s essential to step back and think about what we can control, what we can’t, and how we should act with that knowledge in mind.
Are these predictions accurate? No one knows. Equity markets are volatile, and the timing or magnitude of returns is tough to predict. Even experts have a terrible track record of reading the tea leaves and investing based on their predictions. Said differently, even those who get it “right” don’t get it right all the way. A common source of error is timing. A famous example is Robert Shiller, credited with “predicting” the 2008 housing market crash with the phrase “irrational exuberance.” The problem? He made that claim in June of 2005, and the market continued to rise for another three years. By the end of 2010, within two years of the crash, global markets on average were once again higher than the June 2005 levels and have remained higher ever since.1
Should you worry? Since you can’t control near-term future returns, there is little benefit to trying to predict or worrying about them. However, based on the past 100 years or so of market history, we can be generally confident in the long-term future of positive global equity returns. This is because investing in equities involves taking risks, and investors would not take that risk unless they expected some positive return in exchange. Moreover, we know from the past that the range of short-term outcomes will be broad: sometimes positive, sometimes negative. Knowing that short-term results can vary may sound like a bummer, but it can help us build confidence (read on to find out how).
How can I use this information? Using historical returns, we can determine how much investors, on average, have been compensated for investing in equities over the long term. We can also understand something about the range of possible outcomes over shorter periods. This info is useful when constructing your financial plan.
At HIG, we can perform an in-depth analysis that includes the financial factors you can control, like saving and spending, and the ones you cannot, like market returns and inflation. Our team uses a sophisticated statistical tool that runs thousands of simulations to determine a range of different potential outcomes for your specific situation. Comparing this range to your goals can give you a sense of your personal “odds of success.” When the analysis shows >85% probability of meeting your goals, we find most clients are comfortable that they are on the right track. The benefit? Confidence. You can focus your time on what’s truly important and ignore the crisis of the month. In other words, we have your back.
If you would like to talk more about this, our CIO office hours are open. Feel free to schedule a 30-minute call.