Every year as Thanksgiving approaches, I feel inclined to take note of the blessings in my life. This has been a more challenging endeavor when looking back on the past year. The economy has been shaky, with many experiencing layoffs and an ongoing inflation concern. High interest rates are making purchasing a home or expanding one’s business unaffordable. From a Jewish perspective, the terrorist attack on October 7th will go down in history as one of the worst days for our people since the Holocaust.
Yet, no matter how challenging the environment, there is always reason for hope and items for which to be grateful. This is true for life as well as investing. The past few years have been challenging for the stock market. Given this rough patch, investors may lose confidence in their strategy and make impulsive decisions that may derail their financial lives. Taking a step back and highlighting some things to get excited about may be helpful in motivating investors to stay the course. Below are a few financial planning themes that I am thankful for this year.
What went down will rise again: One reassuring mantra I often say to clients is that “markets move in cycles.” This means that if an area of the market is down, it will eventually go back up. This offers reassurance for continuing to hold a sensible investment, even if it has performed poorly over the short term, since that doesn’t mean it will maintain a downward trajectory forever. In fact, now may be a wonderful time to buy more of an investment that has temporarily dropped in value.
The approximately +17% return in the U.S. stock market has been driven by only a few large technology stocks. A large portion of the market has experienced much lower returns or is actually down for the year. The bond market, which is down for the year as of this writing, has also experienced a few years of pain. It’s worth combing through your portfolio and rebalancing some of your funds into areas of the market that have not performed well. It may seem counterintuitive to add funds to positions that have been doing poorly. However, keeping in mind that markets move in cycles, these loser holdings may offer some of the best upside potential in the coming years.
The Federal Reserve is (almost) done raising rates: In order to get inflation under control, the Federal Reserve must raise rates. This causes the economy to slow down, which is bad. However, it is necessary to maintain a healthy economy. Thankfully, there are positive signs that the increasing interest rates is working. Hopefully this progress means that the Fed is nearly done increasing rates and will hopefully lead to a boost in the economy and the markets in the coming years.
Inflation has dropped meaningfully since this time last year: Last Thanksgiving, inflation was over 7%. Today, it is approximately 3.7%. High inflation can be devastating for a country’s currency and for the overall economy. This drop in inflation is something to be thankful for.
Investment grade bond yields are the highest in two decades: The Federal Reserve raising interest rates has caused the bond market to plummet in value over the past two years. While this was painful for investors, on a forward-looking basis it presented opportunity. Investors can buy bonds at a discount relative to what they were trading at in previous years and lock in a higher yield on their investment since rates have gone up. For more than 15 years bonds offered a very mediocre yield to investors. Times have changed and this will no longer be the case in the coming years.
Increase in retirement contribution limits: As a financial advisor, I found this point particularly exciting. An investor can now put more tax advantaged money into an IRA or 401(k) account than ever before. The IRA contribution limit for next year is going up from $6,500 to $7,000 and it is increasing from $22,500 to $23,000 for a 401(k). This is a wonderful opportunity for families to save even more money in a tax advantaged account.
Unified tax credit is still really high: This point should be very exciting for high-net-worth families. The federal unified estate and gift tax exemption for 2023 has been at an all-time high of $12.92 million, or $25.84 million per married couple. Anything beyond this amount of money is subject to federal, state and gift tax. These all-time high exemption amounts will sunset after December 31, 2025, with the laws currently scheduled to revert to the pre-Tax Cuts and Jobs Act levels of around $5 million (not including inflation). Families with a considerable level of wealth should consider utilizing gifting strategies prior to 2026 to take advantage of this window of opportunity to remove assets from their estate and avoid federal estate tax. A typical way to do that is through gifting assets to an irrevocable trust.
Golden age of being a business owner: In today’s world, with the benefits of globalization and transformative technology, a single individual can run a multimillion dollar a year business from their home. Gone are the days of needing to commute hours a day to expensive office space to meet with customers and conduct business. Now you can sell products or services online to customers from all over the world. You can seamlessly communicate with colleagues and clients via phone, e-mail, or Zoom. Documents can be signed electronically, and money can be exchanged effortlessly. Furthermore, a solo practitioner working from his basement can share his thoughts through written blogs, audio podcasts, or videos that can be posted on YouTube or many other websites. Anyone with a good idea and some motivation can have a voice and share it with the world. There is no better time to be a small business owner.
Family and friends: When sitting down at your Thanksgiving seudah, hopefully you are surrounded by some family or friends. At the end of the day, true wealth isn’t measured by the size of your portfolio, it’s measured by having people who love and care about you. These types of relationships bring true happiness and are always worth being thankful for.
Wishing all Jewish Press readers, a Happy Thanksgiving!
