Many of our potential and existing clients tend to ask if our investing strategy is active or passive. For years it has been assumed that you have to be one or the other. It is also assumed (depending on which camp you’re in) that one is better than the other. In our opinion, the argument over active vs passive management can be put squarely to bed.-- The answer to which investing strategy we use is…Both. It is called factor based investing and it is a strategy used by a company whose funds we use ---Dimensional Fund Advisors (DFA).
“It turns out that the job of a real financial adviser involves helping people make important decisions in the face of irreducible uncertainty.” – Carl Richards
Time and again we are reminded that uncertainty is the one thing we can always count on. It is why we plan. We plan so that we can have some type of control in even the most uncertain of times. My mother always says, hope for the best and plan for the worst. While that sounds a bit morose, it offers sound advice to us as financial advisors and to you as those seeking the advice of experts when it comes to your finances, or life in general for that matter.
Fact: Human beings love to predict the future.
Fact: Human beings are not very good at predicting the future.
Fact: Because the incentives to predict are quite imperfect — bad predictions are rarely punished — this situation is unlikely to change.
But wouldn’t it be nice if it did?
We recently listened to this podcast since it is so apropos in the aftermath of our election and the Brexit vote. All predictions said there would be no Brexit and that Trump would lose. Both of these predictions were based on staggeringly small margins, yet people really counted on them. And people were really shocked when the predictions that were so narrow did not come to pass.
Take a listen.
When Bob and Diane came to see us for the first time they had all the makings of the ideal client. They had diligently saved for their retirements and had a great deal of options in what they might be able to accomplish in terms of their retirement goals. It was clear to us however, they they weren’t as confident as we were.
Over the past year, you may have noticed our state has been at a standstill with road construction. This was due to a lack of funding over a standoff between Governor Chris Christie and democratic leaders in congress. In late September, a deal was struck that will replenish the state’s Transportation Trust Fund, bringing road and rail projects back underway by increasing New Jersey’s gas tax 23 cents per gallon.
The compromise was not all about tax hikes though. The offset to the gas tax hike is the gradual phasing out of the estate tax, a tax ease on retirement income, an increase in the Earned Income Tax Credit for the working poor, and a tax deduction for veterans. The total tab of the tax cuts, according to the governor’s office, would be $1.4 billion once fully implemented in 2021.
The estate tax has been a source of grief for residents of the Garden State and the plan is to phase it out over the course of the next year and a quarter. Beginning on January 1, 2017 the threshold will rise from $675,000 to $2 million and eliminate it altogether after Jan. 1, 2018.
What does this mean for those living in NJ? There are a few things you should consider; transportation expenses, retirement income impact, and estate planning. If your fuel expense is a significant part of your budget, you should expect an increase to this expense by about 10-15%. If you are retired or near retirement, some of you will get a little help on your tax bill. The income threshold for taxing retirement income will increase from $15,000 to $50,000 for individuals and from $20,000 to $100,000 for couples. In regards to estate planning, some families may need to review their documents. It would be advisable to review the following:
1. Wills and revocable trusts
2. Life Insurance Trusts
3. Durable Power of Attorney (gift provisions might warrant reconsideration)
4. Title to Assets
As always, we will conduct a plan review with each of our clients and make adjustments, as necessary, based on changes in the tax code and what it may do to your financial picture as a whole. It is important to note that these changes will impact every family differently and we will be discussing it with each of our clients on an individual basis.
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